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https://www.courtlistener.com/api/rest/v3/opinions/2373608/ | 492 F.Supp.2d 682 (2007)
UNITED STATES of America
v.
Martin SALINAS-ARMENDARIZ, Defendant.
No. EP-07-CR-048-PRM.
United States District Court, W.D. Texas, El Paso Division.
April 16, 2007.
*683 Rita Rodriguez, Federal Public Defender, El Paso, TX, for Defendant.
Kristal Melisa Wade, U.S. Attorney's Office, El Paso, TX, for United States of America.
MEMORANDUM OPINION REGARDING DEFENDANT'S OBJECTION TO EIGHT-LEVEL INCREASE FOR PRIOR CONVICTION
MARTINEZ, District Judge.
On this day, the Court considered Defendant Martin Salinas-Arrnendariz's objection to the Presentence Investigation Report's ("PSR") recommendation of an eight-level upward adjustment for his prior conviction for menacing in Colorado. The PSR characterizes Defendant's prior conviction as an "aggravated felony," qualifying Defendant for an eight-level increase pursuant to U.S.S.G. § 2L1.2(b)(1)(C). Defendant argues that the conviction is merely a felony, warranting only a four-level increase under U.S.S.G. § 2L1.2(b)(1)(D). The Court has considered the parties' briefing and the oral arguments presented to the Court at the sentencing hearings on April 2, 2007, and April 3, 2007. After due consideration, the Court agrees that Defendant's prior conviction for menacing does not constitute an aggravated felony. However, the Court determines that Defendant's prior conviction for second degree aggravated car theft in Colorado is an aggravated felony. Therefore, the Court is of the opinion that Defendant's objection should be denied for the reasons set forth below.
I. FACTUAL AND PROCEDURAL BACKGROUND
On January 10, 2007, Defendant was charged in a single-count indictment with illegal re-entry into the United States in violation of 8 U.S.C. § 1326. On the same day, the Government filed a notice of intent to seek an increased statutory penalty, pursuant to 8 U.S.C. § 1326(b)(1). On January 29, 2007, Defendant pled guilty to the indictment.
The PSR assigned Defendant a base offense level of eight, pursuant to U.S.S.G. § 2L1.2(a). The PSR recommended an eight-level upward adjustment, pursuant to § 2L1.2(b)(1)(C), on the grounds that Defendant had been convicted for the offense of menacing prior to his previous removal from the United States. Defendant previously pled guilty to the offense of menacing in Colorado in 1995, and was removed from the United States on November 21, 2006. Notably, Defendant also previously *684 pled guilty to the offense of second degree aggravated car theft in Colorado in 1397.
Defendant objected to the recommended increase on the grounds that his menacing conviction did not constitute an aggravated felony, thus making him eligible only for a four-level increase under § 2L1.2(b)(1)(D). The Government filed a written response contesting Defendant's argument. In the event that the Court agreed with Defendant regarding his menacing conviction, the Government raised the alternative possibility that Defendant's prior conviction for second degree aggravated car theft also constitutes an aggravated felony for purposes of the eight-level increase. At the sentencing hearing on April 3, 2007, the Court agreed with Defendant and held that the menacing conviction was not an aggravated felony. The Court overruled his objection, though, finding that his conviction for second degree aggravated car theft is an aggravated felony. The Court thus increased Defendant's sentence by eight levels. The Court now writes to more fully explain the grounds for its ruling.
II. DISCUSSION
A. The Offense of Menacing as an "Aggravated Felony"
The Court first considers whether Defendant's conviction for menacing constitutes an "aggravated felony." Defendant was convicted under Colorado Revised Statute § 18-3-206, which provides that:
A person commits the crime of menacing if, by any threat or physical action, he knowingly places or attempts to place another person in fear of imminent serious bodily injury. Menacing is a class 3 misdemeanor, but if committed by the use of a deadly weapon, it is a class 5 felony.
COLO.REV.STAT. § 18-3-206 (1995). Defendant's conviction was a class 5 felony, and thus involved the use of a deadly weapon.
The Sentencing Guidelines Manual defines the term "aggravated felony" by reference to 8 U.S.C. § 1101(a)(43). Pursuant to that section, "aggravated felony" includes "a crime of violence (as defined in section 16 of Title 18, but not including a purely political offense) for which the term of imprisonment [is] at least one year." 8 U.S.C. § 1101(a)(43)(F). Accordingly, a "crime of violence" for purposes of an eight-level increase is:
(a) an offense that has as an element the use, attempted use, or threatened use of physical force against the person or property of another, or
(b) any other offense that is a felony and that, by its nature, involves a substantial risk that physical force against the person or property of another may be used in the course of committing the offense.
18 U.S.C. § 16.
Defendant's menacing conviction does not satisfy the requirements of § 16(a), as the Colorado statute does not categorically require as an element proof of any use of physical force. The Government concedes as much, instead contending that the conviction is a crime of violence under § 16(b). While the Fifth Circuit has not assessed whether a conviction under Colorado's menacing statute constitutes a crime of violence, that court has specifically addressed § 16(b) and interpreted it as requiring more than simply an accidental or incidental use of force. Instead, the Fifth Circuit has held that § 16(b) requires a substantial risk that force will intentionally be used. United States v. Chapa-Garza, 243 F.3d 921, 926 (5th Cir.2001) (stating that § 16(b) "refers only to those offenses in which there is a substantial likelihood that the perpetrator will intentionally employ *685 physical force" (emphasis added)). The Supreme Court subsequently upheld this interpretation, holding that the requirement of "use" in § 16(b) "requires active employment" of force. Leocal v. Ashcroft, 543 U.S. 1, 9, 125 S.Ct. 377, 160 L.Ed.2d 271 (2004). The statute at issue here, however, requires only that Defendant "knowingly" placed or attempted to place a victim in fear of bodily injury. Such conduct does not, "by its nature, involve[] a substantial risk that physical force" will intentionally be used in the commission of the offense. 18 U.S.C. § 16(b).
The Government argues that the Court should consider that Defendant pled guilty to an amended information, which charged him with "by threat and physical action and by use of a deadly weapon, to wit: beer bottle, did unlawfully, feloniously and knowingly place and attempt to place Mario Munoz in fear of imminent serious bodily injury." The Government contends that by pleading to the amended count, Defendant has admitted that he used physical action in the commission of the offense. The Government appears to rely on the fact that the Colorado statute requires proof of a "threat or physical action," while the amended count charges that Defendant engaged in a "threat and physical action."
Even if the Court were to consider the amended count,[1] though, Defendant's offense conduct still does not satisfy the requirements of § 16(b). The amended information does not alter the requisite mental state of Defendant's conviction. Even under the amended count, Defendant was charged only with knowingly placing an individual in fear of bodily injury through physical action and the use of a deadly weapon. Defendant's menacing conviction thus does not by its nature present a substantial risk that physical force will be intentionally used, as required by § 16(b). Since Defendant's menacing conviction does not categorically rise to the level of a "crime of violence," it is not an aggravated felony. The Court therefore agrees with Defendant, and grants his objection in regards to his menacing conviction. The Court now turns to Defendant's prior conviction for aggravated car theft.
B. The Offense of Second Degree Aggravated Car Theft as an "Aggravated Felony"
Defendant was convicted under Colorado Revised Statute § 18-4-409(4), which provides in relevant part that:
A person commits aggravated motor vehicle theft in the second degree if he or she knowingly obtains or exercises control over the motor vehicle of another without authorization or by threat or deception. . . .
COLO.REV.STAT. § 18-4-409(4) (1997).
As discussed above, an individual has committed an aggravated felony for purposes of the Sentencing Guidelines if his prior conviction constitutes a crime of violence under 18 U.S.C. § 16(b). The Fifth Circuit has previously held that the Texas offense of unauthorized use of a motor vehicle is a crime of violence under § 16(b). United States v. Galvan-Rodriguez, 169 F.3d 217, 219 (5th Cir.1999). In Galvan-Rodriguez, the Fifth Circuit held that such conduct "`by its nature, involves a substantial risk that physical force against the . . . property of another may *686 be used in the course of committing the offense.'" Id. (quoting 18 U.S.C. § 16(b)). The court stated that "the unauthorized use of a vehicle . . . carries a substantial risk that the vehicle might be broken into, `stripped,' or vandalized, or that it might become involved in an accident, resulting not only in damage to the vehicle and other property, but in personal injuries to innocent victims as well." Id. The court went on to specifically address the possibility that a defendant could be convicted for unauthorized use of a vehicle when his conduct constitutes merely joyriding, but found that such conduct still fell within the scope of § 16(b). The court stated that:
It is true that, as argued by Galvan, the unauthorized use of a vehicle will not always result in physical force to persons or property, as, for example, when a child takes the family car "joyriding" without parental consent; however, there is a strong probability that the inexperienced or untrustworthy driver who has no pride of ownership in the vehicle will be involved in or will cause a traffic accident or expose the car to stripping or vandalism. In fact, when an illegal alien operates a vehicle without consent, a strong probability exists that the alien may try to evade the authorities by precipitating a high-speed car chase and thereby risking the lives of others, not to mention significant damage to the vehicle and other property. As we perceive these risks to be substantial, Galvan's offense qualifies as a crime of violence and thus warrants a 16 level sentence enhancement.
Id. at 219-20.
While the Fifth Circuit subsequently held that felony DWI is not a "crime of violence," it did so on the basis that the risk of physical force involved in felony DWI was a risk that force be used recklessly, rather than a risk that force intentionally be used in the commission of the offense. Chapa-Garza, 243 F.3d at 926-27. In Chapa-Garza, the Fifth Circuit reconciled its holding with Galvan-Rodriguez on the basis that the unauthorized use of a motor vehicle, unlike felony DWI, involves a risk of the intentional use of force. Id. The court stated that "it cannot be doubted that there is a substantial risk that physical force will be used against a vehicle in order to obtain the unauthorized access to it that is necessary for the commission of the offense of joy riding." Id. at 927-28.
Defendant attempts to distinguish Galvan-Rodriguez on the grounds that the Colorado statute under which he was convicted is broader than the Texas statute at issue in that case. Defendant notes that the Colorado statute provides that a conviction may be based on the use of a vehicle "without authorization," or alternatively it may be based on use in which the defendant "obtains or exercises control . . . by threat or deception." COLO.REV.STAT. § 18-4-409(4) (1997). Defendant contends that obtaining control over a vehicle by threat or deception does not inherently present a substantial risk that physical force will be used against a person or that physical force will be used against the vehicle in the defendant's gaining access. While that may be true, Defendant's reading of § 16(b) is selective. First, a crime of violence is an offense that involves a substantial risk that physical force may be used "against the person or property of another." 18 U.S.C. § 16(b) (emphasis added). Defendant's conviction is a crime of violence not because aggravated car theft involves a risk of the use of force against a person, but rather because of the risk that force will be used against property specifically, the car that Defendant used. Second, the force that may be used against the vehicle is not merely the force that a defendant may employ in gaining *687 access to the vehicle. Rather, as Galvan-Rodriguez makes clear, there is a substantial risk that the car will be damaged in an accident, constituting the use of physical force against the vehicle. Galvan-Rodriguez, 169 F.3d at 219. The Court sees no further reason to distinguish between an individual who obtains a car without authorization and an individual who obtains a car by means of trick or deceit. A substantial risk that force will be used against the car, as recognized in Galvan-Rodriguez, will result in either situation. Therefore, the Court determines that a conviction for second degree aggravated car theft in Colorado constitutes a "crime of violence," and thus an "aggravated felony."[2]
III. CONCLUSION
Based on the foregoing analysis, the Court is of the opinion that by being convicted for "knowingly obtain[ing] or exercis[ing] control over the motor vehicle of another without authorization or by threat or deception," COLO.REV.STAT. § 18-4-409(4) (1997), Defendant has been convicted of an offense that, "by its nature, involves a substantial risk that physical force against the . . . property of another may be used in the course of committing the offense," 18 U.S.C. § 16(b). Defendant's conviction for second degree aggravated car theft thus constitutes a "crime of violence" and an "aggravated felony," and the eight-level upward adjustment of § 2L1.2(b)(1)(C) was properly applied.
NOTES
[1] While the Court generally may consider only the statute of conviction when determining whether a prior conviction constitutes an "aggravated felony," the Court may in certain circumstances narrow a defendant's offense conduct by looking to the defendant's charging documents. United States v. Calderon-Pena, 383 F.3d 254, 258 (5th Cir.2004) (sentencing court may look to the indictment "for the limited purposes of determining which of a series of disjunctive elements a defendant's conviction satisfies").
[2] The Court thus need not consider the Government's additional argument that Defendant's conviction for second degree aggravated car theft constitutes an "aggravated felony" in that it is "a theft offense . . . for which the term of imprisonment [is] at least one year." 8 U.S.C. § 1101(a)(43)(G). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2326043/ | 25 F.Supp.2d 56 (1998)
Ernest NEWBY, Plaintiff,
v.
TOWN OF CROMWELL, Anthony Salvatore, Francesco DiMaio and Jane Doe, Defendants.
No. 3;96CV1077(WWE).
United States District Court, D. Connecticut.
October 19, 1998.
*57 Christopher P. DeMarco, Farver & DeMarco, Hamden, CT, for Plaintiff.
Stephen P. Fogerty, Thomas P. O'Dea, Jr., Halloran & Sage, Westport, CT, for Defendants.
RULING ON DEFENDANTS' MOTION FOR SUMMARY JUDGMENT
EGINTON, Senior District Judge.
Plaintiff, Ernest Newby, brings this civil rights action pursuant to 42 U.S.C. § 1983 alleging that Town of Cromwell police officers, Francesco DiMaio and Jane Doe (later determined to be Denise LeMontagne), deprived him of his constitutional rights to due process and to be free from unlawful arrest, excessive force and malicious prosecution. Plaintiff also claims that the Town of Cromwell is liable for these deprivations pursuant to the principles set forth in Monell v. Dep't. Of Social Servs., 436 U.S. 658, 98 S.Ct. 2018, 56 L.Ed.2d 611 (1978).
Pending is defendants' motion for summary judgment. Based on the following discussion, defendants' motion will be granted.
Background
After leaving work on the evening of June 14, 1994, at approximately 11:00 p.m., plaintiff went to Ashley's Cafe in Cromwell. Plaintiff stayed at Ashley's for approximately one hour and a half and drank one or two bottles of beer. Plaintiff thereafter left with two women and a gentleman and planned to follow the other gentleman and his female companion by car to the casino in Ledyard, Connecticut.
Shortly after leaving Ashley's Cafe in his car, plaintiff decided that he did not want to go to the casino and flashed his headlights to the gentleman in the car ahead. Both vehicles pulled over to the side of the road and plaintiff put his hazard lights on. Shortly after, plaintiff noticed a police car pull in behind him. Officer DiMaio walked up to plaintiff's driver side door and asked if there was a problem. Plaintiff responded that everything was alright and asked the officer if he wanted to see his license and registration. Officer DiMaio smelled the odor of an alcoholic beverage and asked plaintiff if he had been drinking. Plaintiff admitted to having a couple of beers at Ashley's Cafe. Officer DiMaio also noticed that plaintiff's eyes were glassy and red.
Officer DiMaio thereafter asked plaintiff to perform certain field sobriety tests such as reciting the alphabet and counting backward from 64 to 59. Based on the police report by Officer DiMaio, plaintiff skipped the letter Q and the number 59 during the tests. Plaintiff disputes this contention but acknowledges in his deposition testimony that he does not recall whether he skipped the letter Q and the number 59.
DiMaio then asked plaintiff to exit the vehicle to perform additional tests, including the horizontal gaze nystagmus, the walk-turn, and the one-leg stand. The parties dispute as to whether plaintiff performed these tests correctly.
Plaintiff was thereafter placed under arrest for driving while intoxicated in violation of Conn.Gen.Stat. § 14-227a. After being handcuffed, plaintiff was placed in Officer DiMaio's police vehicle and taken to the police station where he was processed and given two breathalyser tests. The results of both tests indicated that plaintiff's alcohol level was below the DWI limit of .10. The charge against plaintiff was later dropped by the State attorney's office.
Discussion
A motion for summary judgment will be granted where there is no genuine issue as to any material fact and it is clear that the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The burden is on the moving party to demonstrate the absence of any material factual issue genuinely in dispute. American Int'l Group, Inc. v. London American Int'l Corp., 664 F.2d 348, 351 (2d Cir.1981). In determining whether a genuine factual issue exists, the court must resolve all ambiguities and draw all reasonable inferences against the moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). "When a motion for summary judgment is made and supported ... an adverse party may not rest upon the *58 mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavits or as otherwise provided in [Rule 56], must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e).
Defendants argue that summary judgment is appropriate as to all of plaintiff's claims including his claims of false arrest, use of excessive force, violation of due process, and Town liability based upon Monell. Defendants submit evidence in support of their arguments. In response, plaintiff does not address defendants' arguments or evidence relating to the excessive force and Monell claims or the claims against Officer LeMontagne. Based upon defendants' arguments and evidence in support thereof and plaintiff's failure to identify any disputed material issue of fact, summary judgment will be granted as to these claims. Accordingly, plaintiff's claims of false arrest and lack of due process against Officer DiMaio remain.
As to these two claims, plaintiff's posits that he was falsely arrested because there was no probable cause to arrest him and that his due process was violated when he was falsely arrested. Defendants assert that they are entitled to summary judgment as to plaintiff's false arrest claim because probable cause to arrest plaintiff existed and Officer DiMaio is entitled to qualified immunity.
The court will address the issue of probable cause first. When an arrest is supported by probable cause, no action for an alleged violation of civil rights for false arrest can be maintained. O'Neill v. Town of Babylon, 986 F.2d 646, 649 (2d Cir.1993). A police officer has probable cause to arrest when he or she has sufficient facts to warrant a reasonable officer to hold an objectively reasonable belief that the suspect has committed, or is committing, an offense. This determination is based on the totality of the circumstances. Lee v. Sandberg, 136 F.3d 94, 100 (2d Cir.1997).
Based on the totality of circumstances in this case, probable cause to arrest plaintiff existed. First, plaintiff's car was pulled over to the side of the road at 1:00 a.m. on a Wednesday morning. Second, plaintiff smelled of alcohol and his eyes were glassy and red. Third, plaintiff admitted to DiMaio that he had been drinking beer that evening. Lastly, according to DiMaio's version of events, plaintiff skipped the letter Q and the number 59 during the initial field sobriety tests. Although plaintiff disputes this contention in his response to defendants' summary judgment motion and argues that he performed the tests correctly, he does not submit any evidence in support to create a genuine issue of material fact as to that issue. Rather, the following colloquy from plaintiff's deposition testimony demonstrates that plaintiff does not recall whether he skipped the letter Q or the number 59.
Q: When you recited the alphabet, do you recall whether or not you skipped the letter "Q" as you sit here today?
A: I can't recall that, no.
Q: So in the Defendants' Exhibit, which is the police report that you read, did you read that part where it said he says you skipped the letter Q?
A: Yes.
Q: Do you agree with that or disagree with it, or don't you recall?
A: I don't recall.
Q: And how about skipping the number 59. Do you know whether you did that?
A: I don't recall skipping it.
Q: Okay. Do you think that you did it correctly then or do you not remember?
A: I just don't remember.
Accordingly, there is no evidence supporting plaintiff's claims that he did not skip the letter Q or number 59 during the initial field sobriety tests. The undisputed evidence presented supports a finding of probable cause.
Plaintiff's false arrest claim also fails because Officer DiMaio is entitled to qualified immunity. Qualified immunity shields government officials performing discretionary functions from liability to the extent their "conduct does not violate clearly established statutory or constitutional rights of which a reasonable person would have known." Harlow v. Fitzgerald, 457 U.S. 800, 818, 102 S.Ct. 2727, 73 L.Ed.2d 396 (1982). The doctrine protects public officials from the risk of potentially ruinous monetary liability *59 which would deter qualified people from public service and safeguards the public interest in having government employees act with independence and without fear of consequences. Eng v. Coughlin, 858 F.2d 889, 895 (2d Cir.1988).
In the case of a claim of false arrest, a police officer is entitled to qualified immunity if (1) it was objectively reasonable for the officer to believe there was probable cause to make the arrest, or (2) reasonably competent police officers could disagree as to whether there was probable cause to arrest. Ricciuti v. N.Y.C. Transit Auth., 124 F.3d 123, 128 (2d Cir.1997). For the reasons set forth above, it was objectively reasonable for defendant DiMaio to believe that there was probable cause to arrest plaintiff.
Finally, plaintiff's due process violation claim must fail because this claim is rooted in his allegations of false arrest.
Conclusion
Based on the foregoing discussion, defendants' motion for summary judgment [#18] is GRANTED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2387674/ | 9 F. Supp. 2d 4 (1998)
Lynne G. KING, Plaintiff,
v.
GEORGETOWN UNIVERSITY HOSPITAL, Defendant.
No. 97-CV-2331 (SS).
United States District Court, District of Columbia.
June 16, 1998.
*5 Iris McCollum Green, Green & Foushee, Washington, DC, for Plaintiff.
William David Nussbaum, Emily M. Yinger, David Frederick Cutter, Hogan & Hartson, L.L.P., Washington, DC, for Defendant.
MEMORANDUM OPINION AND ORDER
SPORKIN, District Judge.
This matter comes before the Court on Defendant's Motion for Summary Judgment. Plaintiff filed her complaint on July 18, 1997 claiming that Defendant racially discriminated against her by altering her job responsibilities and transferring her former duties to a non-minority employee in violation of 42 U.S.C. § 1981 and D.C.Code § 1-2501 et seq. Plaintiff also claims punitive damages and alleges Defendant intentionally inflicted emotional distress.
Background
Plaintiff, a black female, holds a B.S. degree in Nursing and is a Board Certified Operating Room Nurse. In August 1995, she was hired by Georgetown University Medical Center's Director of Nursing, Jane Vosloh, as an Assistant Nurse Coordinator (ANC) for the General Operating Rooms. Her salary was approximately $56,000. As one of four ANC's in the Center's Department of Perioperative Services, Plaintiff's responsibilities included supervising seven suite attendants and two control desk clerks. Plaintiff claims that initially she had independent authority to coordinate staff absences, breaks, and operating room assignments but that this authority was later revoked by Ms. Vosloh.
In 1995, Ms. Vosloh became the Director of Perioperative Services at Defendant Hospital. Her previous duties as Nurse Coordinator were collapsed into her new position, and no new designated Nurse Coordinator was hired to replace her. In the summer of 1996, Vosloh decided to eliminate the Assistant Nurse Coordinator position, citing hospital-wide streamlining measures which included the elimination of middle-management positions such as ANC's. Additionally, Defendant stated that because there no longer was a Nurse Coordinator position, it made little sense to retain an Assistant Nurse Coordinator.
*6 As a result of the restructuring, Plaintiff was offered a choice of one of four Senior Nurse Specialist (SNS) positions. Each of the positions carried the same salary, grade, and benefits as the previous ANC position. In her new position, Plaintiff supervised seven to ten people, including six nurses. Plaintiff concedes that the nurses she oversaw as an SNS were higher level employees than the suite attendants she oversaw as an ANC. Following the restructuring, several of Plaintiff's former ministerial scheduling duties were performed by Senior Nurses (including Plaintiff) on a rotating basis. All Senior Nurse Specialists other than Plaintiff were white.
Ms. Vosloh left Georgetown University Hospital in March 1997. Shortly thereafter, several Senior Nurse Specialists resigned. In June 1997, Nancy Cressy, interim Nursing Coordinator, asked Scott Stone, a white male staff nurse, to assume sole responsibility for ministerial scheduling duties, such as assigning lunch breaks and overtime. In his affidavit, Mr. Stone stated that he was not responsible for scheduling cases. Mr. Stone accepted this position, which carried an annual salary of approximately $45,000. Approximately one year after Mr. Stone's appointment, Plaintiff resigned from Georgetown University Hospital.
Summary Judgment Standards
Pursuant to Federal Rule of Civil Procedure 56(c), summary judgment "shall be rendered forthwith 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." Mere allegations or denials of the adverse party's pleadings are insufficient to prevent summary judgment. The party adverse to summary judgment must "set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e).
The Supreme Court laid out the standards for issuance of summary judgment in Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). In Celotex, the Court recognized the need for summary judgment motions to the fair and efficient functioning of the justice system. The Court stated that "summary judgment is ... not ... a disfavored procedural shortcut, but ... an integral part of the Federal Rules as a whole." Id. at 327. When considering a motion for summary judgment, all reasonable inferences must be drawn in favor of the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S. Ct. 2505, 2513-14, 91 L. Ed. 2d 202 (1986). However, the non-moving party can only defeat a motion for summary judgment by responding with some factual showing to create a genuine issue of material fact. See Harding v. Gray, 9 F.3d 150, 154 (D.C.Cir.1993).
Analysis
Summarizing the relevant case law, this Court finds that Plaintiff must establish four facts in order to establish a prima facie case of racial discrimination: 1) that she belongs to a racial minority, 2) that she was qualified for the job, 3) that she suffered an adverse employment action by failing to obtain a position, being discharged or demoted from a position, or otherwise unfairly treated in a material way in a workplace matter, and 4) that a similarly-situated employee who does not belong to a protected group was given preferential treatment with respect to the employment action. Plaintiffs claim clearly survives the first two criteria: she is black, and her qualifications for the job are unquestioned. At issue is whether the Plaintiff has adequately shown that she suffered an adverse employment action when she was transferred from the ANC position to the SNS position and whether a similarly-situated non-minority employee was assigned Plaintiffs prior duties.
In order to make out a prima facie case of discrimination, Plaintiff must show that she suffered adverse employment action. See Benn v. Unisys Corp., 176 F.R.D. 2, 9 (D.D.C.1997). Plaintiff admits that although her responsibilities were altered, her salary, benefits, and job grade remained the same. While Plaintiff contends that her scheduling duties were transferred to another employee, she does not refute Defendant's argument that in fact her job responsibilities were enlarged because as an SNS, Plaintiff *7 had oversight over higher-level employees. Even if this Court were to accept Plaintiffs claims that her responsibilities were diminished, it is unclear that this alone constitutes adverse employment action. Plaintiff alleges that the job reassignment diminished her chances of becoming the Nursing Coordinator. Without further corroborating evidence, the unsubstantiated allegation that Plaintiffs reassignment might have cost her future salary increases is too speculative to constitute a cognizable adverse employment action.
Plaintiff also fails to show that a similarly situated non-minority employee was given her position. See Slaughter v. Howard University, 971 F. Supp. 613, 614 (D.D.C. 1997) (holding that a prima facie case of discrimination requires that a "similarly situated" employee be identified as a comparator). Defendant argues that no "similarly situated" employee was identified by Plaintiff, and thus she cannot meet her prima facie burdens. In her reply to Defendant's Motion for Summary Judgment, Plaintiff fails to adequately respond to this argument. The fact that Plaintiffs responsibilities were altered and that a white male nurse took over some of her former ministerial duties such as scheduling lunch breaks and overtime does not mean that he was "similarly situated." The male nurse never assumed the title of Assistant Nurse Coordinator, nor did he assume her supervisory duties. At most, the nurse took over Plaintiffs ministerial scheduling duties, such as assigning breaks and lunch schedules. Because uncontradicted testimony indicates that the white male nurse's salary and rank were significantly lower than Plaintiffs, this Court does not find Plaintiff and he to have been "similarly situated." This Court therefore finds that Plaintiff fails to establish a prima facie case of discrimination.
However, even if this Court were to find that Plaintiff had made out a prima facie case, Defendant had legitimate nondiscriminatory reasons for altering Plaintiff's job responsibilities. Plaintiffs transfer was part of a hospital-wide plan designed to promote efficiency and improve patient care. Absent a "demonstrably discriminatory motive," a court may not "second-guess an employer's personnel decision." Fischbach v. District of Columbia Dep't of Corrections, 86 F.3d 1180 (D.C.Cir.1996), citing Milton v. Weinberger, 696 F.2d 94, 100 (D.C.Cir.1982). Moreover, Plaintiff's claim that Ms. Volsoh treated her in a discriminatory fashion is undermined by the fact that it was Ms. Volsoh who originally hired her. See Birkbeck v. Marvel Lighting Corp., 30 F.3d 507, 513 (4th Cir.), cert. denied, 513 U.S. 1058, 115 S. Ct. 666, 130 L. Ed. 2d 600 (1994) (holding that "employers who knowingly hire workers within a protected group seldom will be credible targets for charges of a pretextual firing.")
Plaintiff fails to show that Defendant acted with discriminatory intent. Plaintiff's allegation that one of Defendant's nurses called her a "witch," while caustic, does not rise to the level of prohibited racial discrimination. Moreover, the supporting affidavit of Mr. Cornelius Williams, Certified Surgical Technician, submitted by Plaintiff merely alleges that the decision to alter her job responsibilities was made by a group of white nurses but fails to dispute the fact that Defendant had a valid reason for the change.
Moving to the tort issue, this Court finds that the Plaintiffs claim of intentional infliction of emotional distress also must fail. The lack of a prima facie case of discrimination seriously undermines the validity of the tort claim. While Defendant may have treated the transfer of Plaintiff from ANC to SNS somewhat clumsily, nothing in the record indicates the requisite outrageous conduct or severe emotional distress required to survive summary judgment. For the same reasons, there are no grounds justifying punitive damages.
This is another example where the nation's anti-discrimination laws are being misused. Here a U.S. district court is asked to involve itself in a minor internal employee assignment decision. The Plaintiff can show no monetary loss. A simple internal restructuring in the workplace is the basis of Plaintiff's claim. Certainly management must have some freedom from a federal lawsuit in implementing a reorganization plan. The mislaid basis of her cause of action is demonstrated by Plaintiff's counsel's response to *8 the Court question as to the extent of Plaintiff's damage. The colloquy between the Court and Plaintiff's attorney went as follows:
THE COURT: Now, what would you want? You want her reinstated?
COUNSEL: She doesn't want reinstatement. She wants money damages, Your Honor.
THE COURT: Well, what kind of damages did she have?
COUNSEL: Well, she lost, in her view, prestige, job responsibility and authority, ...
. . .
THE COURT: Well, you say she has damages. What are her damages?
COUNSEL: She claims she lost prestige
THE COURT: I know. But what's the dollar value on prestige? How much money can give for I mean, I'm just trying to find out how much money I can give her for her loss of prestige?
COUNSEL: She'd like a million dollars, but, of course, she'd like
THE COURT: A million dollars for loss of prestige?
It would be hoped that at some point Congress would review the law in this area and make the necessary adjustments to eliminate these meritless, lottery-type cases.
Accordingly, it is
ORDERED that Defendant's Motion is GRANTED and the case is DISMISSED with prejudice. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2387711/ | 517 F. Supp. 1115 (1981)
UNITED STATES of America, Plaintiff,
v.
0.16 OF AN ACRE OF LAND, MORE OR LESS, SITUATED IN the COUNTY OF SUFFOLK, STATE OF NEW YORK, and Frederick Rose, State of New York, County of Suffolk, Suffolk County Real Property Tax Services, Thurman B. Givan and Crispin Cooke, d/b/a North Shore Medical Group, William Peio, Smithhaven Holding Corp., and Unknown Others, Defendants.
No. 79 C 1755.
United States District Court, E. D. New York.
July 6, 1981.
*1116 *1117 Edward R. Korman, U. S. Atty., Brooklyn, N. Y. (Laura R. Handman, Asst. U. S. Atty., Brooklyn, N. Y., of counsel), for plaintiff.
Flower & Plotka, Bay Shore, N. Y. (Bonita G. Lesnik, Islip, N. Y., of counsel), for defendants.
AMENDED MEMORANDUM AND ORDER
NICKERSON, District Judge.
On July 9, 1979, plaintiff United States of America brought this action to condemn a certain parcel of land. Pursuant to the Declaration of Taking Act, 40 U.S.C. § 258a, a declaration of taking was filed, an estimated just compensation of $20,000 was deposited with the court, and title vested in the United States. By order of this court dated July 9, 1979 the United States was awarded immediate possession, and just compensation to those entitled to it was ordered to be ascertained and awarded in accordance with established procedures.
Defendant Frederick Rose, who had received notice of the taking, filed an answer raising multiple objections to the condemnation. The United States moves to strike those objections and for summary judgment.
The following facts are undisputed. In May of 1977, Rose bought a plot of land located on the westernmost part of Davis Park in the Town of Brookhaven, Suffolk County, New York. Davis Park is within the boundaries of the Fire Island National Seashore. On the plot's northern border is Great South Bay and on the west is undeveloped federal land. The plot contained a house built prior to the creation of the National Seashore.
In 1977 Rose applied to the Town Zoning Board for a variance from the minimum plot area and yard setback requirements of the applicable zoning ordinances and for a building permit. He proposed to subdivide the plot and construct an additional residence on a portion fronting the Bay. The Superintendent of the Seashore sent a letter on August 11, 1977, to the Board making objections to the granting of the variance. Nevertheless, on February 15, 1978 the variance and building permit were granted. In a July 6, 1978 letter the Superintendent told Rose of the National Park Service's continuing objections.
In April 1979 Rose commenced construction of a residence on the subdivided parcel *1118 of 0.16 acres. Pursuant to authority from Congress the Secretary of the Interior instituted this proceeding to condemn the subdivided parcel. The remainder of the original parcel, on which the original house stands, remains in Rose's possession.
Rose's answer asserts eleven objections to the taking. These allege, with considerable duplication, that the taking 1) is not authorized by the Fire Island National Seashore Act, 16 U.S.C. § 459e et seq., 2) was arbitrary and capricious and in bad faith, 3) violated the National Environmental Policy Act, 42 U.S.C. § 4321 et seq., and 4) violated defendant's right to due process under the Fifth Amendment. Defendant thereafter also claimed that the taking violated the Tenth Amendment. These allegations will be discussed seriatim.
I. Statutory Authority
On September 11, 1964 Congress passed the Fire Island National Seashore Act, 16 U.S.C. § 459e et seq., establishing the Fire Island National Seashore. The Act recites that its purpose is to conserve and preserve, "for the use of future generations certain relatively unspoiled and undeveloped beaches, dunes, and other natural features" on and near that island. 16 U.S.C. § 459e(a). The Act further provides that:
The Secretary is authorized to acquire, and it is the intent of Congress that he shall acquire as appropriated funds become available for the purpose ... the lands, waters, and other property, and improvements thereon and any interest therein, within the boundaries of the seashore ....
16 U.S.C. § 459e-1(a).
The only limits on the Secretary's authority to carry out this mandate by condemning private property within the boundaries of the National Seashore are, so far as relevant here, as follows:
With one exception [not pertinent here] the Secretary shall not acquire any privately owned improved property or interests therein within the boundaries of the seashore or any property or interests therein within the communities delineated on the boundary map [of which the Davis Park is one] ..., except beach or waters and adjoining land within such communities which the Secretary determines are needed for public access to the beach, without the consent of the owners so long as the appropriate local zoning agency shall have in force and applicable to such property a duly adopted, valid, zoning ordinance that is satisfactory to the Secretary.
16 U.S.C. § 459e-1(e). This suspension of the authority of the Secretary to acquire by condemnation ceases automatically under the circumstances set forth in 16 U.S.C. § 459e-2(e), which provides in pertinent part:
If any improved property, with respect to which the Secretary's authority to acquire by condemnation has been suspended according to the provisions of ... this title, is made the subject of a variance under, or becomes for any reason an exception to, such zoning ordinance, or is subject to any variance, exception, or use that fails to conform to any applicable standard contained in regulations of the Secretary issued pursuant to this section and in effect at the time of the passage of such ordinance, the suspension of the Secretary's authority to acquire such improved property by condemnation shall automatically cease.
While the Town of Brookhaven never submitted its zoning plan to the Secretary for approval, the applicable regulations provide that, "[t]hose provisions relating to acreage, frontage, and setback requirements contained in zoning ordinances of the town [] of Brookhaven ... are hereby incorporated as the acreage, frontage, and setback standards for developments with the Seashore ...." 36 C.F.R. § 28.6(a)(5).
Rose's argument is ingenious if not persuasive. It goes as follows. Section 459e-1(e) prohibits the acquisition without an owner's consent (where a zoning ordinance "satisfactory" to the Secretary is in effect) of "improved property" anywhere within the national seashore and of "any property," improved or unimproved, within the *1119 "communities" delineated on a certain boundary map, including Davis Park. By incorporating the Brookhaven zoning ordinances in the federal standards the Secretary designated those ordinances as "satisfactory" to him. The section providing that the prohibition against condemnation shall cease when a variance from a zoning ordinance is granted, section 459e-2(e), refers not to "any property" but to "any improved property" over which the Secretary's power to acquire has been suspended. Therefore, says Rose, while the Secretary can condemn in Davis Park a parcel subject to a variance with a residence on it, he may not condemn a vacant or "unimproved" parcel in that community.
Rose does not suggest any plausible reason why Congress should choose to bring about such an incongruous result, according to unimproved plots in the designated community greater protection against condemnation than that given to occupied parcels. It would seem that any rational plan would hardly favor the owner of vacant land over the established homeowner. Indeed, the emphasis in the Senate Report and the report by the Secretary of the Interior in support of the legislation was on the protection of the owners of improved property not only against condemnation but against "any undesirable use or development." 88th Cong. 2d Sess., reprinted in [1964] U.S. Code Cong. and Ad. News 3710 ff.
The scheme appears to have been to treat for purposes of protection against condemnation all the properties in the delineated (and presumably populous) "communities" as equivalent to the improved properties elsewhere in the national seashore. The Senate Report leaves no doubt on this score. "The bill further provides that private property, both improved and unimproved, may be retained by its owner, within certain designated communities, as long as it is maintained in accordance with approved local zoning requirements ...." (Emphasis supplied). S.Rep. No. 1300, 88th Cong.2d Sess., reprinted in [1964] U.S. Code Cong. and Ad. News 3710. It would make no sense to permit the Secretary to protect the seashore against local variances only when the property is improved and leave to local authorities in the designated communities the uninhibited decision to allow by variance massive or polluting structures on vacant land. Thus Section 459e-2(e) should be read to bring an end to the suspension of the power of the Secretary to condemn whenever and wherever local variances are granted. For purposes of Section 459e-2(e) therefore the words "improved property" may fairly be read to include any property within the designated communities.
This may seem literally inconsistent with Section 459e-1(f) defining improved property as any building the construction of which was begun before July 1, 1963, and such amount of the land (not exceeding two acres for a residence) as the Secretary considers "reasonably necessary to the use of the building." But the court is not required to read the statute so literally as to frustrate its manifest purpose. Indeed, the very definition of "improved property" in Section 459e-1(f) emphasizes how fatuous would be the result if Rose's interpretation were accepted. The Secretary would have no means of protecting against wholesale variances for property vacant before July 1, 1963 in the delineated communities except by withdrawing his approval of all zoning ordinances. That would subject every householder in those communities to the possibility of condemnation.
In any event the 0.16 acre subdivided parcel can be treated by the Secretary as "improved property" as that term is defined in Section 459e-1(f). It was part of a larger parcel of less than two acres on which a residence was built before July 1, 1973, and the Secretary can consider the entire original parcel as "reasonably necessary to the use" of the original building.
The Secretary had the power under the Act to condemn.
Two other objections relating to the statutory authority are without merit. Rose alleged as his eleventh objection that the taking had not been "duly approved" by the Secretary. He now concedes that the action was commenced at the Secretary's behest. *1120 In addition, whatever right Rose may have to reserve a lesser estate in "improved property" under 16 U.S.C. § 459e-1(e)(1) through (3) does not afford him, as he supposes, a defense to the taking but merely permits an election as to compensation.
II. The Exercise of Discretion
If a statute authorizes a condemnation, "the scope of judicial review is decidedly limited ...." United States v. New York, 160 F.2d 479, 481 (2d Cir.), cert. denied, 331 U.S. 832, 67 S. Ct. 1512, 91 L. Ed. 1846 (1947). The only subject for inquiry is whether the taking was for a congressionally authorized public purpose. Berman v. Parker, 348 U.S. 26, 32-33, 75 S. Ct. 98, 102, 99 L. Ed. 27 (1955); Catlin v. United States, 324 U.S. 229, 65 S. Ct. 631, 89 L. Ed. 911 (1945); United States v. 255.25 Acres of Land, 553 F.2d 571, 572 n.2 (8th Cir. 1977); United States v. 416.81 Acres of Land, 514 F.2d 627 (7th Cir. 1975). A court may not determine whether the taking of a particular parcel is necessary to effectuate that public purpose. Berman v. Parker, supra, 348 U.S. at 32-33, 75 S. Ct. at 102); United States v. Carmack, 329 U.S. 230, 243, 67 S. Ct. 252, 258, 91 L. Ed. 209 (1946) (selection of a particular site for a post office "constituted an administrative and legislative decision not subject to judicial review on its merits"); United States v. New York, supra; Merjanian v. United States, No. 80 C 7122 (S.D.N.Y. February 10, 1981).
Rose argues that the taking of his parcel was not for the congressionally authorized "purpose of conserving and preserving ... relatively unspoiled and undeveloped beaches, dunes, and other natural features," 16 U.S.C. § 459e(a). He says that a taking of his lot, bordering a developed portion of the beachfront, will not increase or protect the "relatively unspoiled" beachfront, and he requests a hearing to show this.
This contention amounts to no more than an assertion that the taking was not necessary or effective to achieve the authorized purpose. Perhaps if the acquisition of Rose's parcel bore no discernable relation to protecting the beaches, dunes and other natural features of the Seashore a court could intervene. United States v. 2,606.84 Acres, 432 F.2d 1286 (5th Cir. 1970), cert. denied, 402 U.S. 916, 91 S. Ct. 1368, 28 L. Ed. 2d 658 (1971). But the parcel is on the border of unoccupied federal land, and this court could hardly conclude, under any set of facts which Rose might show, that a threat of additional construction on that border is unrelated to the preservation of Fire Island's unspoiled areas.
Rose contends that the taking would benefit the private owners of other plots more than the public. Even if this were so, collateral benefits flowing to private parties do not invalidate the condemnation. United States v. 416.81 Acres, 514 F.2d 627 (7th Cir. 1975).
Defendant also says that the condemnation was arbitrary and capricious and in bad faith. It has not been determined in this circuit whether this is a defense to a taking. United States v. Carmack, 329 U.S. 230, 243, 67 S. Ct. 252, 258, 91 L. Ed. 209 (1946) (reserving the question); United States v. New York, 160 F.2d 479 (2d Cir.), cert. denied, 331 U.S. 832, 67 S. Ct. 1512, 91 L. Ed. 1846 (1947) (same). But those cases outside this circuit which have held that the right to condemnation may be denied because of egregious bad faith or arbitrary and capricious government action have required specific and detailed allegations. Compare United States v. 416.81 Acres, 514 F.2d 627 (7th Cir. 1975) with United States v. 58.16 Acres, 478 F.2d 1055 (7th Cir. 1973). Rose says he cannot specify the bad faith in the absence of discovery in the case. But before the court will permit a litigation over the right to condemn to proceed, the objectant must set forth some facts from which improper motives may be inferred.
Rose alleges only that his land is within the developed community of Davis Park, that other plots of a size and location similar to his contain residences, and that the applicable General Management Plan and Environmental Impact Statement for the Fire Island National Seashore indicate that *1121 little purpose would be served by the piecemeal acquisition of scattered lots in developed areas. This is no indication of bad faith. As the map before the court shows, Rose's parcel is the only one both on the seashore and on the border of the federal lands. Thus the location of this parcel provides a rational reason for acquiring it, and indeed for giving it different treatment from that given other parcels within the community.
III. National Environmental Policy Act
The National Environmental Policy Act requires that federal agencies file an environmental impact statement prior to any "major Federal actions significantly affecting the quality of the human environment ...." 42 U.S.C. § 4332(2)(C). On November 17, 1977 a final Environmental Impact Statement and a General Management Plan for the Fire Island National Seashore were filed. Rose contends that these documents fail to deal adequately with the possible adverse environmental effects on developed communities of the expansion of federal land holdings within those communities, and that until that issue is adequately addressed, condemnations such as this one cannot proceed.
The question whether an alleged failure to satisfy the requirements of the National Environmental Policy Act states a defense to a condemnation action has not been decided in this circuit. Other courts are divided on the point. Compare United States v. 255.25 Acres, 553 F.2d 571, 572 n.2 (8th Cir. 1977) (defense "has no merit") with United States v. 18.2 Acres, 442 F. Supp. 800 (E.D. Cal.1977) (permitting the defense). Even if the defense were available to Rose and he had alleged sufficient environmental injury to have standing to press the contention, see Monarch Chemical Works, Inc. v. Exon, 452 F. Supp. 493, 498-99 (D.Neb.1978), aff'd, 604 F.2d 1083 (8th Cir. 1979) (environmental injury must be alleged to raise NEPA defense); United States v. 18.2 Acres, supra, 442 F.Supp. at 805-06 (same), he would not succeed in halting the condemnation.
The statute in § 4332 requires an environmental impact statement only when the federal government undertakes "major" actions. An action must be "major" in light of both its absolute quantitative adverse effects, including the cumulative harm resulting from its contribution to existing conditions, and the excess of those negative effects over those caused by existing uses. The identification of which actions are "major" is the responsibility of the federal agency concerned. Cross-Sound Ferry Services, Inc. v. United States, 573 F.2d 725, 731 (2d Cir. 1978).
The condemnation of Rose's 0.16 acre parcel does not itself constitute a "major" action. Indeed, Rose does not urge that a separate statement is required each time a particular parcel is condemned. Rather, he alleges that this taking is part of a larger federal practice and policy of acquisition of properties on a significant scale within the existing communities.
However, Rose has alleged no facts tending to show that any such practice and policy of acquisition is currently in effect. In fact, the Environmental Impact Statement shows that such a program was considered and rejected. Conceivably it may be instituted in the future, or the cumulative effect of continued scattered acquisitions may at some point become "major". But the possibility that an action might occur in the future does not give rise to any present requirement that any supplement to the environmental impact statement be filed. Mobil Oil Corp. v. F.T.C., 562 F.2d 170, 173 (2d Cir. 1977).
IV. Constitutional Claims
In the answer Rose asserts that the summary condemnation of his land constituted a taking of his property without a hearing in violation of his right to due process. However, the statutory procedure under which title to the land vested in the United States upon filing a declaration of taking and payment into court of estimated compensation, 40 U.S.C. § 258a, has been repeatedly held to comport with due process. See, e. g., Travis v. United States, 287 *1122 F.2d 916, 919, 152 Ct. Cl. 739, cert. denied, 368 U.S. 824, 82 S. Ct. 42, 7 L. Ed. 2d 28 (1961).
Rose also claims that the Fire Island National Seashore Act deprives him of due process by vesting in the Secretary excessive discretion to decide whether local zoning ordinances are "satisfactory", 16 U.S.C. § 459e-1(e), and to determine what acreage adjacent to a residence is "reasonably necessary to the use of the building" and will thus be considered "improved" property for purposes of this Act. 16 U.S.C. § 459e-1(f). These claims are plainly insufficient.
The Secretary's discretion to determine whether zoning ordinances are "satisfactory" is limited both by the clearly expressed purposes of the Act and the guidelines embodied in it. 16 U.S.C. § 459e-1. The determination of the amount of land "reasonably necessary" for the use of a building is also limited by statute. 16 U.S.C. § 459e-1(f). Any possible ambiguity in these terms is cured by the regulations which the Secretary has promulgated. 36 C.F.R. Part 28.
In the light of the statutory standards, the vesting of discretion in the Secretary does not constitute an unconstitutional delegation of Congressional authority. Even "very broad" congressional delegations of discretionary authority have been sustained. Citizens Committee for the Hudson Valley v. Volpe, 425 F.2d 97, 106-07 (2d Cir.), cert. denied, 400 U.S. 949, 91 S. Ct. 237, 27 L. Ed. 2d 256 (1970).
Finally, Rose argues that the Secretary's use of the condemnation power to override the Brookhaven Zoning Board's decision to grant a variance constitutes a violation of the Tenth Amendment.
This defense is insufficient. National League of Cities v. Usery, 426 U.S. 833, 96 S. Ct. 2465, 49 L. Ed. 2d 245 (1976), is not in point. That case said that federal legislation and regulation must not trench upon certain integral government functions of the individual states. But as the Supreme Court pointed out in Hodel v. Virginia Surface Mining and Reclamation Association, Inc., ___ U.S. ___, ___, 101 S. Ct. 2352, 2366, 69 L. Ed. 2d 1 (1981), nothing in the Usery decision "suggests that the Tenth Amendment shields the States from preemptive federal regulation of private activities." (Emphasis in original). As Justice Blackmun stated in his concurrence in the Usery case, that decision "does not outlaw federal power in areas such as environmental protection, where the federal interest is demonstrably greater and where state facility compliance with imposed federal standards would be essential." 426 U.S. at 856, 96 S.Ct. at 2476.
Plaintiff's motion to strike the defenses and for summary judgment is granted. So ordered. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2387744/ | 9 F. Supp. 2d 880 (1998)
Phillip R. LANGSDON, et al., Plaintiffs,
v.
Riley DARNELL, et al., Defendants.
RURAL WEST TENNESSEE AFRICAN AMERICAN AFFAIRS COUNCIL, INC., et al., Plaintiffs,
v.
Don SUNDQUIST, Governor of the State of Tennessee, et al., Defendants.
Nos. 92-2415-TUV, 92-2407-TUV.
United States District Court, W.D. Tennessee, Western Division.
July 9, 1998.
*881 Bruce S. Kramer, Borod & Kramer, Memphis, TN, Laughlin McDonald, ACLU Foundation, Atlanta, GA, Richard Dinkins, Williams & Dinkins, Nashville, TN, Keenan R. Keller, Davis, Polk & Wardwell, New York City, for plaintiffs in No. 92-2407-TUV.
Michael W. Catalano, Associate Solicitor General, Office of Attorney General, Nashville, TN, for defendants in Nos. 92-2407-TUV, 92-2415-TUV.
John L. Ryder, Apperson, Crump, Memphis, TN, J. Robert Walker, III, Baker, Donelson, Bearman & Caldwell PC, Memphis, TN, Maclin P. Davis, Baker, Donelson, Bearman & Caldwell PC, Nashville, TN, for plaintiffs in No. 92-2415-TUV.
ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
TURNER, District Judge.
Plaintiffs in this consolidated civil rights action assert a claim of vote dilution pursuant to § 2 of the Voting Rights Act, 42 U.S.C. § 1973.[1] Specifically, the Rural West Tennessee African American Affairs Council and certain registered voters in Tennessee (the "Rural West plaintiffs"), along with Phillip R. Langsdon and other registered voters in Tennessee (the "Langsdon plaintiffs") charge that Tennessee's 1994 reapportionment of its ninety-nine state House districts unlawfully dilutes African-American voting strength in rural west Tennessee, a geographic area that includes Madison, Haywood, Hardeman, Tipton, Fayette, and Lauderdale Counties. On May 6, 1996, the Rural West plaintiffs filed a motion for summary judgment on their voting rights claim. In response to this motion, on June 19, 1996, the defendants filed cross-motions for summary judgment against both the Rural West plaintiffs and the Langsdon plaintiffs. Although the Langsdon plaintiffs have not moved for summary judgment on their voting rights claim, they have filed memoranda supporting the Rural West plaintiffs' motion and opposing the defendants' motions. For the reasons that follow, the court denies plaintiffs' and defendants' cross-motions for summary judgment.
I. Background
In April of 1992, the Tennessee General Assembly passed Chapter 836 of the Acts of 1992 ("Chapter 836"), which reapportioned the state's single-member House of Representatives and Senate districts. Prior to the 1992 primaries, the Rural West and Langsdon plaintiffs filed lawsuits challenging Chapter 836's House and Senate reapportionment plans on the grounds that they violated the Equal Protection Clause of the Fourteenth Amendment and § 2 of the Voting Rights Act. On September 15, 1993, a three-judge panel of this court held that Chapter 836's House districting scheme was unconstitutional because it violated the "one person, one vote doctrine under the Equal Protection Clause." Rural West Tennessee African-American *882 Affairs Council v. McWherter, 836 F. Supp. 447, 452 (W.D.Tenn.1993), aff'd sub nom., Millsaps v. Langsdon, 510 U.S. 1160, 114 S. Ct. 1183, 127 L. Ed. 2d 534 (1994).
In November of 1993, the same three-judge panel ruled that Tennessee's "1992 Senate reapportionment plan violate[d] § 2 of the Voting Rights Act by affording black voters in west Tennessee less opportunity than other members of the electorate to participate in the political process and to elect representatives of their choice." Rural West Tennessee African-American Affairs Council, Inc. v. McWherter, 836 F. Supp. 453, 466 (W.D.Tenn.1993) ("Rural West I"). The Supreme Court vacated and remanded the court's Rural West I decision, 512 U.S. 1248, 114 S. Ct. 2775, 129 L. Ed. 2d 888 (1994), for further consideration in light of Johnson v. De Grandy, 512 U.S. 997, 114 S. Ct. 2647, 129 L. Ed. 2d 775 (1994). On remand this court reversed its decision in Rural West I and held that the "1992 [Senate] Plan conform[ed] to the Voting Rights Act." Rural West Tennessee African-American Affairs Council, Inc. v. McWherter, 877 F. Supp. 1096, 1098 (W.D.Tenn.1995) ("Rural West II"), aff'd sub nom., Rural West Tennessee African-American Affairs Council, Inc. v. Sundquist, 516 U.S. 801, 116 S. Ct. 42, 133 L. Ed. 2d 9 (1995).
While the Langsdon and Rural West I appeals were pending, the Tennessee General Assembly passed Chapter 536 of the Public Acts of 1994 ("Chapter 536"), which provides a three-part reapportionment plan for Tennessee's House of Representatives, consisting of Plan A and alternative Plans B and C.[2] Plan A creates 12 majority-African-American House districts, but places none in the six county area that plaintiffs describe as rural west Tennessee. Under the terms of Chapter 536, Plan B, which creates 13 majority-African-American House districts, including one in rural west Tennessee, will take effect if this court finds that Plan A unlawfully dilutes minority voting strength.
On January 23, 1995, this court issued an order validating Chapter 536's Plan A after finding that it accorded with the one person, one vote requirement at issue in the prior Langsdon decision. This court further ordered that it would delay further consideration of Chapter 536's House plan until the Supreme Court ruled on appeals pending in the Senate case (Rural West I and Rural West II).
After the Supreme Court affirmed Rural West II, on January 25, 1996, the Rural West plaintiffs filed a second amended complaint challenging Plan A on the sole ground that it violates § 2 of the Voting Rights Act by diluting the voting power of blacks in Tennessee, including west Tennessee and rural west Tennessee.[3] Contending that Rural West I and Rural West II conclusively decided the facts necessary to prove that Plan A dilutes minority voting strength in rural west Tennessee, on May 6, 1996, the Rural West plaintiffs filed a motion for summary judgment on their § 2 dilution claim. In response, defendants filed cross-motions for summary judgment, similarly based on the court's prior findings, and specifically contend that: (1) Shelby County should be considered when the court engages in proportionality[4] analysis and (2) once Shelby County is included in the court's frame of reference, the number of majority-African-American districts is substantially proportional to the black voting age population's share of the total population in the relevant seven-county area.
On March 13, 1997, this court ordered the plaintiffs to advise the court whether their voting rights challenge included Shelby County. The court's March 13th order further *883 provided that if the Rural West plaintiffs were not challenging a seven-county area that included Shelby County, the defendants' motion for summary judgment would be moot and denied accordingly. On March 21, 1997, the Rural West plaintiffs responded to the court's March 13th order by advising that "their Motion for Summary Judgment, as well as their Second Amended Complaint are limited to a claim of vote dilution in the six-county region of Tennessee including, Fayette, Hardeman, Haywood, Lauderdale, Madison, and Tipton Counties." The black voting age population of this six-county area is 31.01%.[5] Of the five House districts that include this six-county area, none is majority-black.[6]
II. Summary Judgment Standard
The moving party is entitled to summary judgment where there is no genuine issue of material fact and the party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). When considering a motion for summary judgment, the court's function is not to weigh the evidence or judge its truth; rather, the court must determine whether there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 254, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). The substantive law governing the case will determine what issues of fact are material. Street v. J.C. Bradford & Co., 886 F.2d 1472, 1479 (6th Cir.1989).
A summary judgment movant "bears the burden of clearly and convincingly establishing the nonexistence of any genuine issue of material fact and the evidence as well as all inferences drawn therefrom must be read in a light most favorable to the party opposing the motion." Kochins v. Linden-Alimak, Inc., 799 F.2d 1128, 1133 (6th Cir.1986). Once met, the burden shifts to the nonmoving party to set forth specific facts showing a genuine issue of triable fact. Fed. R.Civ.P. 56(e). To meet this burden, the non-movant must present sufficient countervailing evidence such that a jury could return a verdict favorable to the non-moving party. Anderson, 477 U.S. at 249-50, 106 S. Ct. 2505.
Where the parties have submitted cross-motions for summary judgment, the court addresses "each party's motion on its own merits, taking care in each instance to draw all reasonable inferences against the party whose motion is under consideration." Taft Broadcasting Co. v. United States, 929 F.2d 240, 248 (6th Cir.1991) (quoting Mingus Constructors, Inc. v. United States, 812 F.2d 1387, 1391 (Fed.Cir.1987)). Moreover, the fact that both parties have submitted motions for summary judgment does not require the court to find that no issue of material fact exists. Id. (citing Begnaud v. White, 170 F.2d 323, 327 (6th Cir.1948)). In short, "summary judgment in favor of either party is not proper if disputes remain as to material facts." Id. (citing Mingus, 812 F.2d at 1391).
III. Elements of a Claim of Voting Strength Dilution
To meet their burden of production in this alleged § 2 violation, the plaintiffs must satisfy the following three pre-conditions:
[1] the minority group must be able to demonstrate that it is sufficiently large and geographically compact to constitute a majority in a single-member district.... [2] the minority group must be able to show that it is politically cohesive.... [and 3] the minority must be able to demonstrate that the white majority votes sufficiently as a bloc to enable it ... usually to defeat the minority's preferred candidate. *884 Cousin v. Sundquist, 145 F.3d 818, 823 (6th Cir.1998) (quoting Thornburg v. Gingles, 478 U.S. 30, 51-51, 106 S. Ct. 2752, 92 L. Ed. 2d 25 (1985)). Once the Gingles factors have been established, plaintiffs must still show that under the totality of the circumstances a violation of the Voting Rights Act has occurred. See De Grandy, 512 U.S. at 1010, 114 S. Ct. 2647 (explaining that following the satisfaction of the Gingles factors, the court's inquiry is not complete until the totality of circumstances has been considered).
IV. The Court's Frame of Reference
When the court considers the statistical data necessary for analyzing their voting rights claim, plaintiffs argue that the court should limit its frame of reference to the six-county area of rural west Tennessee. Defendants, however, contend that in addition to using statewide statistics, the court should also employ data from a region that includes not only rural west Tennessee, but also Shelby County. A summary of the results produced by the 1994 House districting scheme provides a preview to the substantial effect that the court's frame of reference could have upon plaintiffs' claim of vote dilution.
A. The Outcome Determinative Nature of the Court's Frame of Reference
Out of the ninety-nine House districts at the statewide level, twelve districts are majority black. Thus, at the statewide level, where black voters comprise 14.4%[7] of the voting-age population, substantial proportionality has been achieved, in that 12.12% of Tennessee's House districts are majority black. When one considers Tennessee's ten influence districts, i.e., a legislative district with a black voting-age population in excess of 25% but less than 55%, 22.2% of Tennessee's House districts are either majority-black or influence districts. See Rural West II, 877 F.Supp. at 1104-05 (holding that the presence of influence districts should be considered in the totality of the circumstances and adopting a standard rule for labeling an influence district). In Rural West II, the court concluded that Tennessee's Senate reapportionment plan, whose three majority-black districts and three influence districts comprised 18.2% of Tennessee's thirty-three Senate districts, did not violate the Voting Rights Act. Relying on the House plan's comparable 22.2% ratio of combined majority-black and influence districts to total House districts at the statewide level, defendants, for obvious reasons, seek to prevail on summary judgment by applying the Rural West II holding.
At the regional level, rural west Tennessee, which includes at least part of five House districts and contains a black voting age population of 31.01%, has no majority-black House district, but includes at least part of four influence districts, as such districts are defined by Rural West II.[8] However, once Shelby County is included in the regional analysis, the black voting-age population rises to 37.9%,[9] and the number of majority-black districts leaps to nine, making 42.85% of the 21.3 House districts in the seven-county area majority-black. Thus, considering the Supreme Court's decision in De Grandy and its progeny, a regional analysis that includes Shelby County essentially guarantees a defense victory on summary judgment. See De Grandy, 512 U.S. at 1014, 114 S. Ct. 2647 (emphasizing that substantial proportionality is not dispositive, but holding that where Hispanics constituted 47% of the voting-age population in Dade County, Florida and where 45% of the potential twenty House districts in Dade County were majority-Hispanic, substantial proportionality existed and precluded claim of vote dilution, despite the satisfaction of the Gingles factors and a history and legacy of discrimination in the area); African American Voting Rights Legal Defense Fund. Inc. v. Villa, 54 F.3d *885 1345, 1353 (8th Cir.1995) (following De Grandy in a challenge to a city's districting scheme for alderman wards and affirming grant of summary judgment where percentage of black voting-age population was 42.7% and percentage of majority-black wards was 42.9%).
In short, if the court considers statewide statistics or includes Shelby County in its proportionality analysis for rural west Tennessee, the plaintiffs will not prevail on their vote dilution claim. If the court, however, limits its analysis exclusively to the six-county region challenged by plaintiffs, the absence of a single majority-black district warrants further inquiry into the equal opportunity of black voters in that area. Having considered the import of the court's frame of reference in the instant matter, the court turns to its rationale for limiting the relevant geographic scope to rural west Tennessee.
B. Limiting the Scope to Rural West Tennessee
Although De Grandy, which focused solely on the apportionment of state legislative districts in Dade County, Florida, necessarily implies that plaintiffs may bring a voting rights challenge to a discrete political subdivision within a state, the Supreme Court declined to determine what frame of reference a court should employ when the parties to such a vote dilution lawsuit dispute the courts' appropriate geographic scope for relevant statistics. See De Grandy, 512 U.S. at 1022 ("Thus we have no occasion to decide which frame of reference should have been used if the parties had not apparently agreed in the District Court on the appropriate geographical scope for analyzing the alleged § 2 violation...."). As a result, despite De Grandy's sole consideration of Dade County statistics, this court in Rural West II concluded that "[n]othing in De Grandy, however, prohibits a district court from considering statewide statistics, even if the proofs largely concentrate on a particular region of a state." Rural West II, 877 F.Supp. at 1109.[10] However, the court's frame of reference did not affect the outcome in Rural West II due to the absence of vote dilution under either a statewide or regional geographic scope. See id. at 1110 ("In sum, a consideration of the seven-county region alone does not change the outcome of our decision today."). The Rural West II court simply did not confront the dilemma of potentially different results produced by different frames of reference. This court, therefore, is not confined by Rural West II's decision to ground its rationale in statewide statistics.
After reconsidering De Grandy's discussion of proportionality and after examining the Supreme Court's recent discussion of the proper understanding of a § 2 vote dilution claim in Shaw v. Hunt, 517 U.S. 899, 116 S. Ct. 1894, 135 L. Ed. 2d 207 (1996) ("Shaw II"), this court reaches the conclusion that when plaintiffs bring a claim of vote dilution that is specific to a particular region, statewide proportionality statistics by themselves have limited probative value, in that they may obscure the fact that defendants are improperly using over-proportionality in one area of the state to offset vote dilution in the challenged region of the state. Likewise, when defendants attempt to add another county to plaintiffs' challenged region, as in the instant case, over-proportionality in the added county may again conceal dilution in the plaintiffs' challenged region. Accordingly, and for the further reasons discussed below, the court limits its frame of reference for determining whether Chapter 536 improperly dilutes the plaintiffs' voting strength to the six-county region of rural west Tennessee. The court finds substantial support for its decision from the following discussions in Shaw II and De Grandy.
After assuming that compliance with § 2 of the Voting Rights Act could be a compelling state interest, the Shaw II Court held that the North Carolina legislature's creation of District 12, a majority-black congressional district, could not satisfy strict scrutiny under the Fourteenth Amendment because it was not a narrowly tailored remedy. Shaw II, 116 S.Ct. at 1905. Shaw II's rationale *886 for rejecting District 12 as a narrowly tailored remedy is critical to this court's decision regarding the proper frame of reference in the instant matter:
Appellees do not defend District 12 by arguing that the district is geographically compact, however. Rather they contend, and a majority of the District Court agreed that once a legislature has a strong basis in evidence for concluding that a § 2 violation exists in the State, it may draw a majority-minority district anywhere, even if the district is in no way coincident with the compact Gingles district, as long as racially polarized voting exists where the district is ultimately drawn.
We find this position singularly unpersuasive. We do not see how a district so drawn would avoid § 2 liability. If a § 2 violation is proven for a particular area, it flows from the fact that individuals in this area "have less opportunity than other members of the electorate to participate in the political process and to elect representatives of their choice." The vote dilution injuries suffered by these persons are not remedied by creating a safe majority-black district somewhere else in the State. For example, if a geographically compact, cohesive minority population lives in south-central to southeastern North Carolina, as the Justice Department's objection letter suggested, District 12 which spans the Piedmont Crescent would not address that § 2 violation. The black voters of the south-central to southeastern region would still be suffering precisely the same injury that they suffered before District 12 was drawn. District 12 would not address the professed interest of relieving the vote dilution, much less be narrowly tailored to accomplish the goal.
Arguing, as appellees do and the District Court did, that the State may draw the district anywhere derives from a misconception of the vote-dilution claim. To accept that the district may be placed anywhere implies that the claim, and hence the coordinate right to an undiluted vote (to cast a ballot equal among voters), belongs to the minority as a group and not to its individual members. It does not.
Id. 116 S.Ct. at 1906 (internal citations omitted) (emphasis added). If, as the Supreme Court states in Shaw II, a regional vote dilution injury is not remedied by creating a majority-black district outside of the challenged area, then symmetry likewise requires that the presence or absence of vote dilution in a particular region of a state cannot be determined by looking to the statistics of another region of the same state, or solely to the state as a whole.
Additionally, the rationale behind De Grandy's suspicion of using proportionality as a "safe harbor" for state districting schemes further supports this courts' conclusion that rural west Tennessee should be analyzed independently of Shelby County and statewide statistics. The De Grandy Court explained:
Even if the State's safe harbor were open only in cases of alleged dilution by the manipulation of district lines, however, it would rest on an unexplored premise of highly suspect validity: that in any given voting jurisdiction (or portion of that jurisdiction under consideration), the rights of some minority voters under § 2 may be traded off against the rights of other members of the same minority class. Under the State's view, the most blatant racial gerrymandering in half of a county's single member districts would be irrelevant under § 2 if offset by political gerrymandering in the other half, so long as proportionality wee the bottom line.
De Grandy, 512 U.S. at 1019, 114 S. Ct. 2647 (emphasis added).
Although the African-American voting age population of Shelby County is 39.68%,[11] nine out of seventeen, or 52.94%, of the House districts in Shelby County are majority-black,[12] thereby exceeding proportionality in Shelby County. Shaw II and De Grandy *887 guide this court to the conclusion that neither over-representation in Shelby County, nor substantial proportional representation at the statewide level should be used to compel an offset of potential vote dilution in rural west Tennessee generated by the absence of a majority-black district in that six-county area. See Shaw II, 512 U.S. at 1019, 114 S. Ct. 2647 ("A balanced bottom line does not foreclose proof of discrimination along the way.") (quoting Baird v. Consolidated City of Indianapolis, 976 F.2d 357, 359 (7th Cir. 1992)); see also Marylanders for Fair Representation, Inc. v. Schaefer, 849 F. Supp. 1022, 1049, 1064 (D.Md.1994) (considering plaintiffs' statewide voting rights claim independently from plaintiffs' regional voting rights claim and finding no violation with respect to statewide claim, while finding vote dilution with respect to a particular region of the state); NAACP v. Austin, 857 F. Supp. 560, 568 (E.D.Mich.1994) (citing De Grandy and concluding that "[t]he `relevant population' to be used in determining proportionality depends, in each case, on the breadth of the allegations in the plaintiffs' complaint, and the geographic scope of the districts, if any, that are specifically challenged."). The court will therefore focus upon statistics specific to rural west Tennessee.
In an effort to keep Shelby County within the court's frame of reference, defendants initially contend that plaintiffs' inclusion of Shelby County in their second amended complaint precludes them from now narrowing their regional challenge.[13] Second, defendants intimate that by permitting the plaintiffs to define the court's frame of reference, the court has enabled the plaintiffs to continually carve out a smaller geographic area until they achieve a voting rights violation. For the following reasons, defendants' contentions are without merit.
In response to defendants' first argument, the court finds that defendants have suffered no prejudice from plaintiffs' decision to narrow their vote dilution challenge, because the specific references to "rural West Tennessee" in plaintiffs' second amended complaint notified defendants of a vote dilution challenge to rural west Tennessee.[14] Moreover, the contention that plaintiffs may not narrow the focus of their voting rights claim is contrary to voting rights case law. See De Grandy, 512 U.S. at 1021, 114 S. Ct. 2647 (acknowledging that the district court limited its scope to Dade County after the plaintiffs voluntarily dismissed their claims of Hispanic vote dilution outside the Dade County area); Austin, 857 F.Supp. at 569 n. 5 (limiting scope to Wayne and Oakland Counties after plaintiffs voluntarily dismissed their vote dilution claim with respect to Kent County). This court construes plaintiffs' March 21, 1997 advisement, which expressly limited their vote dilution claim to rural west Tennessee, as a legitimate voluntary dismissal of *888 plaintiffs' statewide and Shelby County vote dilution claims.
With respect to defendants' second argument, prior decisions show that the three Gingles preconditions operate to eliminate meritless claims and, thereby, check any concern that plaintiffs can continually narrow their challenged area until they achieve a vote dilution victory. See, e.g., Askew v. City of Rome, 127 F.3d 1355, 1381-85 (11th Cir. 1997) (affirming district court's finding of no vote dilution in the City of Rome, Georgia where plaintiffs failed to show that the white majority voted sufficiently as a bloc to enable it usually to defeat the minority's preferred candidate); Campos v. City of Houston, 113 F.3d 544, 547-48 (5th Cir.1997) (affirming district courts' grant of summary judgment because Hispanic minority group was not sufficiently large and geographically compact to constitute a majority in a single-member district); Reed v. Town of Babylon, 914 F. Supp. 843, 867 (E.D.N.Y.1996) (finding no vote dilution due to plaintiffs' failure to satisfy Gingles' compactness requirement). The court therefore restricts the geographic scope of relevant statistical data to rural west Tennessee.
V. Cross-Motions for Summary Judgment
As the court foreshadowed in its order of March 13, 1997, because defendants' grounded their motions for summary judgment solely upon the existence of proportionality at the statewide level and at a regional level inclusive of Shelby County, the court's decision to focus its inquiry on the six-county area of rural west Tennessee renders defendants' motion moot. Accordingly, the court turns its attention to the Rural West plaintiffs' motion for summary judgment.
Relying on collateral estoppel, plaintiffs argue that the court's prior findings in Rural West I and Rural West II,[15] regarding the satisfaction of the Gingles preconditions and several Senate Report factors, posture their present claim of vote dilution for summary judgment. Considering that in Rural West I and Rural West II the plaintiffs' regional challenge to the Senate reapportionment plan included Shelby County, the preclusive effect of those decisions may be limited in this case where Shelby County is excluded from plaintiffs' regional challenge to the House districting scheme. See Black v. Ryder/P.I.E. Nationwide, Inc., 15 F.3d 573, 583 (6th Cir.1994) ("[I]ssue preclusion, or collateral estoppel, dictates that once an issue is actually and necessarily determined by a court of competent jurisdiction, that determination is conclusive in subsequent suits based on different causes of action involving any party to the prior litigation.") (emphasis added). To the extent the doctrine is applicable, however, collateral estoppel could only preclude any dispute that the Gingles factors and several Senate Report factors were satisfied in 1993, the last time the political environment of rural west Tennessee was judicially scrutinized. Since that time, two state legislative elections have been held, the details of which could arguably change the conclusions reached in Rural West I concerning the satisfaction of the Gingles requirements, or the presence or absence of factors relevant to the balancing of the totality of the circumstances. See Uno v. City of Holyoke, 72 F.3d 973, 990, 992 (1st Cir.1995) (finding that "[t]hough past elections may be probative of racially polarized voting, they become less so as environmental change occurs" and on remand allowing district court in its discretion to "permit the parties to supplement the record with additional facts (including, but not limited to, evidence gleaned from the new round of [elections] that have recently been completed)") (citations omitted); Vecinos De Barrio Uno v. City of Holyoke, 960 F. Supp. 515, 526 (D.Mass.1997) (reversing its earlier finding of vote dilution on remand and explaining "[g]iven the most recent election, the court must conclude that, in the context of Holyoke's hybrid ward and at-large voting system for the City Council, racially polarized voting as a cause of significantly diminished *889 opportunity for [minority] voters has not been adequately proved to exist in the city's current political scene"). Because "ultimate conclusions about equality or inequality of opportunity [in voting] were intended by Congress to be judgments resting on comprehensive, not limited, canvassing of relevant facts," De Grandy, 512 U.S. at 1011, 114 S. Ct. 2647, the absence of a detailed analysis of rural west Tennessee's most recent state legislative elections compels the court to conclude that genuine issues of material fact remain and, therefore, plaintiffs are not entitled to judgment as a matter of law.
VI. Conclusion
For the foregoing reasons, the court denies plaintiffs' and defendants' cross-motions for summary judgment.
NOTES
[1] A violation of 42 U.S.C. § 1973 is established if:
based on the totality of circumstances, it is shown that the political processes leading to nomination or election in the State or political subdivision are not equally open to participation by members of a class of citizens protected by subdivision (a) in that its members have less opportunity than other members of the electorate to participate in the political process and to elect representatives of their choice. The extent to which members of a protected class have been elected to office in the State or political subdivision is one circumstance which may be considered: Provided, That nothing in this section establishes a right to have members of a protected class elected in numbers equal to their proportion in the population.
42 U.S.C. § 1973(b).
[2] After the Supreme Court affirmed this court's ruling in Millsaps v. Langsdon, 510 U.S. 1160, 114 S. Ct. 1183, 127 L. Ed. 2d 534 (1994), Plan C, which called for the reinstatement of the districting plan struck down in Langsdon, became moot.
[3] Because the second amended complaint contained no constitutional claims, this court disbanded the three-judge court by order entered May 9, 1996.
[4] Under the Voting Rights Act, proportionality is "defined as the relationship between the number of majority-minority voting districts and the minority group's share of the relevant population...." Johnson v. De Grandy, 512 U.S. 997, 1025, 114 S. Ct. 2647, 129 L. Ed. 2d 775 (1994) (O'Connor, J., concurring).
[5] See Pls.' Second Request for Judicial Notice (1990 Census Data), No. 92-2407, Docket Entry No. 29, at p. 2 (June 24, 1992) (hereinafter "Pls.' Second Request for Judicial Notice").
[6] Under Plan A, five majority-white House districts include the six counties of rural west Tennessee in the following manner: House District 72 contains a substantial part of Madison County; House District 73 is located entirely within Madison County; House District 80 includes portions of Fayette and Hardeman Counties; House District 81 includes part of Fayette County and all of Tipton County; and House District 82 includes part of Hardeman County and all of Haywood and Lauderdale Counties. See Notice of Filing Chapter 536 of the Public Acts of 1994 and Other Related Documents; District Statistics Report of Chapter 536 of the Public Acts of 1994, No. 92-2407, Docket Entry No. 129 (Jan. 25, 1994) (hereinafter "Notice of Filing Chapter 536").
[7] See Rural West II, 877 F.Supp. at 1107 (explaining that African-Americans comprise 14.4% of Tennessee's voting age population).
[8] House District 73 contains a black voting-age population of 37%; House District 80 contains a black voting-age population of 29%; House District 81 contains a black voting-age population of 29%; and House District 82 contains a black voting age population of 41%. See Notice of Filing Chapter 536, supra note 6.
[9] See Rural West II, 877 F.Supp. at 1110 (stating that the combined black voting age population of rural west Tennessee and Shelby County is 37.9%).
[10] Nevertheless, the Rural West II court recognized the importance of regional statistics when it stated "we believe that we should have evaluated more closely regional statistics in our earlier decision in addition to examining statewide evidence." Rural West II, 877 F.Supp. at 1109.
[11] See Pls.' Second Request for Judicial Notice, supra note 5, at p. 2.
[12] Shelby County includes House districts 83, 84, 85, 86, 87, 88, 89, 90, 91, 92, 93, 94, 95, 96, 97, 98 and 99. Districts 84, 85, 86, 87, 88, 90, 91, 92 and 98 contain majority-black voting age populations. See Notice of Filing Chapter 536, supra note 6.
[13] Defendants reference the following allegations from plaintiffs' second amended complaint:
5. The personal plaintiffs reside in the seven-county area in West TennesseeFayette, Hardeman, Haywood, Lauderdale, Madison, Shelby, and Tiptonwhere new majority African-American legislative districts can be drawn.
31. African-Americans in Tennessee, including in West Tennessee, are politically cohesive, in that they tend to vote as a bloc, have common socio-economic characteristics and have organized themselves collectively for political activity.
32. Candidates for elective office preferred by African-Americans in Tennessee, including West Tennessee, are usually defeated by the white majority voting as a bloc.
40. African-Americans in Tennessee, including in West Tennessee and in rural West Tennessee, have less opportunity than other residents to participate in the political processes and to elect candidates of their choice.
[14] In addition to ¶ 40 of plaintiffs' second amended complaint, supra note 13, the following paragraphs from the same complaint also specifically reference rural west Tennessee:
37. The existing house redistricting in Tennessee, including in West Tennessee and in rural West Tennessee, was enacted and is being maintained purposefully to deny or abridge the right of African-Americans to vote and to participate in the political process on an equal basis with other residents of the jurisdiction on the basis of race and color.
45. The existing redistricting plan for the House of Representatives, including for West Tennessee and rural West Tennessee, results in the denial or abridgment of African-American voting strength in violation of plaintiffs' rights guaranteed by Section 2 of the Voting Rights Act.
[15] Although Rural West II reversed the holding of Rural West I, the Rural West II court, based on its earlier findings in Rural West I, concluded that the Gingles preconditions were still satisfied for west Tennessee, a region that includes rural west Tennessee and Shelby County. Rural West II, 877 F.Supp. at 1099. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2388816/ | 591 F. Supp. 1416 (1984)
ST. LOUIS DEVELOPMENTAL DISABILITIES TREATMENT CENTER PARENTS ASSOCIATION, et al., Plaintiffs,
v.
Arthur L. MALLORY, et al., Defendants.
No. 80-4012-CV-C-H.
United States District Court, W.D. Missouri, C.D.
August 8, 1984.
*1417 Stanley J. Eichner, Robert J. Goodwin, Ann B. Lever, Legal Services of Eastern Missouri, David Howard, Adrienne Volenik, National Center for Youth Law, St. Louis, Mo., for plaintiffs.
Michael Boicourt, Asst. Atty. Gen., Jefferson City, Mo., for defendants.
OPINION AND ORDER
ELMO B. HUNTER, Senior District Judge.
This case, tried to the Court without a jury, presents a challenge to a portion of Missouri's system of providing special education to the handicapped. At issue are the special schools and facilities in Missouri that serve the more profoundly and severely handicapped children of the State. These special schools are attended only by handicapped children.[1] The plaintiffs[2] posit *1418 that the separate nature of the schools prevents the handicapped children who attend them from progressing as they would if they attended a typical, local public school. The defendants,[3] on the other hand, view the special schools as a necessary component of a special education system because not all handicapped children can benefit educationally[4] from attending a regular, neighborhood school.
The plaintiffs have advanced six statutory or constitutional bases for challenging the special schools and facilities. They maintain that placing handicapped children in schools attended only by handicapped children violates the Education of All Handicapped Children Act, 20 U.S.C. ง 1401 et seq; Section 504 of the Rehabilitation Act of 1973; the equal protection and due process clauses of the Fourteenth Amendment to the United States Constitution; 42 U.S.C. ง 1983; and Missouri statutory law. The plaintiffs seek declaratory and injunctive relief. Specifically, they urge the Court to set out a time table for the closing of all special schools and the "integration" of the handicapped children served in them into local schools. As the plaintiffs view the change, no more than three classes of profoundly handicapped children would be placed in any one regular school. The classes and the schools would be age matched so that elementary aged, profoundly handicapped children would attend a special education class in an elementary school and so on.
The plaintiffs, however, do make a few exceptions. One, the plaintiffs do not actually urge that all handicapped children be allowed to attend regular schools. They except the medically fragile, and the physically abusive.[5] The medically fragile are children for whom attending a regular school would pose a potentially life threatening danger. These are children who can not be moved safely. The physically abusive are children who due to their aggressive behavior pose a physical threat to themselves or others. Two, the plaintiffs do not seek the closing of all special schools that serve only the handicapped. They do not challenge the State School for the Blind nor the State School for the Deaf. The plaintiffs' efforts are directed at the *1419 State Schools for the Severely Handicapped, the State Schools and Hospitals administered by the Department of Mental Health, and the separate schools maintained by the two special school districts. Again, the Court emphasizes that the issue presented is not whether any of the individual plaintiffs have been mistakenly placed in a special school,[6] but whether the defendants' special education system which utilizes separate schools violates any of the statutory or constitutional provisions alleged.[7]*1420 Before turning to the specific challenges, the Court begins with an overview of the special education system in Missouri.
SPECIAL EDUCATION IN MISSOURI
I. Department of Elementary and Secondary Education
The public school system of Missouri offers a free education to any child, handicapped or nonhandicapped, who lives in the State and is between the ages of six and twenty. Mo.Rev.Stat. งง 160.051, 162.670. At the beginning of the 1982-83 school year over 805,000 youngsters, including approximately 116,000 handicapped children were enrolled in Missouri's public schools.[8]*1421 SD Exh. 16; Stip. 1.12.[9] The State Board of Education is charged with carrying out the educational policies of the State and with overseeing the public school system. Mo.Rev.Stat. ง 161.092. The responsibility for the actual daily administration of the system falls to the Missouri Department of Elementary and Secondary Education (DESE). The DESE administers a system composed of 547 local school districts, two special school districts, and the special schools for handicapped children. Stip. 1.1. The special schools include the fifty-two State Schools for the Severely Handicapped (State Schools) attended by 2,450 profoundly handicapped youngsters, the State School for the Blind and the State School for the Deaf which together served slightly more than 400 children in 1982-83.[10]Id. at 1.14. The special schools all fall within the auspices of the Division of Special Education of the DESE. The Division of Special Education is responsible for the education of all of Missouri's school-age handicapped population, including those children served by local school districts. Also, within the auspices of the Division are 291 children served by private agencies under contract with the State Schools. Id. at 1.14. Finally, although not in a public school, 216 additional youngsters are educated at public expense by the Department of Mental Health.[11]
In Missouri, the vast majority of the handicapped school-age population attend regular schools and are the educational responsibility of the local school districts. Missouri, by law, favors placing handicapped children in regular schools. Mo. Rev.Stat. ง 162.680(2). Of the 116,000 handicapped children in the State, approximately 111,000 attend their regular, neighborhood school. SD Exh. 16; Stips. 1.14 and 3.5. The remaining children attend separate schools or facilities. The DESE has established a continuum of alternative placements for handicapped children which include a regular classroom in a regular school, a regular classroom with an educational resource teacher, a regular classroom with an itinerant teacher, a regular classroom with a resource classroom available, a self-contained classroom in a regular school, a split time arrangement between a regular and special school, a special school, a public institution or hospital, a private agency, or homebound instruction.[12] Missouri State Plan FY 84-86 at *1422 A30-A33;[13] R. Werner at Vol. 13.[14] The focus in this case is on the separate schools, public institutions, and the private agencies that serve only the handicapped. The schools being challenged are the State Schools for the Severely Handicapped, the DMH State Schools and Hospitals, and the separate schools of the special school districts.
In 1958 Missouri created a system of special schools to educate its handicapped youth. These separate schools at that time served the moderately handicapped. In the early 1970's before the passage of the Education for All Handicapped Children Act, the state made an effort to locate all of the school-age handicapped population and place them in a state funded school or institution to receive educational services. Hall at Vol. 17.[15] The State Schools have evolved to where today their mission is solely to serve the "severely handicapped." By statute, Missouri has defined the "severely handicapped" as children who due to their handicapping condition are "unable to benefit from or meaningfully participate in programs in the public schools for handicapped children." Mo.Rev.Stat. ง 162.675(3).
The state school system is administered by the Division of Special Education of the DESE. Dr. Leonard W. Hall is the Assistant Commissioner in charge of the division. Directly underneath him is Dr. John B. Heskett, the Superintendent of the State Schools for the Severely Handicapped.[16] Dr. Heskett and an assistant superintendent oversee twelve supervisors. Seven have responsibility for particular aspects of the system statewide and five are charged with the direct administration and supervision of the State Schools within a particular geographic region of the State.[17] The DESE budgeted $880,000 for the 1982-83 school year to cover the salaries of the administration and their support staff. Heskett at Vol. 6 and 9.
The State Schools had a budget of approximately $14.9 million for the 1982-83 school year. SD Exh. 13. Most of the money, $13.2 million, came from the general revenues of the state.[18] Supp.Stip. 3(a). *1423 The remainder comes primarily from Chapter One of the Education Consolidation and Improvement Act of 1981, P.L. 97-35, 20 U.S.C. ง 3801 et seq. (Chap. One). The State Schools received an additional $1.2 million in Chapter One funds,[19] and carried over a little less than $600,000 in Chapter One money from the previous year.[20] Heskett at Vol. 9; Hall at Vol. 17. Another source of federal funds is the Education of All Handicapped Children Act. P.L. 94-142, 20 U.S.C. ง 1401 (Education Act).[21] The bulk of these funds, however, are passed on to the local and special school districts that serve handicapped children. In 1982-83, Missouri received $2 million under the Education Act, and the DESE passed between 88% and 89% directly to the local and special districts that serve handicapped children. Supp.Stip. 1(c); John at Vol. 12.[22] The other twelve percent is treated as a discretionary fund which is allocated by the DESE upon application from the individual school districts.[23] In 1982-83, Missouri used its Chapter One funds to pay the salaries of the teacher aides employed in the State Schools. The State Schools also received approximately $30,000 in discretionary funds under the Education Act for in-service training, and another $443,000 for a summer school program. Heskett at Vol. 9. The State Schools used to also use surplus Chapter One funds for occupational and physical therapy services, but in 1983-84, the Legislature had to provide the money because neither discretionary nor Chapter One funds were available. Hall at Vol. 17.[24]
*1424 The Division of Special Education operates 52 State Schools for the severely handicapped.[25] The system peaked in 1974 with 68 state schools. The state owns 27 of the buildings which house State Schools and rent the other 25 buildings. The value of the 27 buildings is estimated at $28 million. The 27 buildings, all built by the State especially for the education of the more profoundly handicapped serve 85% of the children that attend State Schools. Each classroom contains a lavatory and a wash area. It was felt this would aid the education program. Clean-ups would be quicker and the teacher would remain in closer proximity to the class. The schools also afford the students more space. The classrooms were designed to provide forty square feet per student, which is fifteen more feet per student than in the typical public school classroom. The schools also contain a prevocational training area and a home-living instructional area.[26] Most importantly, the schools were built with the students safety in mind. Each classroom has an outside exit, an audio and visual alarm system, and antipanic doors. Some schools are located on the campuses of local public schools; others are not, depending on the availability of land. The DESE always attempts to place the State School on the campus of a local school. Heskett at Vol. 6 and 8. The State Schools budgeted about $850-900,000 in new money for maintenance and repair of the buildings, $500,000 for utilities, and $270,000 for rent and custodial work. Id. at Vol. 9.
The Division of Special Education employs 325 classroom teachers and 129 classroom aides in its State Schools. The teachers must be certified, or at least temporarily certified, to teach the "severely handicapped." Temporary certification means the teacher is within eighteen hours of certification. The Division works closely with state colleges and universities to provide *1425 the necessary course work for temporarily certified teachers to obtain full certification. The State Schools also employ 21 physical education teachers and 36 speech therapists. The physical education teachers and the speech therapists are employed full time at the larger schools and on an itinerant basis at the smaller schools. In addition, the State Schools employ 6 itinerant nurses and contract with local nursing personnel and the county health nurse program for additional nurses. The Division employs 40 occupational therapists, (OT's), and 30 physical therapists (PT's). They are hired on a contractual basis because the Division can not offer them a competitive full time, twelve months' per year salary. The salaries of the teachers, therapists, physical education teachers, and nurses are all tied to the same scale. The salaries of the teachers average $14,000, or about $2,000 less than their counterparts in the regular schools. Heskett at Vol. 9.
Missouri has an elaborate procedure to determine whether a child should attend one of the State Schools or some other setting in the continuum. Mo.Rev.Stat. ง 162.670 et seq.; State Plan 1984-86 at 39-78. The initial step is the identification of a child with a handicapping condition. Mo.Rev.Stat. ง 162.695; State Plan 1984-86 at 40-41. Once a child is identified then the local school district is required to put together an interdisciplinary diagnostic team to evaluate the child's mental, physical, and social development before placing him in a special program. Id. at ง 162.700(2); State Plan 1984-86 at 88; Friedebach at Vol. 10. The purpose of the evaluation is to gain a picture of the child's strengths and weaknesses. The composition of the diagnostic team varies with the handicapping condition(s) exhibited by the child, and may include medical specialists, various therapists, psychologists, social workers, and educators. Friedebach at Vol. 10. If the diagnostic team determines that the child's handicapping condition necessitates a special education program, then the local school district forms a team to develop an individualized educational plan (IEP) for the child. The IEP team is required to meet within thirty days after the child is identified as needing special education. State Plan 1984-86 at 45. The team typically consists of the child's parent(s), if appropriate the child, a member of the diagnostic team, possibly a special educator from one of the State Schools if the child is more profoundly handicapped, a principal or teacher from the child's local school, and any appropriate medical or therapeutic personnel. State Plan 1984-86 at 45-46; Teacher's Guide at 3.1(a); Yard at Vol. 15; Kopp at Vol. 15; Wilkerson at Vol. 16; Gitel at Vol. 17.[27] The intent is for the members of the team to bring their various perspectives to bear on the developmental and educational needs of the child, and hopefully, to reach a consensus on what is best for the child. The DESE provides educators statewide and the other professionals who participate on IEP teams with information on and technical assistance in developing an IEP and determining the appropriate educational setting. State *1426 Plan 1984-86 at 65. Each team is charged with formulating educational goals and objectives for the child, and then with determining the educational services necessary and the appropriate educational setting for fulfilling the goals and objectives. State Plan 1984-86 at 47-48; Teacher's Guide at 3.1(e)-(k); Kopp at Vol. 15; Wilkerson at Vol. 16. This package of decisions is known as the Child's IEP. If the IEP team determines that the child can not be appropriately served in a local public school, then the child's file is forwarded to the Division of Special Education. Mo.Rev.Stat. ง 162.735; Kopp at Vol. 15.
The Supervisor of Pupil Accounting and Contract Services, currently James Friedebach, heads a team that consists of the Assistant Superintendent of the State Schools and the pertinent regional Special Education Consultant. This team reviews the child's file to determine if his handicapping condition is severe enough to warrant placement outside a regular school. Usually a child who is functioning at a level one-half below the expectations for his peers across a number of assessments will be accepted for placement in a State School. The factors considered include the child's cognitive development, physical development, health, fine and gross motor movements, speech development, and achievement levels. The child's I.Q. is typically a good indicator, but it is not a controlling factor in the decision. Friedebach at Vol. 10; Wilkerson at Vol. 16; Gitel at Vol. 17. The state team also considers the capabilities of the child's local school district. Upon review of the file, the team may either accept the child, refer the child back to the local district, or return the file for additional information. Friedebach at Vol. 10. In making their decision, the state team is guided by the requirement that if the child can meaningfully participate or benefit from a special education program in a regular school with the use of aids and services then he must attend a regular school. Mo.Rev.Stat. งง 162.675(3); 162.680(2); State Plan 1984-86 at 63-65. If the state team accepts the child, then the child is assigned to the State School nearest the child's home.[28] State Plan 1984-86 at A29.
During the 1982-83 school year the local districts referred 450 children to the DESE upon completion of the IEP process. Friedebach at Vol. 17. The DESE, however, no longer accepts all referrals. In the early and mid-1970's, when Missouri was first attempting to educationally serve all the handicapped children of the State, the Division of Special Education accepted almost every child referred to it. The DESE wanted to prove that the concept of educating the handicapped was viable. By the late 1970's the state school system was refusing to accept students it would have accepted in previous years, due in part to the growing recognition of the desirability of placing handicapped children in regular schools and in part to the increasing ability of local school districts to adequately serve these children. Heskett at Vol. 9; Friedebach at Vol. 10; Hall at Vol. 17. Over the four school years from 1979-1983, the DESE rejected approximately fourteen percent of the children referred. See SD Exh. 16. Although, the number of referrals have increased due in part to better and more complete identification of handicapped children, the local districts are referring fewer children who would be inappropriately placed in the State Schools. Friedebach at Vol. 10. Furthermore, even as the number of children in special education programs increases statewide, the number of them served by the DESE in separate settings has decreased.[29] SD *1427 Exh. 41. If the state team refuses the referral, then the Division of Special Education works with the local district to meet the needs of the child. Friedebach at Vol. 10; Kopp at Vol. 15; Wilkerson at Vol. 16; Hall at Vol. 17; Teacher's Guide at 2.1(a). Often the local district is unwilling to serve the child and will threaten suit. The DESE usually resolves the matter by providing the district with funds to serve the child. Heskett at Vol. 9; John at Vol. 11; Hall at Vol. 17.
Several checks exist with regard to the development of an IEP and placement of handicapped children in the public school system of Missouri. The DESE reviews the progress and program of every child assigned to a State School within approximately thirty days after the assignment to determine if the child's IEP and placement are in fact appropriate. Teacher's Guide to Administration and Instruction, Sept. 1982 at 1.5(e) and 2.1(b), SD Exh. 8 (Teacher's Guide); State Plan 1984-86 at B10; Kopp at Vol. 15. Also any child's IEP and placement can be reviewed at any time upon the request of the child's teacher, another member of the professional staff working with the child, or the child's parents. In any event, the district serving the child must form an IEP team annually to review the child's IEP and placement, and to determine any changes based on the child's progress or lack thereof during the preceding year.[30] Teacher's Guide at 1.5(f); Friedebach at Vol. 10; Kopp at Vol. 15. The parents of the child are encouraged to participate in each IEP conference. State Plan 1984-86 at 45; Teacher's Guide at 1.5(e) and 3.1(a). The conferences enable the educators to learn more about the parents and the parents to learn about the child's educational program. Wilkerson at Vol. 16. The responsible school district must also notify the parents when their child has been identified as having a handicapping condition or is going to be diagnosed or evaluated. Furthermore, if the child is currently receiving a special education program and the district has determined that the program or placement should be altered, or the parents have requested a change that the district has decided not to honor, then the district is responsible for notifying the parents of the decision and informing them of their channels of redress. Mo.Rev.Stat. ง 162.945. Missouri provides an independent administrative review process wherein a parent can challenge a decision of the responsible school district at three levels within the state educational system and then in state court. Mo.Rev.Stat. งง 162.950-162.963; State Plan 1984-86 at 53-59. Most parents, however, agree with the placement decision reached by the IEP team. Moreover, when a disagreement arises it is usually resolved at the informal stage of the review process.[31] Heskett at Vol. 9; Kopp at Vol. 15; Wilkerson at Vol. 16; Gitel at Vol. 17.
The State Schools provide a fluent curriculum during a five hour school day. The teachers have at their disposal a variety of materials developed in Missouri and elsewhere upon which they can draw to fashion an instructional program to meet the individual needs of each child. There is no system-wide, uniform, instructional program that each child must receive, but there are set curriculum areas: self-care skills, sensory motor development, functional academics, language development, interpersonal relationships, and prevocational and vocational skills. P.Exhs. 153A, *1428 153B, 153E, and 153G. The teachers strive to fashion each child's program so that he learns the functional skills he lacks, and how to generalize those skills to various settings.[32] In addition, they teach social and job-related skills. The educational program also includes various nonacademic activities. Examples include field trips into the community, recreational activities, and social outings. Heskett depo. The parents are also included in the educational process. Missouri has developed a program to teach parents to use the home environment to supplement and reinforce what their child is being taught in school, Missouri Instructional Guide for Home Training (MIGHT). Heskett at Vol. 9.
II. Department of Mental Health
Although not primarily an educator, the DMH is also responsible for providing educational opportunities to the youngsters it serves. The DMH, among its other duties, administers five Mental Retardational Developmental Disabilities (MR/DD) facilities: Higginsville State School and Hospital, Marshall State School and Hospital, Nevada State School and Hospital, and St. Louis Developmental Disabilities Treatment Center (DDTC). The DDTC actually consists of three facilities: the original facility in St. Louis and two new facilities, one in south St. Louis County and the other in midtown St. Louis. It is the educational programs administered by the DMH in these facilities that are challenged by the plaintiffs.
Last year approximately 298 school-age children resided in the MR/DD facilities.[33] Of these children, 216 received educational services at the facility where they resided. The other 83 attended either a State School, a school within one of the special school districts, or a local public school.[34] Stips. 20-22. Although the DMH and the DESE are separate and independent departments they work together in providing educational opportunities to the school age children that reside at the MR/DD facilities. The DMH is under the same placement, review, and due process procedures as is the state public school system. SD Exh. 14a, Missouri DMH Compliance Policies and Assurances for PL 94-142. In 1980 the departments entered into an agreement to cooperate with each other in providing educational services. P.Exh. 166. The agreement reiterated the responsibility of the DESE to ensure that the requirements of the state and federal special education laws are complied with by special education providers. The two departments agreed that the DESE would see to it that any child residing in an MR/DD facility and able to leave the grounds for educational services would be appropriately placed in a less restrictive setting. If the DESE and the DMH are unable to agree on whether a particular child is capable of leaving the facility to receive an education, *1429 then the two departments will form a committee to resolve the dispute and develop an IEP for the child.
Consistent with the DESE's concern with assigning children to the least restrictive environment, the DMH has placed the higher functioning children it serves in community settings, group homes, and foster homes. The functioning level of the remaining children is low. For example, approximately 50% of the children that reside at the DDTC have a functioning level too low to register on the A.A.M.D. scale. Also 80% of the same group are nonambulatory and require wheelchairs or bed-carts for mobility. The same trend is occurring at the Higginsville State School and Hospital. Since 1980 the school age population has declined by twenty-five to thirty children. The ones that remain are lower functioning. Similarly at the Marshall State School and Hospital three groups of children are served: those whose medical problems are so severe they require constant medical attention to ensure life, those who are so physically involved that they can be moved only by bed-cart, and those whose behavior poses a danger to themselves and/or others. Crawford at Vol. 11; Stewart at Vol. 11; John at Vol. 12; Stewart depo.[35] Efforts are still made, however, to place the children in outside residential and educational settings. For instance, in 1980, a team of DESE and DMH personnel evaluated the children attending the St. Louis DDTC. They determined that most of the children should not leave the grounds for educational services, and none would benefit from attending a regular school. Friedebach at Vol. 10; McPheron at Vol. 11; Crawford at Vol. 11.[36] Special reference was also made to three referrals from the Marshall State School and Hospital to the Marshall public schools. One had succeeded, but the other two had failed and were returned to the State School and Hospital. Crawford at Vol. 11.
III. Special School Districts
Besides the DESE and the DMH, Missouri also has two special school districts (SSD) that provide educational services to handicapped children. The voters of local school districts can decide to join together to create an SSD. Mo.Rev.Stat. งง 162.815-162.945. The SSD is separate and independent from the local school districts. The latter continue to serve nonhandicapped children, and the SSD is responsible for educating the handicapped children of the local districts. The SSD, however, is subject to DESE monitoring and supervision as are the local districts. Id. at ง 162.930. Missouri's two SSDs serve the local school districts in St. Louis County and Pemiscot County.[37]
*1430 The SSD of St. Louis County serves as an umbrella district for the twenty-three school districts within the county of St. Louis. As a SSD it is responsible for providing direct educational services to any handicapped child that resides in the county and desires a public education. The SSD served approximately 15,620 school age handicapped children in 1982-83. The educational program of the SSD is divided into four phases. Phase I encompasses the handicapped children that can be mainstreamed into regular classrooms in the local schools. The local school has the primary educational responsibility for these mildly handicapped children. The SSD provides the supplementary or special services necessary to allow the child to be mainstreamed and still benefit educationally. It hires the staff to serve the child's special needs. Phase II is designed for the moderately handicapped. These children are served in self-contained classrooms in their local public schools. The SSD is primarily responsible for educating the children in this phase. It leases classroom space from the local districts and staffs the classrooms.[38] Phase III is aimed at "severely handicapped" children. These children receive their educational services in separate buildings owned and operated by the SSD. Finally, Phase IV includes children who have a low incident handicap. The SSD contracts with private agencies or establishes homebound instruction to meet the needs of this group. In 1982-83, there were 11,740 children in Phase I, 2,128 in Phase II, 2,007 in Phase III, and 46 in Phase IV. R. Werner at Vol. 13; SD Exh. 16; Stip. 3.4 and 3.5.
The district operated on a $63 million budget in 1982-83. Approximately $3 million came from the federal government under the Education Act and Chapter One. The rest came from state and local sources. The budget is divided into three categories: the teacher's fund which is limited to salaries, the incidental fund which covers employee benefits and supplies, and the building fund earmarked for building construction and maintenance. Although each fund had a reserve in 1982-83, a fourteen percent salary increase for the teachers and therapists in 1983-84 was expected to eliminate the reserves in the teachers and incidental funds. Half a million dollars was budgeted for the central administration office of the district, and a million dollars for maintenance of the Phase III buildings. Harmon at Vol. 14; Supp.Stip. 3. The remaining discussion of the SSD will focus on *1431 the Phase III portion of the program since that is the portion challenged by the plaintiffs.
The SSD owns fourteen buildings. Eleven are schools serving handicapped children in the Phase III program. The SSD also leases two other buildings that serve as Phase III schools. All the Phase III schools are one level buildings, accessible to the handicapped with larger than usual classroom space and wider hallways. The additional space is intended to minimize the congestion created by wheelchairs and other equipment necessary to serve the severely handicapped. The rooms also contain or share a bathroom to allow the staff to better cope with toileting problems and a sink to aid in the preparation of the food program and the cleanup of the students. Bolazina at Vol. 14; Harmon at Vol. 14.[39]
The record is sparse in regard to general information on the teaching staff. It does indicate that the teachers of the SSD are certified to teach the severely handicapped, they receive more pay than their counterparts in the state school system, and the SSD has no trouble finding applicants for its teaching positions. Last year the district received 200 applications for every opening. The SSD of St. Louis County has twenty-eight occupational therapist positions and fourteen physical therapist positions. The district, however, has a hard time filling the positions. For the 1982-83 school year the SSD placed forty-six newspaper advertisements and contacted 123 placement offices, but was not able to fill all of the positions. The SSD received only seventeen OT and eleven PT applications for the positions open for the 1982-83 school year. The district was able to hire twenty-four OTs and twelve PTs for the year. It also contracted with two hospitals and two private agencies for additional therapy services. The nine month work year and the salary structure hinder efforts to hire a sufficient number of therapists. Each Phase III school, however, does have an OT and a PT on staff, and present at the school on a daily basis, to deal with those children who may pose a physical threat to themselves or others. The OTs and PTs are responsible for assessing the children's progress on an annual basis. They also participate in the IEP process. Also on the staff of each school is a carpenter to adapt occupational and physical therapy equipment, a nurse to handle medical emergencies, and a dietitian to aid in formulating a food program. A counselor, speech therapist, and audiologist are also available to students in Phase III. R. Werner at Vol. 13; Bolazina at Vol. 14; Eldridge at Vol. 15.[40]
The placement process employed by the SSD is similar to the one previously described: diagnosis, evaluation, IEP formulation, placement, periodic review as necessary, and annual review. To aid in placement decisions the district designed a manual for those who participate on the IEP teams. Since potentially any IEP team can draw from about 1300 staff members, the manual was designed with the intent of bringing more consistency to the process, and of providing guidelines for determining the appropriate placements.[41] Most of the children who attend Phase III schools were *1432 initially assigned to a Phase II program, but were not benefitting from the program or the environment. Furthermore, many of the children placed in Phase III schools are later placed in a less restrictive educational setting. Consistent with the trend statewide, the percentage of handicapped children served by the SSD in Phase III schools has declined since the 1980-81 school year. The decline, here too, is due to an increasing awareness of and emphasis on placing handicapped children in regular schools when they can benefit from the setting. Handicapped children in Phase III can and have transferred to Phase I and Phase II programs during the school year or upon completion of the annual IEP review.[42] Again, as with the statewide program, if the parents disagree with a decision reached by an IEP team they can challenge the decision through an administrative process and then in state court. During the past three years no parents have challenged or sought review of the placement of their child within a Phase III program. P.Exh. 124, St. Louis Co. SSD Compliance Plan for FY 1983 at 27-51; R. Werner at Vol. 13; Hauser at Vol. 14; Eldridge at Vol. 15.[43]
The curriculum in the Phase III schools focuses on four major areas: academics, self-care skills, job-related skills, and communication skills. The instructional materials used and the program provided each child, however, is geared toward the developmental and functional level of the particular child. The lower functioning children may receive instruction, for example, in responding to sounds, tracking an object, or holding their head up, whereas higher functioning children might work on toileting, dressing, or personal hygiene. Less emphasis is placed on the child's chronological age. The curriculum is also designed to enhance the teacher's abilities to recognize even the most subtle of responses from the youngsters. This is important because the responses, or lack thereof, enable a teacher to determine whether a program or strategy is effective. The environment also needs to be distraction free so that the teachers can concentrate on watching for and recording the responses. R. Werner at Vol. 13; Bolazina at Vol. 14; Hauser at Vol. 14; Eldridge at Vol. 15. The SSD also provides for community based programs, field trips, and extracurricular activities for the children in Phase III. Hauser at Vol. 14; Huskey at Vol. 14; Stip. 3.8.
The SSD employs three special strategies in their Phase III program.[44] First, the district has opted for departmentalization. Departmentalization exposes the children to more than one teacher, and, therefore, different teaching methods and ideas. The youngsters have the advantage of several teachers focusing their varied talents, skills, and experience on the youngster's developmental problems. Departmentalization also encourages the teachers to exchange ideas and concerns about the children. Emmons at Vol. 13; Bolazina at Vol. 14. Second, the SSD has instituted a voluntary program whereby high school and college students can work with the children *1433 on a one-to-one basis and under the supervision of a teacher. The district screens the volunteers for maturity, and has not sought or accepted anyone under sixteen years of age. Although the volunteers express an interest in working with the profoundly handicapped, very seldom do they volunteer to work with the lowest functioning children. The advantage of the program is the extra attention it affords the youngsters. Bolazina at Vol. 14; Hauser at Vol. 14. Finally, the SSD has established a voluntary program for the parents. The parents may work directly with their child in class under the supervision of the teacher, take in-service training courses, and participate in the parent's organization.[45] Hauser at Vol. 14.
The DESE, through the Division of Special Education, works with each of the SSDs and monitors their compliance with federal and state laws. It reviews all compliance data submitted by both SSDs on an annual basis, and once every three years it makes an on-site inspection. The DESE last inspected the SSD of St. Louis County in March of 1983. The inspectors looked closely at the Phase system, the special education program, the vocational education program, and the financial structure of the SSD. The investigators concluded that the SSD had made improvements since 1980, and still offered the best special education program in the state. The DESE approved the SSD's compliance plan. P. Exh. 124; R. Werner at Vol. 13; Hauser at Vol. 14; Eldridge at Vol. 15; Hall at Vol. 17.
IV. Local Programs
Finally, some of Missouri's more profoundly handicapped children are served directly by local school districts in local programs. Little evidence was presented on these programs, yet both sides mention the local programs in their arguments. They will be discussed briefly before turning to the merits of the case.
In 1974, Missouri law for the first time allowed local school districts to provide special education programs for the severely or more profoundly handicapped. Seven local school districts started programs that year with twenty-six school districts sending their children to the programs. The availability of Education Act funds in 1978 further spurred the movement toward local programs. For the 1982-83 school year 101 local school districts sent their severely handicapped children to twenty-one local programs. Approximately 165 students were involved.[46] Heskett at Vol. 9; Stips 1.34 and 1.38.
*1434 Each time a local program is established the state school program serving that district is phased out. The local school district must agree to serve all of the profoundly handicapped children in the area previously served by the State School and guarantee in good faith that it will provide a special educational program on par with the program provided by the State School. The DESE relinquishes direct educational responsibility, and the local district administers and staffs the program. The local districts and the DESE have both initiated takeovers of state school programs. The DESE is responsible for deciding whether a local school district is capable of assuming the educational duties and providing the necessary educational services. It does not approve a takeover by a local district just because the district requests it. The DESE reviews the proposed educational program, along with the amount of resources the local district commits to and the quality of its special education program for the mildly and moderately handicapped. If the resource commitment is not acceptable or the present special education program does not indicate a capability to serve the severely handicapped then the request is turned down. The DESE also approaches local school districts regarding the takeover of state school programs. In the past two years, for example, it has approached three school districts with strong special education programs for the mildly and moderately handicapped. Not all districts that are approached, however, consent to starting a program. Often after learning of the services it must provide to adequately serve the severely handicapped a district will conclude that it is not ready to accept the responsibility. The DESE, however, encourages the districts it believes are capable by working with them to fund the new program. The teaching and supervisory staff of the DESE also cooperate with the local district on the substantive portion of the program. Heskett at Vol. 9; John at Vol. 12; Hall at Vol. 17.
Financing is the foremost concern of the local authorities. They have not been willing to initiate a severely handicapped program when to do so would take money away from the educational programs of the other students they serve. The DESE has had to assure these local districts that the necessary money will be available. The local district has two sources of funds at the local level. One is the money it was paying the state to serve the district's severely handicapped children in a state program. See Mo.Rev.Stat. ง 162.740. The other source is the money the participating districts, those districts sending their severely handicapped children to the local program, have agreed to pay for the educational services. See Mo.Rev.Stat. ง 162.705(1). At the state level, besides being able to count its own children for foundation formula purposes, the district would also be eligible for categorical aid to pay toward the salaries of teachers, teachers' aides, and ancillary staff. Categorical aid is paid out on a per class basis at the rate of $10,000, $2,000, and $4,000 respectively. Federal funds are available under Chapter One and the Education Act. A district may opt for either on a per child basis. Only two of the local programs have opted for Chapter One funds. On top of the entitlement money, a district may also apply to the state for discretionary funds under the Education Act. The DESE has used discretionary grants to provide the additional funds necessary to run the local programs.[47] The local districts have used the *1435 money to supplement salaries, purchase equipment or materials, and to buy or equip buses.
Complete information was not provided the Court concerning the staffing of the local programs. Information is available, however, concerning the teachers and aides serving seventeen of the local programs. In 1982-83 these particular local programs had twenty and one-half full time teachers and twenty-five full time aides on the staff serving approximately 143 students. No information is available concerning the number of support staff. The local districts contract for physical and occupational therapists. Other ancillary services are provided by professionals already within the district if they have the expertise or, if not, then the district may contract for the services. Typically, the program of the State School is continued by the local district, and the classes remain in one school, rather than being dispersed to an elementary, middle, and high school. Heskett at Vol. 9; John at Vol. 12; Hall at Vol. 17; Stips 1.35 and 1.36.
Education of all Handicapped Children Act
The plaintiffs maintain that the State Schools, DMH educational programs, and the separate schools of the SSDs violate the education of All Handicapped Children Act of 1975, 20 U.S.C. ง 1401 et seq. (Education Act). Although they presented an elaborate argument, the plaintiffs basically assert three contentions: (1) the defendants do not treat the "severely handicapped" on an individual basis; (2) the defendants' placement of handicapped children in separate settings violates the least restrictive environment concept embodied in the Act; and (3) the defendants are inherently unable to provide appropriate educational programs to handicapped children in separate schools. These contentions tend to overlap, but the Court will attempt to address each separately.
The Education Act was passed in 1975 to assure that all handicapped children had access to a publicly funded education, and to assist the states financially in meeting this obligation.[48] Congress first expressed its desire that handicapped children be educated with nonhandicapped children in the Education Amendments of 1974. House Rep. 94-332 at 5; Sen.Rep. 94-168 at 8, U.S.Code Cong. & Admin.News 1975, p. 1425; 62 Ia.L.Rev. 1283, 1329 (1977). It was also the first time Congress explicitly recognized the right of all handicapped children to a publicly provided education. House Rep. 93-380, U.S.Code Cong. & Admin.News 1974 at 4093, 4146; 62 Ia.L.Rev. *1436 at 1329. Historically, this country has recognized the usefulness of an education both to the individual and to the nation. Brown v. Board of Education, 347 U.S. 483, 493, 74 S. Ct. 686, 691, 98 L. Ed. 873 (1954); H.R.Rep. No. 805, 93rd Cong., 2nd Sess. reprinted in U.S.Code Cong. & Admin.News 4093, 4151 (1974) (House Rep. 93-805).[49] To this end, the states enacted compulsory attendance laws. These laws typically, however, made an exception for handicapped children adjudged not to be able to benefit from public education.[50] Initially, if a handicapped child was to receive any educational services, the child was either placed in an institution for the more profoundly handicapped where he might receive some instruction, or if he was more mildly (less noticeably) handicapped, allowed to attend a regular class. The handicapped children in the regular classes received the same instruction as did their nonhandicapped peers, without the benefit of any special attention to compensate for their handicap. Not surprisingly, these children often failed to even minimally succeed in the regular school environment. As a result special classes and day schools began to be created for the handicapped. A conscious effort was made to separate handicapped children from non-handicapped children for educational purposes. Throughout this century the emphasis has remained on separating the two groups. In the 1960's, these special schools and classes proliferated. Only in the last ten years has the emphasis begun to shift back to regular classroom placement. It was felt that if a child could function in a regular classroom with specialized assistance then that placement better prepared the child to function independently. 56 St. John's L.Rev. 81, 90-93 (1981); Miller & Miller, The Handicapped Child's Civil Right as it Relates to the "Least Restrictive Environment" and Appropriate Mainstreaming, 54 Ind.L.Jo. 1, 6-12 (1978); (Miller, 54 Ind.L.Jo.); 62 Ia.L. Rev. at 1293-9. This emphasis on mainstreaming handicapped children, when appropriate, did not result, however, in universal public education for the handicapped. In 1974, the House Committee on Education and Labor reported that two-thirds of the 5.5 million handicapped children were either "excluded from schools or, sitting idly in regular classrooms awaiting the day they would be old enough to drop out." House Rep. 93-805, U.S.Code Cong. & Admin.News 1974 at 4093, 4137-38. In 1975, Congress noted that of the eight million handicapped children more than half were not receiving appropriate educational services.[51] 20 U.S.C. ง 1401, *1437 note "Congressional Findings." See also Sen.Rep. 94-168 at 8, U.S.Code Cong. & Admin.News 1975, p. 1425; House Rep. 94-332 at 7. In the early 1970s, the courts began to redress the gap in educational services offered handicapped children. For example, in Pennsylvania where approximately 50,000 retarded children were being denied access to any public educational services, a federal district court approved a consent decree in which the state agreed to provide each retarded child between the ages of six and twenty-one access to a "free public program of education and training appropriate to his learning capacities ...." Pennsylvania Assoc. for Retarded Children (PARC) v. Pennsylvania, 334 F. Supp. 1257, 1258 (E.D.Penn.1971); PARC v. Pennsylvania, 343 F. Supp. 279, 296 n. 53 (E.D.Penn.1972) (cited the 50,000 figure referred to). A year later the right to a publicly funded education was extended to all handicapped children in Mills v. Bd. of Ed. of the District of Columbia, 348 F. Supp. 866, 873-75 (D.D.C.1972). What followed was an outpouring of cases, both federal and state, which challenged the educational services or lack thereof offered to handicapped children. Congress influenced by PARC and Mills, and recognizing that the states lacked resources sufficient to meet the educational burdens being placed on them, sought to aid the states and redress the gap in educational opportunities with the passage of the 1974 Amendments and later with the Education Act. House Rep. 94-332 at 3-7; Sen.Rep. 94-168 at 1429-33.
The Education Act contains various requirements a state must comply with to receive federal funds. A state must have a policy of providing an appropriate education at public expense to its handicapped children, and a detailed plan for carrying out the policy. 20 U.S.C. ง 1412(1) and (2); ง 1413. To ensure that each child receives an education tailored to his individual needs, the statute requires that an IEP be developed for each one and that it be reviewed on, at least, an annual basis. Id. at 1412(4); 1414(a)(5). The Education Act also requires certain procedural safeguards. The state must have a due process procedure that provides the parent notice of any decision affecting his child's educational program, an opportunity to examine the materials upon which the decision was based, and an opportunity to challenge the decision and have an impartial hearing held on the challenge. Id. at 1412(5)(A) and 1415. The state must also have procedures to ensure that to the maximum extent appropriate handicapped children, with the use of supplemental aids and services, are educated with nonhandicapped children in regular public schools. Id. at 1412(5)(B). Finally, the Education Act requires the state to designate one of its state level agencies, usually the state entity responsible for overseeing the elementary and secondary public school system, the "State education agency." The entity so designated is responsible for developing the plan, passing on applications from school districts serving the handicapped, and ensuring general compliance with the Act. Id. at 1412(6) and 1401(7). The entity here is the State Board of Education through the DESE. The Secretary of Education[52] is responsible for reviewing and ruling on state plans. Id. at 1413(c). The Secretary also has the authority to withhold from a state funds for the entire state program or for a portion of the program not in compliance with the Education Act. Id. at 1416(a).
I. Threshold Questions
Before reaching the contentions of the plaintiffs the Court will address a threshold jurisdictional issue raised by the defendants. The defendants maintain that the Court lacks jurisdiction to hear this case because the plaintiffs failed to exhaust the administrative remedies provided by the Act in Section 1415, and because the Act does not provide for a private right of *1438 action to raise a systemic challenge. Based on the purposes of the Education Act and the cases that have interpreted it, the Court finds that it has jurisdiction to determine systemic challenges by private parties. Furthermore, the failure of the plaintiffs to exhaust does not deprive the Court of jurisdiction.
Taking up the exhaustion argument first, the Court is well aware of the statutory basis the defendants are relying upon. Sections 1415 and 1416 bestow federal jurisdiction. Only Section 1415, however, mentions actions by private parties, and it clearly anticipates that the aggrieved party before bringing a federal action will have pursued the administrative remedies provided. The exhaustion requirement, however, is not absolute. Courts have not required exhaustion when recourse to the administrative procedures would be futile. Jose P. v. Ambach, 669 F.2d 865, 869 (2nd Cir.1982); Monahan v. State of Nebraska, 687 F.2d 1164, 1168 (8th Cir.1982). The defendants have previously raised this issue, and the Court found that exhaustion would be futile in these circumstances. See Memorandum and Order of June 16, 1981, pp. 4-9; Memorandum and Order of July 29, 1982. Having again considered the question, the Court finds no reason to change its earlier ruling.
The claim the plaintiffs raise, if correct, could not be resolved by resort to Missouri's administrative review process. The plaintiffs claim that the defendants automatically place in a separate school or facility any child who is determined to be severely handicapped without regard to whether the child could receive an appropriate education in a regular school. They point out that the IEP teams do not have the option of placing a severely handicapped child in a regular school because the placement continuums of the defendants do not include a program for the severely handicapped in those schools. The placement options for the severely handicapped are limited to separate schools or facilities according to the plaintiffs. If the plaintiff's view of the placement process is correct and since the plaintiffs do not challenge the evaluation determinations that the individual plaintiffs have severe handicapping conditions, then review would be meaningless and exhaustion unnecessary. Under the placement system they describe, a child correctly evaluated as having a severe impairment will never be placed in a regular school. The Court will reach the merits of this claim below, but for exhaustion purposes these allegations are sufficient.
Similarly to their position on exhaustion, the defendants rely on Sections 1415 and 1416 in arguing that there is no cause of action for systemic challenges by private parties. The Court notes, however, that several cases have, at least implicitly, recognized the right of private parties to bring a systemic challenge. In a number of recent cases private parties have challenged their state's policy limiting the school year for handicapped children to the typical nine-month period. See Georgia Assoc. of Retarded Citizens v. McDaniel, 716 F.2d 1565 (11th Cir.1983); Crawford v. Pittman, 708 F.2d 1028 (5th Cir.1983); Battle v. Pennsylvania, 629 F.2d 269 (3rd Cir.1980); Yaris v. Spec. Sch. Dist. of St. Louis Co., 558 F. Supp. 545 (E.D.Mo.1983). In each case the court found that the system-wide denial of a summer school program to handicapped children denied them the right to be treated and considered on an individual basis as provided by the Education Act. Other courts have also recognized systemic challenges by private parties. See Brookhart v. Illinois St. Bd. of Ed., 697 F.2d 179, 182-83 (7th Cir.1983) (challenged denial of diplomas to handicapped children unable to pass the state's minimum competency test); Gary B. v. Cronin, 542 F. Supp. 102 (N.D.Ill.1980) (challenged state rule that excluded counseling and therapeutic services from special education or its related services). Colin K. v. Schmidt, 536 F. Supp. 1375 (D.R.I.1982), 715 F.2d 1 (1st Cir.1983) (challenged policy of placing all learning disabled children in regular public schools); Riley v. Ambach, 508 F. Supp. 1222 (E.D.N.Y.1980) rev'd on procedural grounds 668 F.2d 635 (2nd Cir. 1981) (challenged policies setting a fifty percent discrepancy level before a child is determined to be handicapped and removing *1439 all residential schools or learning disabled children from the list of approved schools); Roncker v. Walter, 700 F.2d 1058 (6th Cir.), cert. denied ___ U.S. ___, 104 S. Ct. 196, 78 L. Ed. 2d 171 (1983).[53] Systemic challenges similar to those leveled by the plaintiffs here were raised in Roncker. Roncker advanced two claims. One, that the school district in question automatically referred all trainably mentally retarded (TMR) children to the separate county schools. The court found that if Roncker was correct then the district was violating the Education Act requirement of individual placement decisions. Id. at 1064. The plaintiff also claimed that the school district labeled children as TMR solely on their IQ scores. The court found this too to be a violation of the statute. Id. at 1064. The plaintiffs here have alleged that all severely handicapped children are automatically placed in separate schools without regard to their individual needs and have alluded to a belief that the defendants categorize the handicapped children solely by their IQ score.
This Court believes that the willingness of the aforementioned courts to hear these systemic claims is consistent with the purposes of the Education Act. As already mentioned Congress passed the Education Act in response to a perceived need to assure that handicapped children are afforded a publicly funded education. To further ensure that the education afforded is meaningful for each child, Congress mandated that each be treated on an individual basis and that the parents or guardian of the child be afforded the opportunity to participate in all phases of the process of formulating an educational program for their child. Moreover, Congress mandated extensive due process, review procedures that a parent or guardian could utilize to challenge a decision that he felt was not in his child's best interest. It is this Court's belief that Congress afforded parents and guardians such extensive involvement opportunities and the right to challenge their child's educational treatment because Congress viewed parents and guardians as a necessary check to insure that handicapped children are provided appropriate educational opportunities. This Court does not believe that Congress created this role for parents and guardians while intending to withhold from them the ability to challenge a portion of their state's system that if left uncorrected would deprive their child of an appropriate education.[54]
The defendants argue that Congress did intend to so limit private party challenges. They maintain that systemic challenges and corrections are the exclusive province of the Secretary of Education. They imply that aggrieved private parties can petition the Secretary to take the action desired. The statute does not expressly provide for private party petitioning and the statute certainly does not require the Secretary to heed these petitions. Even if that avenue was open to private parties the sanctions available do not ensure adequate relief. Under Section 1416 the only sanction granted to the Secretary is the authority to withhold funds to the entire state program or to the offending portion of it. The withholding of federal funds does not guarantee the specific relief sought by a private party. In fact, it might result in the elimination of the segment of the educational program challenged, rather than lead to its reform. Georgia Assoc. of Retarded Citizens v. McDaniel, 716 F.2d at 1573. See *1440 also New Mexico Assoc. for Retarded Citizens v. New Mexico, 678 F.2d 847, 851 (10th Cir.1982) and Pushkin v. Regents of University of Colorado, 658 F.2d 1372, 1381 (10th Cir.1981) (termination of federal funds for violation of the Rehabilitation Act, Section 504, does not provide adequate relief for private claims against the educational system involved). When a systemic challenge goes to the question of whether a state policy interferes with the provision of an appropriate education on an individual basis, as it does here, then a parent or guardian has a cause of action which he may bring before a competent court.
II. Individualized Consideration
The plaintiffs contend initially that the handicapped children attending the separate schools and facilities maintained by the defendants are not treated as individuals. They do not claim that these children were not treated on an individual basis by the diagnostic/evaluation team or by the IEP team in formulating the substance of their educational programs. The plaintiffs do claim, however, that the IEP team, acting on the evaluations, labels the more profoundly handicapped children as "severely handicapped." Consistent with their exhaustion argument they claim that once a child is labeled as "severely handicapped" the placement decision is automatic. All "severely handicapped" children are denied placement in a regular school setting, and placed in a separate school or facility without regard for their individual needs and capabilities.
Fundamental to the guarantee of a free appropriate public education is the requirement that each handicapped child be considered as an individual. Congress recognized, and there was total agreement amongst those who testified before this Court, that handicapped children are a heterogeneous population, each member having a unique condition and concommitant unique needs. See Sen.Conf.Rep. No. 94-455, 94th Cong., 1st Sess. reprinted in U.S.Code Cong. & Admin.News 1480 (1975) (hereinafter Sen.Conf.Rep. 94-455); House Rep. 94-332 at 9; 20 U.S.C. ง 1401 note. See Note, Denying Appropriate Education for the Handicapped: The Rowley Decision, 27 St. Louis U.L.J. 685, 689 (1983); Comment, Residential Placement of Handicapped Children: Altering the Scope of Public Education, 43 U.Pitt.L.Rev. 789, 795 (1982) (Residential Placement, 43 U.Pitt.L. Rev.). This congressional recognition carried over into the requirements of the Education Act. See 20 U.S.C. งง 1401(16), (18), (19); 1414(a)(5); and 34 C.F.R. งง 300.340 โ 300.349.
Consistent with the Education Act, the Court finds that Missouri requires and that each handicapped child is treated on an individual basis. Missouri law requires each local or special school district to obtain "current, appropriate diagnostic reports for each handicapped child ...." Mo.Rev.Stat. ง 162.700; State Plan 1984-86 at 69. Each child is also entitled to an IEP within thirty days of a determination that the child needs special educational services and annually thereafter. State Plan for 1984-86 at 45.[55] The law also requires that each child's IEP be implemented in an educational program designed to meet the needs of the child and to develop his full potential. Id. at 162.705(1), 162.725(2). The unchallenged testimony also substantiates the defendant's concern for the individual needs of each child. Witnesses from the DESE, the SSD of St. Louis County, and the St. Louis City School District all testified regarding the individual nature of the evaluation and IEP process. Friedebach at Vol. 10; McPheron at Vol. 11; Emmons at Vol. 13; Hauser at Vol. 14; Eldridge at Vol. 15; Kopp at Vol. 15; Wilkerson at Vol. 16; and Hall at Vol. 17. For example, the composition of each diagnostic team and IEP team varies according to the handicapping condition of the child. Friedebach at Vol. 10. The evidence also *1441 establishes that the IEPs vary according to the needs of each child. McPheron at Vol. 11; Emmons at Vol. 13; P.Exhs. 187, 189, 191-93, 195-200.
The defendants' evaluation, IEP, and placement process supports the conclusion that the placement decision is also made on an individual basis. The evidence establishes contrary to the suggestions of the plaintiffs, that the defendants, consistent with federal and state law, first determine through the evaluation and IEP process whether a child, given his peculiar handicaps and capabilities can benefit from placement in a local public school. If the IEP team believes that he can not so benefit then the child is referred to the DESE. The DESE does not automatically accept the child for placement in a state school. Rather, a DESE team reviews the entire record of the child and makes an independent determination as to whether placement in a state school is appropriate. Heskett at Vol. 9; Friedebach at Vol. 10; Kopp at Vol. 15; Hall at Vol. 17. Before a child is placed in a separate school his condition is reviewed and ruled upon by two separate and distinct teams. The label "severely handicapped" is only placed on the child after each team has concluded that the child would not benefit from local school placement and that separate school placement would be appropriate.[56]
Some confusion on this point may have resulted from Missouri's statutory definitions. Mo.Rev.Stat. ง 162.675(2) and (3). The statutory scheme distinguishes between handicapped and severely handicapped children.[57] Neither the definition of "severely handicapped children," however, nor any other portion of Missouri's law or policy requires that a child with particular handicapping conditions be placed in a separate school. The definition denotes merely as "severely handicapped" those handicapped children that have already been approved for placement in separate schools after a group of competent professionals has determined that the children, on an individual basis, could not benefit from or meaningfully participate in a regular school program for handicapped children. The key point here is that the placement decision is made first, and if the decision is to place the child in a separate school then the child is categorized as severely handicapped. As one witness put it, the "severely handicapped" label is used for reporting rather than for placement purposes. Eldridge at Vol. 15.[58]
*1442 III. Least Restrictive Environment
The plaintiffs next contend that the children placed in the special schools and facilities are denied an education in the least restrictive environment. The focus of this portion of the plaintiffs' claim is on the defendants' continuum of alternative educational settings. The plaintiffs' maintain that the Education Act's least restrictive environment provision mandates that handicapped children be educated in either regular classrooms or separate classrooms in regular schools. They further maintain that the defendants' placement continuums which include special schools are not required by the Act, and inconsistent with the least restrictive provision.
1. The plaintiffs argue first that "[i]t is far from clear ... that the statute recognizes any continuum of placements." They point out that the statute itself does not contain a continuum provision and that the definition of "special education" in the statute, ง 1401(16), mentions several educational settings, but not separate schools. In other words, the concept of "least restrictive environment" does not include separate schools. The Court finds such a conclusion contrary to the language of the Education Act, its legislative history, the accompanying regulations, and judicial interpretations of the Act.
Although the phrase "least restrictive environment" does not appear in the Education Act, those in the field of special education have adopted it as a shorthand denominator for the placement presumption contained in Section 1412(5)(B), of the Act. The section requires each state to have procedures to assure that its handicapped children are educated with nonhandicapped children to the maximum extent appropriate. The section further provides that a child is not to be removed from a regular educational environment unless the nature or the severity of the child's handicap prevents him from receiving a satisfactory education there, even with the use of supplemental aids and services.[59]
Neither Section 1412(5)(B) nor any other provision of the Education Act indicates a congressional intent to eliminate separate or other facilities for the handicapped children who need them to benefit educationally. The definition of "special education" calls for the delivery of publicly funded education services in a classroom, hospital, institutional setting, or at the child's home. 20 U.S.C. ง 1401(16). The hospital, institution and home settings are all settings separated from nonhandicapped children in public schools. Moreover, the "classroom" setting is generic. It is not limited to local public school classrooms, but speaks of classroom settings without limitation. Furthermore, the placement provision, Section 1412(5)(B), recognizes the need for separate educational settings both explicitly and implicitly. The section acknowledges that some handicapped children will not be able to receive a satisfactory education in a "regular educational environment" and will need to be placed in "special classes, separate schooling" or otherwise removed from the regular school setting. Unless Congress intended to repeat itself, special classes and separate schooling must mean two distinct education placements.[60] Even *1443 if separate schooling does not mean separate schools, which this Court believes that it does, the phrase "other removal from the regular education environment" indicates a recognition of the appropriateness of separate settings for some children. After all, Section 1412(5)(B) does not mandate that all handicapped children be educated along side nonhandicapped children.[61] It only requires that educational agencies, to the "maximum extent appropriate," place handicapped children in regular classrooms. The implication is that some handicapped children will not be able to be educated in a regular school environment. Moreover, two other sections of the Education Act indicate that Congress did not intend to foreclose separate alternative educational settings. Section 1414(d) authorizes the state to provide direct educational services to handicapped children in settings separate from public schools in certain circumstances. Section 1401(22) defines an "intermediate educational unit" as any provider of public educational services on a regional basis, other than a local school district and indicates an acceptance of placements outside the regular schools. Furthermore, in recent amendments to the Education Act Congress explicitly recognized separate schools as an alternative placement option. See P.L. 98-199, ง 681 (Dec. 2, 1983).
The legislative history of the Education Act further supports this conclusion. The House Committee did not foreclose separate educational settings. Rather, it understood that varying educational environments would be necessary to meet the education needs of the handicapped.
The Committee understands the importance of providing educational services to each handicapped child according to his or her individual needs. These may entail instruction to be given in varying environments, i.e., hospital, home, school, or institution. The Committee urges that where possible and where most beneficial to the child, special education services be provided in a classroom situation. An optimal situation, of course, would be one in which the child is placed in a regular classroom. The Committee recognizes that this is not always the most beneficial place of instruction. No child should be denied an educational opportunity; therefore, H.R. 7217 expands special education services to be provided in hospitals, in the home, and in institutions.
House Rep. 94-332 at 9. Like the Education Act, the House Committee spoke in general terms when it mentioned a classroom setting. The Committee wrote that "where possible" and "where most beneficial" a child should be educated in a "classroom situation." The "optimal situation" is a "regular classroom." Those two sentences taken together indicate that the Committee foresaw classroom settings beyond or in addition to the traditional classroom. Likewise, the cases that provided the impetus for the Education Act, PARC and Mills, and whose principles were incorporated to a large extent in the Act, do not foreclose separate placements.[62] The consent *1444 agreement approved in PARC stated that "placement in a regular public school class is preferable to placement in a special public school class and placement in a special public school class is preferable to placement in any other type of program of education and training." PARC v. Pennsylvania, 334 F.Supp. at 1260. The Mills decision allowed the District of Columbia school system to deny a handicapped child placement in a regular public school if (1) the child was offered adequate, alternative educational service, (2) a hearing was held prior to the placement and (3) the placement and the child's progress were reviewed periodically. Mills v. Bd. of Ed. of the District of Columbia, 348 F.Supp. at 878. Both PARC and Mills stated a preference for public school placement, but neither went so far as to require or even to suggest the elimination of separate public educational settings.
The regulations accompanying the Education Act are consistent with this view. Beyond stating a presumption in favor of a regular classroom placement,[63] Congress left it to the Secretary to promulgate regulations to ensure that each child is appropriately placed. Crucial to the present issue, the regulations require that each state have a continuum of alternative placements available. The continuum must include the alternative placements listed in Section 300.13 of the regulations: regular classes, special classes, special schools, home instruction, and instruction in hospitals and institutions.[64] 34 C.F.R. ง 300.552(b). Section 300.552(b) further requires that the full continuum of settings be available for the placement of each child, in line with his unique needs. See also 34 C.F.R. งง 300.360-361. The defendants each have a continuum of alternative educational settings that complies with the regulations. Mo. Rev.Stat. ง 162.725(1); State Plan 1984-86 at A29; R. Werner at Vol. 13.
The regulations promulgated by the Secretary of Education, pursuant to 20 U.S.C. ง 1417(b), are entitled to substantial deference by the Court. Blum v. Bacon, 457 U.S. 132, 141, 102 S. Ct. 2355, 2361, 72 L. Ed. 2d 728 (1982); Ford Motor Credit Co. v. Cenance, 452 U.S. 155, 158 n. 3, 101 S. Ct. 2239, 2241 n. 3, 68 L. Ed. 2d 744 (1981); International Nutrition, Inc. v. Department of Health and Human Services, 676 F.2d 338, 342 (8th Cir.1982). In light of the foregoing, this Court believes that the regulations herein cited are not inconsistent with the statutory mandate or the policy underlying the Education Act. FEC v. Democratic Senatorial Campaign Comm. 454 U.S. 27, 31-32, 102 S. Ct. 38, 42, 70 L. Ed. 2d 23 (1981). Furthermore, the Court has been unable to discern and the plaintiffs have not presented any compelling indications that the regulations are inapposite. *1445 Beal v. Doe, 432 U.S. 438, 447, 97 S. Ct. 2366, 2372, 53 L. Ed. 2d 464 (1976).
Federal case law further supports the conclusion that Congress did not intend to foreclose separate educational settings. Several cases have by now dealt with the question of appropriate placement and have found settings outside the regular school environment to be appropriate. One example is the case of Colin K. v. Schmidt, 536 F. Supp. 1375 (D.R.I.1982) aff'd, 715 F.2d 1 (1st Cir.1983). In Colin K. the court found that a self-contained classroom recommended by the local school authorities, was not the appropriate placement for two children with severe learning disabilities and accompanying emotional problems. The court directed continuation of their education in a residential facility, "at least an appropriate special education," until it can be determined whether the children can benefit from an "intensive non-resident placement," presumably a day school.[65]Id. at 1386-87. Another example is Riley v. Ambach, 508 F. Supp. 1222 (E.D.N.Y. 1980) rev'd 668 F.2d 635 (2nd Cir.1981). Riley, in part, involved a challenge to the decision of the New York Commissioner of Education to remove all residential schools serving the learning disabled from a list of approved schools. New York only paid for special educational services received at approved private schools. The Court ruled that New York must have residential schools available as an optional placement since all learning disabled children could not receive an adequate education in a regular school environment. Id. at 1244-45. The court concluded that the option of residential placement is consistent with the "mainstreaming principle." Id. at 1246. The Second Circuit reversed on other grounds. Riley v. Ambach, 668 F.2d at 642. The appeals panel did note, however, that each public educational agency must provide a continuum of educational placements that includes special schools and residential facilities. Id. at 638. In a final example closer to home, this court found that a state school offered the particular child in question an appropriate education in the least restrictive environment. Cothern v. Mallory, 565 F. Supp. 701, 701-08 (W.D.Mo.1983). See Abrahamson v. Hershman, 701 F.2d 223, 226 (1st Cir. 1983); Kruelle v. New Castle County Sch. Dist., 642 F.2d 687, 693 (3rd Cir.1981); Christopher N. v. McDaniel 569 F. Supp. 291, 293, 301 (N.D.Ga.1983); Christopher T. v. San Francisco Unified School Dist. 553 F. Supp. 1107, 1118 (N.D.Cal.1982); Stacey G. v. Pasadena Indep. Sch. Dist., 547 F. Supp. 61, 78 (S.D.Tex.1982); Parks v. Pavkovic, 536 F. Supp. 296, 304 (N.D.Ill. 1982); Norris v. Mass. Dept. of Ed., 529 F. Supp. 759, 767 (D.Mass.1981); Grkman v. Scanlon, 528 F. Supp. 1032, 1036-37 (W.D.Penn.1981), vacated and remanded in light of Rowley, 707 F.2d 1391 (3rd Cir. 1982); Gladys S. v. Pearland Indep. Sch. Dist. 520 F. Supp. 869, 879 (S.D.Tex.1981); North v. Dist. of Col. Bd. of Ed., 471 F. Supp. 136, 140 (D.D.C.1979); Lora v. Bd. of Ed. of Cty. of New York, 456 F. Supp. 1211, 1269 (E.D.N.Y.1978), vacated, 623 F.2d 248 (1980).[66]See also Doe v. Brookline Sch. Comm., 722 F.2d 910 (1st Cir. 1983); Tilton v. Jefferson County Bd. of Ed., 705 F.2d 800 (6th Cir.1983); Monahan v. Nebraska, 687 F.2d 1164 (8th Cir.1982). *1446 Even those cases that have found the appropriate placement for a particular child to be in a regular school environment have recognized that placement in such an environment is not mandated by the Education Act. Roncker v. Walter, 700 F.2d 1058, 1063 (6th Cir.), cert. denied, ___ U.S. ___, 104 S. Ct. 196, 78 L. Ed. 2d 171 (1983) ("The [Education] Act does not require mainstreaming in every case, but its requirement that mainstreaming be provided to the maximum extent appropriate indicates a very strong congressional preference."); Springdale Sch. Dist. No. 50 of Washington County v. Grace, 693 F.2d 41, 42-43 (8th Cir.), cert. denied, ___ U.S. ___, 103 S. Ct. 2086, 77 L. Ed. 2d 298 (1982). No case has come to the attention of this Court which has held or even stated in passing that a separate educational setting is per se inappropriate for the placement of any handicapped child due to its separation from public schools. The essence of current judicial opinion is that Section 1412(5)(B) does create a preference in favor of regular school placement, but that regular school placement can not provide an appropriate education in every instance. See Hendrick Hudson Central Sch. Dist. v. Rowley, 458 U.S. at 181 n. 4, 102 S. Ct. at 3037 n. 4.
2. The plaintiffs next argue that even if the Education Act provides for a continuum with special schools, the defendants do not utilize their continuum consistently with the Act. A continuum may be valid, but its use invalid if the children are not placed in the least restrictive educational environment appropriate for them. According to the plaintiffs, the least restrictive educational environment for the "vast majority" of "severely handicapped" children currently attending separate schools is a self-contained classroom in a regular public school.
The Court finds that the defendants are systemically committed to the concept of placing each handicapped child in the least restrictive educational environment.[67] The commitment begins with the State's educational laws. In enacting its present special education law in 1973, Missouri created a presumption in favor of local school placement similar to the one contained in Section 1412(5)(B). Mo.Rev.Stat. ง 162.680(2).[68] Missouri law also requires that special aids and supplementary services be tried before a child is removed from a regular classroom. Id. The State Plan submitted by the DESE and the applications filed with the DESE by the SSD and the DMH indicate that the defendants have incorporated these statutory requirements in their policies and procedures. See State Plan 1984-86 at 63-65 and A29; SD Exh. 8, Teacher's Guide; SD Exh. 14a, DMH Policies.
The realities of the system also bear out this commitment to placement in the least restrictive educational environment. For the 1982-83 school year Missouri's public school census totalled 805,921 students, *1447 ages five to twenty-one. The DESE identified 136,996 of those children as handicapped and in need of special services. Of that number, 5,006 youngsters were placed in settings challenged by the plaintiffs: the DESE served 2451 in state schools, private agencies under contract with the DESE served 291, the DMH educationally served 225 in its facilities, the St. Louis County SSD served 2007 in the Phase III program, and the Pemiscot County SSD served 32. SD Exh. 16; SD Exh. 41; Stips 1.17 and 3.7, Hall at Vol. 17.it. The numbers indicate that relatively few children are actually placed in the separate settings contested in this suit. The 5,006 who are in contested settings, represent just over one-half of one percent (.0062) of the public school age population. Although neither the Education Act nor its regulations discusses the percentage of children that might or might not be appropriately served in a separate setting, the statistics do indicate, at the least, that Missouri is not warehousing children in separate schools and other separate settings in order to avoid regular school placement. The statistics lend credence to the testimony that the defendants only place in separate educational environments those children who can not benefit from local school placement.[69] Heskett at Vol. 8; Gitel at Vol. 17; Hall at Vol. 17.
Moreover, neither the DESE nor the SSD take assignment to a separate setting lightly. Before most children are recommended for separate school placement they have been placed and worked with in a special education program in a regular school. When it becomes apparent that a child is not going to benefit in the regular school even with the use of supplemental aids and services then he is referred to the DESE. Gitel at Vol. 17. The entire evaluation and IEP process works on the presumption that only those children that can not benefit from special education programs in the regular schools can be placed elsewhere. Both the DESE and the SSD have two teams review the file of every child recommended for placement in a separate setting. The initial team, the IEP team consists of the child's parents and professionals with knowledge of or experience in working with the child. It formulates the IEP and decides upon the appropriate placement. If the child can benefit from educational services in a regular school environment, either a regular class or a self-contained class, then the child is placed there. If the initial team decides that a regular school placement is inappropriate then the child's file is forwarded to an administrative review team to determine whether a separate placement is appropriate. If the review team determines that a separate setting is not appropriate then the child is referred back to the local school district for educational services. Friedebach at Vol. 10; Kopp at Vol. 15; Eldridge at Vol. 15; Wilkerson at Vol. 16; Hall at Vol. 17; SD Exh. 8, Teacher's Guide at 2.1a. The review committees perform a meaningful function *1448 in the placement process by serving as a check on placements outside the regular school environment. The record indicates that rather than serve as a mere rubber stamp for referrals from local IEP teams, the review committees reach an independent decision on whether separate placement is appropriate. SD Exh. 41.
In addition to the two-tiered placement decision, the defendants provide additional checks to ensure that the placement is and remains appropriate. The defendants train their professional staff and provide them with technical assistance to aid them in determining the least restrictive educational setting. State Plan 1984-86 at 65; Eldridge at Vol. 15.[70] The DESE also monitors the compliance of the DMH and the SSDs with the state and federal requirements. State Plan 1984-86 at 64; P.Exh. 166, DESE and DMH Agreement; Hall at Vol. 17. Once a child is placed additional safeguards come into play. The DESE requires after a child has been in a separate educational setting for thirty days that the IEP team meet and determine whether they still believe the IEP and the placement are appropriate. Beyond the thirty day meeting, the IEP team can be reconvened at any time by the child's parents or teacher if either one believes a change is warranted. Finally, the team must meet once a year to review and reformulate an IEP, and reach a new placement determination. If the child is again recommended for a separate placement, then the state or SSD team again reviews the decision. R. Werner at Vol. 13; Hauser at Vol. 14; Eldridge at Vol. 15; Kopp at Vol. 15; SD Exh. 8, Teacher's Guide at 1.5e and 2.16; State Plan 1984-86 at A29.
These additional checks also result in children being referred back to regular school placements. Information available for the 1981-82 school year indicates that the SSD referred over thirty-three percent of the children in Phase III programs to Phase I and II programs. SD Exh. 16. Furthermore, Dr. Werner, Dr. Huskey, Ms. Hauser, and Ms. Eldridge all testified regarding incidents of moving children from Phase III programs to Phase II or vocational programs. If the IEP team determines that a child in a Phase III program no longer needs the intensity of services provided there, and could be more successful in a less restrictive environment, then the child is reassigned to a regular school setting. Testimony of R. Werner at Vol. 13. The record also indicates that placement in a state school is not a dead-end. Information available from the 1980 school year shows that the DESE referred 105 children back to their respective local school districts for placement the following year.[71] P. Exhs. 1-57, Report of Teacher *1449 in Charge โ State Schools. Mr. Friedebach also testified that the DESE referred approximately 150-200 children in 1980-81, 200-275 in 1981-82, and 300 in 1982-83, back to the local school districts for placement. Ms. Wilkerson related that the St. Louis City Public School District was expecting to receive five children for the 1983-84 school year that had previously been assigned to Gateway School, State School No. 70. The record contains only sketchy information about the children served by private agencies. Mr. Kopp testified that the St. Louis City Public School District had about 100 children currently *1450 placed with private contractors. In the past couple of years approximately one-third of the children had returned to public school placements or to vocational schools.
Although, the number of children being referred back to local school districts and other non-contested educational settings may appear insignificant in comparison with the number of children who remain in separate settings, and though the numbers provided by Mr. Friedebach may be somewhat inflated (he was providing approximations without recourse to notes), the Court finds this evidence to be instructive. It indicates that once children are placed in a separate setting they are not forgotten. More importantly, it indicates that each child is considered on an individual basis, and that there is nothing inherent in either the DESE or SSD system that prevents a child, ready for a less restrictive educational environment, from being transferred back to his local school district for placement.
Another indicator of the commitment of the DESE to the concept of placement in the least restrictive educational environment is the evolutionary transformation of the special education program in Missouri. Missouri initiated its special education program in 1958. At that time the focus was on educating the mild to moderately mentally retarded. These programs were conducted in separate schools. Since then the system has evolved to the point that state law allows only handicapped children who can not benefit from local school placement to be assigned to separate schools. Mo. Rev.Stat. งง 162.675(3), 162.680(2), 162.725. Moderately handicapped children are now in local public schools. The local districts are mandated by statute to provide special education programs for handicapped children. Mo.Rev.Stat. ง 162.700. Eighty-five percent of the children served in separate schools are in special school buildings built with their education and service in mind.
Another evolutionary change has occurred in the referral process. In the early 1970's when Missouri was striving to include all of the state's handicapped children in a public education program the DESE accepted practically all of the children referred to it by the local districts. The DESE did this for two reasons. It wanted to show the skeptics that the system would work, and that all handicapped children should be educated and would benefit therefrom. It also realized that most of the local districts were not prepared to nor capable of serving the children it was accepting for state school placement. By 1978, however, with the state system in place, and with the local districts better able to serve the less profoundly handicapped, the DESE began to reject referrals it would have accepted a couple of years earlier. Heskett at Vol. 8; Friedebach at Vol. 10; and Hall at Vol. 18. The statistics bear this out. Although, the DESE accepted more children for placement in separate settings in 1982-83, the overall number served in the contested separate settings continued to decline. In 1979-80, 3223 handicapped children were served by the state school system, in private agencies or at home. By 1980-81, the number declined to 3161. It further declined to 3094 by the 1981-82 school year, and in 1982-83, the total number was down to 2935. SD Exh. 41. The Court again stresses that the statistics, per se, are not what is important here. They merely lend substance to the testimony presented.
A final example of the evolution of the Missouri special education system is the development of programs at the local level for severely handicapped youngsters. The state school system for the severely handicapped was initially created to fill a perceived educational need. The DESE did not believe the local districts were capable of assuming or willing to assume the responsibility of providing educational services to the severely handicapped. By 1974, this view had changed, at least on an individual district basis, and the way was opened for local school districts to assume this responsibility. In 1974, seven local school districts had programs serving the "severely handicapped" youngsters of twenty-six school districts. By the time of trial there were 101 school districts sending their "severely handicapped" children to twenty-one local programs. The local programs function much like a special school *1451 district for the severely handicapped. Also, the local district must agree to serve the multiple-district area formerly served by the State School. Also, the local district must show that it is capable of providing an educational program equivalent to that provided by the present state school. When a local school district volunteers to takeover a state school program the DESE reviews the proposed program, the resources the district currently commits to its special education program for its mild to moderately handicapped youngsters, and the quality of that program. If the DESE concludes that the district can provide a comparable program then the takeover is approved. If not, then the takeover is refused. Those districts that do establish local programs for the severely handicapped receive technical and financial assistance from the DESE. The DESE is interested in the orderly transfer of responsibility for the education of the severely handicapped to local school districts, but again only as the districts become capable of providing an appropriate education.[72] Heskett at Vol. 8; John at Vol. 11; Hall at Vol. 18.
This trend toward local district responsibility is instructive in a couple of regards. One, it refutes the notion that the DESE has some bureaucratic self-interest in maintaining a separate state school system. The willingness to close State Schools and to work closely with the local districts to help them develop an appropriate educational plan for each child supports this conclusion. Two, it highlights that the primary concern of the DESE is the educational services available to a child. The unchallenged evidence indicates that the DESE relies exclusively on educational program considerations when deciding whether to close a State School and shift the educational responsibility to a local school district. When a district is ready the transfer occurs. Otherwise a State School fills the educational services gap.[73]
*1452 The plaintiffs stress that it would be feasible to transfer the handicapped children currently served in separate settings to regular school environments.[74] Relying *1453 in part on the testimony of some of the defendants' witnesses, the plaintiffs maintain that such a transfer would not face staffing shortages, lack of classroom space, create health or safety problems, or cost more, and it would result in lower transportation times for the children.[75] The defendants presented considerable evidence *1454 rebutting the feasibility of a wholesale transfer.[76] The issue for resolution here, however, is not whether it is feasible to transfer all the handicapped children in *1455 *1456 the separate schools to regular schools,[77] but whether the separate schools and facilities are an appropriate part of a special education system and whether systemically the defendants have procedures that seek to assign the children to the least restrictive educational setting appropriate. The answer to both queries is yes. If the Court did as the plaintiffs ask and ordered the wholesale transfer of all the children in separate schools to regular schools it would be committing the same wrong the plaintiffs alleged against the defendants earlier. The Court would not be treating each child as an unique individual.
This Court's determination that the defendants are systemically in compliance with the placement provisions of the Education Act should not be viewed as a ruling that each, individual child served in a separate setting is appropriately placed. Resolution of each individual case, however, is better left to the administrative review process, and, if necessary, to a court case focusing on the needs and abilities of the individual child. This is the challenge and review procedure Congress established. If a parent or guardian believes that his child has been inappropriately placed he may challenge the placement. If the DESE finds against the parent or guardian, then he has recourse to a court. 20 U.S.C. ง 1415. This procedure is available in Missouri and has been utilized. See Cothern v. Mallory, 565 F. Supp. 701 (W.D.Mo.1983); Vogel v. School Bd. of Montrose R-14 Sch. Dist., 491 F. Supp. 989 (W.D.Mo.1980); Mallory v. Drake, 616 S.W.2d 124 (Mo.App. 1981); Moran v. Bd. of Directors, Sch. Dist. of Kansas City, 584 S.W.2d 154 (Mo. App.1979). The Court's only ruling today is that separate schools are not per se in violation of the Education Act, and that the separate settings maintained by the defendants are consistent with the Act.
IV. Appropriate Educational Program
As a final challenge under the Education Act, the plaintiffs claim that the children in the separate schools and facilities do not receive an appropriate education. They maintain that it is inherently impossible to provide an appropriate educational facility to children attending a separate *1457 educational environment. The plaintiffs posit that in a separate setting (1) educators can not provide the components necessary for an adequate educational program, (2) the children are denied sufficient opportunities to interact with nonhandicapped children, and (3) the quality of the teaching is inferior. The Court has reviewed all of the evidence presented on this challenge and finds that it is possible to provide an appropriate education to children in separate schools.
The Education Act requires each participating state to provide a free appropriate public education to the handicapped children of the state. A free appropriate public education is defined in the Act as the combination of special education and related services provided at public expense, under public supervision, and in conformity with each handicapped child's IEP. 20 U.S.C. ง 1401(18). The Supreme Court in Rowley read the Act's goal of a free appropriate public education as calling for "educational instruction specially designed to meet the unique needs of the handicapped child, supported by such services as are necessary to permit the child to benefit from the instruction." Hendrick Hudson Central Sch. Dist. v. Rowley, 458 U.S. at 188-89, 203, 102 S. Ct. at 3041-42, 3049. When confronted with the task of determining the appropriateness of an educational program, the Supreme Court has instructed the lower courts to concentrate on two inquiries: (1) whether the state is complying with the procedures contained in the Education Act and (2) whether the IEP is reasonably calculated to benefit the child. Id. at 206-07, 102 S. Ct. at 3050-51. In the discussions of the preceding claims the Court has already found that the defendants are complying procedurally with the Act on a systemic basis, answering inquiry number one. The posture of this case does not allow for a determination of whether the IEP of a particular child is reasonably designed to benefit that child. The actual question here is whether, on a systemic basis, any handicapped child can benefit from an educational program provided in a separate setting. The Court will take up each of the plaintiffs' claims and the defendants' responses.
The plaintiffs argue first that the separate settings are inherently inadequate because an appropriate educational program can not be provided in separate schools. Both sides agree that handicapped children are slower to learn, do not learn as much, and can not as readily apply what they have learned to new situations. Witnesses for the plaintiffs testified that because of these learning deficiencies profoundly handicapped youngsters require an educational program that teaches age appropriate functional and social skills in an age appropriate manner, and which provides the children with sufficient opportunities to practice or generalize what they are learning. Sailor at Vol. 1; Snell at Vol. 2; Freagon at Vol. 4. Their witnesses further maintained that it is impossible to teach these skills or provide the needed generalization opportunities in a separate educational environment, and since these components of an education program are essential to the development of the severely handicapped no program in a separate setting will be adequate. Snell at Vol. 2; Nisbet at Vol. 3. The witnesses who toured the separate schools and facilities administered by the defendants did not find the educational programs offered to be exceptions to this view. Snell at Vol. 2; Brown at Vol. 3; Nisbet at Vol. 3; Freagon at Vol. 4.
The evidence presented by the defendants contradicts the plaintiffs' position on two points. First, all of the witnesses for the defendants maintained that a child in a separate facility can receive an appropriate educational program. Speaking specifically to the program components stressed by the plaintiffs' witnesses, Dr. Newby countered that functional and social skills can be taught, that the problem of generalization can be dealt with, and that chronological age appropriateness can be considered in a separate setting. Based on his experience he believed that these skills could not be taught and the problem of generalization could not be handled better, if as well, in a regular school. Newby at Vol. 12. *1458 Several other witnesses from outside of Missouri reiterated this view. Fanning at Vol. 10; Gottlieb at Vol. 16; Throne at Vol. 17. Even the testimony of two of the plaintiffs' witnesses indicated that an educational program in a separate setting is not inherently foreclosed from containing these elements. Dr. Fredericks maintained that he would have found the programs he observed to be adequate if they had provided sufficient interaction opportunities. Fredericks at Vol. 7. Ms. Toews did find the curriculum, materials, and staff to be excellent, and the program age appropriate at the Phase III schools she observed. Toews at Vol. 8. Second, witnesses from the DESE and the SSD testified that the educational programs they provide contain the components highlighted by the plaintiffs. Heskett at Vol. 8; Werner at Vol. 13; Hall at Vol. 18. Dr. Heskett testified that the state school curriculum includes functional and social skills. The IEP teams are trained to formulate IEPs that call for instruction in the functional and social skills needed by each particular child. The importance of these skills is further stressed to the teachers through seminars, in-service training, and materials that are distributed to them. The home-living area and the vocational area are examples of functional training. Heskett at Vol. 8. Ms. McPheron and Ms. Emmons, each with experience in developing and applying IEPs, supported the testimony of Dr. Heskett. In particular, each reviewed the IEPs of the individual plaintiffs and pointed out the functional and social skills instruction contained in the IEPs. McPheron at Vol. 11; Emmons at Vol. 13. Other witnesses resubstantiated this point although in a more general context. Bolazina at Vol. 14; Hauser at Vol. 14. The actual curriculum of the State Schools and the IEPs in the record further support the testimony of the witnesses. Both show that the teaching of functional and social skills is part of the educational programs provided by the defendants. P.Exh. 153A, Self-Care Curriculum; P.Exh. 153C, Language and Communication Curriculum; P.Exh. 153D, Interpersonal Relationships Curriculum; P.Exhs. 183, 185, 187, 189, 191-19, 195-199. The skills taught each child, however, are based on the child's present functional or developmental level rather than on the child's chronological age as stressed by the plaintiffs. Werner at Vol. 13; Hauser at Vol. 4; Hall at Vol. 18. Experts for the defendants, who testified to this point, supported the approach of focusing on developmental level rather than age. Fanning at Vol. 10; Newby at Vol. 12; Yard at Vol. 15. Dr. Heskett pointed out, however, that this did not mean that the concept of "age appropriate" is ignored. Rather, the importance of teaching a child in an age appropriate manner and with age appropriate materials is stressed to the professional staff in seminars, etc., and, furthermore, the DESE reviews all equipment and materials requests to determine if they are age appropriate. Heskett at Vol. 8. The skills taught, however, are gauged to the child's developmental level and not to his age. Sufficient generalization opportunities are also provided. The curriculum materials are diverse and allow the teachers to use different materials to teach the same point. The teacher rotation system or departmentalization allows the child the opportunity to be taught by teachers with different styles, perspectives, and expertise. Once the children have learned a skill they are taken into the community to practice the skill where they would be expected to use it. Heskett at Vol. 8; R. Werner at Vol. 13; Bolazina at Vol. 14. Dr. Hall maintained that the separate schools, and not the regular schools, could better provide an age appropriate functional and social skills curriculum with sufficient generalization opportunities for the more profoundly handicapped. Hall at Vol. 17. Ms. McPheron, Ms. Emmons, and Ms. Bolazina all testified that the IEPs of the individual plaintiffs indicated that they were benefitting from the programs they are receiving. Finally, the outside experts found the programs not only effective but at the forefront of current professional thought. Fanning at Vol. 10; Burton at Vol. 11; Gottlieb at Vol. 16-17.
The plaintiffs argue next that a separate setting is inadequate because it can not *1459 provide sufficient interaction opportunities with nonhandicapped peers. Snell at Vol. 2; Brown at Vol. 3; Nisbet at Vol. 3; Fraegon at Vol. 4; Towes at Vol. 8. The witnesses explained that interacting with nonhandicapped peers would improve the social skills of the handicapped child, provide the child with appropriate models for dress and behavior, and create more learning and generalization opportunities. Sailor at Vol. 1; Snell at Vol. 2; Brown at Vol. 3; Freagon at Vol. 4; Fredericks at Vol. 7; Toews at Vol. 8. They also pointed out that interacting with nonhandicapped children in a school setting better prepares the handicapped child for the "real" world.[78] A child who only interacts with other handicapped children will not be ready to deal with nonhandicapped people when he finishes school. Snell at Vol. 2. Finally, if the handicapped are "integrated" then nonhandicapped children can serve as peer tutors. A peer tutor is a nonhandicapped child who volunteers to work one-on-one with a handicapped child at a time when the latter's teacher is working with other students. Peer tutors not only provide structured interaction opportunities, but also increased instruction time.[79] Sailor at Vol. 1.
The defendants maintain that interactions between profoundly handicapped and *1460 nonhandicapped children are not as easy or as beneficial as the witnesses for the plaintiffs claimed. Their witnesses testified that merely placing a severely handicapped child in a school with nonhandicapped children does not guarantee interaction. As the severity of a child's handicapping condition increases so does the tendency of nonhandicapped children to ignore the child. They do not want to interact with children unlike themselves. Moreover, if the profoundly handicapped are unaware of their environment, as many are, then irrespective of the school setting, interactions will not occur. Even if, however, interactions do occur there is no guarantee they will be beneficial to the handicapped child. Dr. Burton pointed out that to foster positive interactions requires the nonhandicapped children to have been trained in interacting and the handicapped child to possess the social skills necessary for interaction. Bolazina at Vol. 14; Burton at Vol. 11; Heskett at Vol. 8. No data exists to support the plaintiffs' view that mere placement in a regular school environment will lead to positive interactions. Heskett at Vol. 8; Burton at Vol. 11.[80] The witnesses further testified that interactions with nonhandicapped children are not necessary for the provision of an appropriate education anyway. Heskett at Vol. 8; Fanning at Vol. 10; Burton at Vol. 16; Newby at Vol. 12; Gottlieb at Vol. 16; Throne at Vol. 17; Hall at Vol. 18. Moreover, social skills are not learned incidentally by the severely handicapped as they are by the nonhandicapped. Dr. Fanning maintained that severely handicapped children only learn these skills through an intense program which can be best provided in a separate setting. Furthermore, modeling does not occur. Dr. Throne stated that that due to disparities in their mental development severely handicapped children can not mimic their nonhandicapped peers. The witnesses stressed, however, that the placement of a severely handicapped child in a regular school before he is ready will arrest his social and education development. One of the concerns expressed by the witnesses was the effect of rushed interactions on a handicapped child's self-esteem. Dr. Fanning and Ms. Eldridge maintained that when a profoundly handicapped child, aware of his environment, is placed in an environment with interaction opportunities *1461 before he can cope, the frustrations that arise therefrom will lower his self-esteem. As his self-esteem declines so will his capabilities. This result is compounded by the fact that the child will also have forfeited the gains he could have made in an appropriate environment. Eldridge at Vol. 15; Heskett at Vol. 8; Fanning at Vol. 10; Gottlieb at Vol. 16; Throne at Vol. 17; Hall at Vol. 18.
The witnesses pointed out that the severely handicapped have the opportunity to and do interact with their handicapped peers, their teacher and with volunteers. Both the DESE and the St. Louis Co. SSD have volunteer programs. The SSD selects and trains mature high school and college students to work one-on-one with their Phase III students. The DESE trains people from the community who volunteer. Both also have a program for parents. The goal of each program is not to provide nonhandicapped peers, but rather to provide the children with more attention. The attention rather than the age of the attendee is what is important. The attendee does not need to be a peer. Dr. Sailor admitted that he was unaware of any research on the benefits of peer-tutoring. Heskett at Vol. 8; Burton at Vol. 11; Fanning at Vol. 10; Bolazina at Vol. 14; Hauser at Vol. 14; Gottlieb at Vol. 16; Hall at Vol. 18. The witnesses further stress that peer tutors and other volunteers should not be viewed as teacher replacements. They can attend the profoundly handicapped, but they lack the expertise to teach them or to recognize the subtle signs of improvement. The more severely handicapped learn in very small increments which requires the teacher to note the smallest details of the child's action. Heskett at Vol. 8; Fanning at Vol. 10; Burton at Vol. 11.
Third, the plaintiffs claim that the quality of instruction is not as good in a separate school. Their witnesses attributed this to the fact that nonhandicapped children and regular education teachers are not present. They maintained that teachers in separate schools do not expect as much of their students and, therefore, do not push them to accomplish as much as they could because the teachers only have other handicapped students with which to compare them. If the teachers were in an environment with nonhandicapped students then their expectations would increase. The witnesses also maintain that the teachers in separate schools do not use age appropriate teaching methods. They believe that if the same teachers were in a regular school the pressure of having nonhandicapped children and regular education teachers around would prevent a special education teacher from decorating the classroom, treating the child, or using instructional materials in a manner more suitable for a younger child. Finally, the witnesses maintained that due to the lack of nonhandicapped children special education teachers have a greater tendency to become frustrated with the work and "burn-out" on teaching. Snell at Vol. 2; Brown at Vol. 3; Toews at Vol. 8.
The defendants maintain that the presence of nonhandicapped children and regular education teachers does not have an effect on the expectations or teaching methods of special education teachers. The Court has already discussed evidence that indicates that age appropriate materials and methods are used by the defendants. The witnesses admitted that burnout can pose a problem, but they attributed it to higher expectations, refuting the plaintiffs' claim that these teachers have lower expectations for their students. As Dr. Fanning put it, teachers who burnout have higher expectations, higher levels of professionalism, and a higher intensity level. Defendants' witnesses claimed that burnout, however, was more likely for a teacher of the more profoundly handicapped in a regular school and better combated in a separate school.
Burnout arises from the repetitive nature of the instruction and the incremental pace of the learning. To cope with this the DESE and the SSD have a rotation or departmentalization program which allows each teacher to spend some time each day away from his or her own class. These programs would not be possible in a regular school if there were not enough teachers certified to teach the more severely handicapped. The concentration of teachers *1462 all with the same interests, problems, frustrations, etc., also serves as a support mechanism. The teachers are able to share their problems or experiences with the others while at the same time receiving solutions or insight from the others. Regular education teachers and teachers of the mild and moderately handicapped do not share the same experiences and do not have the same understanding of the problems faced by these teachers. Often regular education teachers view the handicapped classes and teachers as separate and distinct, and expect those teachers to handle their own problems. The administration in the separate schools are also supportive. They are familiar with and recognize the problems facing the teachers. They are not distracted by the needs of a nonhandicapped majority. For example, at one special school, the principal/coordinator meets formally with the teachers once a week and informally on a daily basis. She views one of her primary responsibilities as preventing and overcoming staff burnout. Heskett at Vol. 8; Fanning at Vol. 10; John at Vol. 11; Newby at Vol. 12; Bolazina at Vol. 14; Hauser at Vol. 14; Gottlieb at Vol. 16.
Both sides presented a considerable amount of evidence, only briefly summarized above, on the issue of an appropriate education. After reviewing the evidence in its entirety, the Court concludes that the defendants have shown that it is possible to provide an appropriate education in a special school or facility. None of the claims made by the plaintiffs justify a finding that educational programs in separate schools are inherently inadequate. One, the evidence indicates and the Court finds that it is possible and that the defendants are striving to teach each child functional and social skills in an age appropriate manner, and that generalization opportunities are incorporated into the program. The testimony of the witnesses from the DESE and the SSD was supported by the testimony of the outside experts of the defendants, the curriculum and IEPs in the record, and by portions of the testimony of two of the plaintiffs' witnesses. Two, the Court further finds, that interacting with nonhandicapped peers in a regular school environment is not a universal prerequisite to an adequate education. The evidence indicates that profoundly handicapped children can learn social skills in a separate setting without nonhandicapped age peers. Moreover, merely placing the profoundly handicapped in a regular school does not guarantee meaningful interactions. The nonhandicapped must be trained and the profoundly handicapped must be developmentally ready. If the handicapped child is not psychologically or developmentally ready then the regular school setting and the "interactions" can actually be harmful to the child's development. The defendants train volunteers to work with and provide attention to the profoundly handicapped children who can benefit. Three, the Court finds the evidence does not support the plaintiffs' claim that the teachers in separate schools have lower expectations, use inappropriate methods, and burn out more easily. The testimony of the defendants' witnesses, in general, and of the two teachers in particular, Ms. Emmons and Ms. Bolazina, along with the Court's impression of the two teachers supports an opposite conclusion.
This portion of the case comes down to choosing between the conflicting opinions of the experts who testified for both sides. The Court accepted the opinions of the defendants' experts for several reasons. First, the witnesses from the DESE and the SSD showed themselves to be sincere professionals dedicated to the educational advancement of the children they serve. Each witness who testified seemed to be more concerned with what would most benefit or be in the best interest of the child than with the child's educational setting. They appeared delighted and counted it as a success when a child in a separate setting was able to move to a less restrictive environment.[81] This Court's view of the sincerity *1463 and dedication of the DESE and SSD witnesses is bolstered by the previous findings that both are procedurally complying with the Education Act.
Second, the independent approach taken by the outside experts who testified for the defendants led the Court to accept their opinions. Only Dr. Yard had more than minimal ties to the Missouri special education system. Drs. Burton and Gottlieb both made their testimony for the defendants' contingent on their perceptions of the system after viewing it. This is in contrast to the approach taken by plaintiffs' witnesses. All but one admitted that they already believed it was impossible to provide an appropriate education in a separate setting before they even viewed any of the defendants' programs.
Third, the generalizations the plaintiffs make are questionable. The witnesses for the plaintiffs maintained that their views of the benefits of integrating the profoundly handicapped were based on their experience with integrated programs. The programs, however, were all local in scope and voluntary in nature. None were or had been involved in a statewide program of court ordered integration. Dr. Fanning stressed that the localized experience could not be generalized to a state system. Fanning at Vol. 10. Moreover, existing along side the integration projects of the plaintiffs' experts were separate schools. In each of the state's, and even in each community, profoundly handicapped children remained outside the regular schools. Dr. Gottlieb, who toured both the DeKalb County, Illinois, and the Madison, Wisconsin programs found that the children he observed in the integrated programs were less severely impaired than the children served by the defendants.[82]
Fourth, credibility is not a question of numbers or place in the academic hierarchy. Rather it concerns who is in the better position to know what is being testified to by the competing witnesses. The Court believes that the witnesses for the defendants were in the better position. Their witnesses were administrators and teachers who had evaluated the progress of the children over time and who had worked with the children on a daily basis. As is the nature of such suits, the plaintiffs' witnesses were less familiar with the children at issue. They typically spent only a day or less at each school they visited. They usually concentrated on two to four children at a school, observing the children directly, reviewing their files, and speaking with their teachers. Yet, based on this minimal familiarity they testified that they did not see any children, even the ones they only saw in passing, that could not benefit from a regular school placement. Although the evidence was more general and theoretical, than specific, and the Court is not making any determinations with regard to specific children, two examples regarding individual children make the point here. The teacher of two of the children the plaintiffs' witnesses maintained should be in a regular school testified to the contrary. She maintained that one child is totally unaware of her environment. The child has no body control and must be repositioned, can not differentiate between people, does not know when things in her environment change, and her only communication occurs through unpredictable vocalizing. The other child can sit up but lacks head control and the ability to track objects. She, too, can not differentiate between people and has little environmental awareness.
Fifth, the Court gives the educational theories of the State's educators the deference required by law. This case comes down to a clash between two schools of educational thought on the question of whether interactions with nonhandicapped youngsters in a regular school environment are necessary for an adequate education. *1464 The Supreme Court in Rowley counseled the courts against substituting their own educational theories for those held by the state and local educational agencies. Hendrick Hudson Central School District v. Rowley, 458 U.S. at 206, 102 S. Ct. at 3050. Congress placed the primary responsibility for formulating educational policy on the state and local authorities, and it did not intend the courts to strike down an appropriate educational theory. Id. at 207-08, 102 S. Ct. at 3051-52. The debate over the need for interaction falls within this category. To rule for the plaintiffs would in essence require the Court to substitute, contrary to congressional intent and to the admonition in Rowley, one education theory for another. To overturn an educational theory held and applied in good faith by a state's educational authorities would require a showing that the theory is completely out of step with present educational thought and with no likelihood of benefitting the children served. Such evidence is not before the Court. To the contrary the evidence shows that Missouri is in the mainstream of special education. At present most severely handicapped youngsters continue to be educated in separate schools. Only Hawaii has fully integrated its handicapped children into its regular schools. Hawaii, however, only has one school district and its IEP teams still refer children to private schools or other nonregular school placements. All other states continue to educate more than just the medically fragile or physically abusive in separate schools. This Court is the first to recognize that the necessity of being the first to do something new or different is not a valid reason for not doing it. Neither, though, is change for its own sake a valid reason to change.
Here, the defendants are complying with the procedural requirements of the Education Act and are committed to an educational theory which is not inconsistent with the Act. The defendants' goal is to prepare each child to live as independently as the child's capabilities will allow. They theorize that to reach that goal they must have a system of alternative educational settings, a mechanism to place each child in the setting best suited to develop the child's skills, and a procedure to move the child to less restrictive settings as his skills develop. This is consistent with the Education Act and its regulations. This Court, therefore, will not interfere with and disrupt the state and local control of the special education program by ordering the defendants to change their program to comply with the theory espoused by the plaintiffs.
Again, as a postscript the Court points out that its ruling is limited to a finding that it is possible to provide an adequate education in a separate educational setting. The Court has not ruled and does not take a position on the particular educational programs provided to individual students. If a parent believes that his child's program is inappropriate he is free to pursue relief through the administrative review process and a court challenge.
Rehabilitation Act
The plaintiffs next turn to the Rehabilitation Act of 1973, 29 U.S.C. ง 701 et seq., as a basis for challenging the validity of the separate facilities maintained by the defendants. Section 504 of the Rehabilitation Act prohibits any handicapped person from being excluded from, denied the benefits of, or discriminated against with respect to any program receiving federal funds.[83] The plaintiffs argue that by placing *1465 the profoundly handicapped in separate schools the defendants exclude them from, deny them the benefits of, and discriminate against them with regard to a regular school placement in violation of Section 504. They claim that the Section and its accompanying regulations mandate the inclusion of these children into educational programs in the regular schools. The Court finds that the defendants maintenance of separate schools does not violate Section 504. Contrary to the assertion of the plaintiffs, Section 504 like the Education Act, does not mandate the education of all handicapped children in regular schools. The defendants' compliance with the requirements of the Education Act establishes compliance with Section 504.
The defendants argue first that Congress preempted the application of Section 504 to the area of elementary and secondary education with the passage of the Education Act. Five circuits, including this circuit, have ruled that the Education Act and Section 504 provide independent causes of action. Timms v. Metro Sch. Dist. of Wabash Co., Ind., 722 F.2d 1310 (7th Cir. 1983); Georgia Ass'n of Retarded Citizens v. McDaniel, 716 F.2d 1565 (11th Cir.1983); Marvin H. v. Austin Indep. Sch. Dist., 714 F.2d 1348 (5th Cir.1983); Smith v. Cumberland Sch. Comm. 703 F.2d 4 (1st Cir. 1983); Monahan v. Nebraska, 687 F.2d 1164 (8th Cir.1983). Two recent Supreme Court cases, though, lend considerable credence to the position of the defendants and cast doubt on the decisions of the five circuits. Smith v. Robinson, ___ U.S. ___, 104 S. Ct. 3457, 82 L. Ed. 2d 746 (1984); Irving Indep. Sch. Dist. v. Tatro, ___ U.S. ___, 104 S. Ct. 3371, 82 L. Ed. 2d 664 (1984). Each case discussed the reach of the Education Act with reference to the payment of attorney's fees. The Education Act does not provide for attorney's fees. The plaintiffs in Smith were trying to obtain them under Section 504 and Section 1983, and the plaintiffs in Tatro under Section 504. The Court concluded that Congress did not intend to allow parties to "circumvent the requirements or supplement the remedies of the EHA [Education Act] by resort to the general antidiscrimination provision of Section 504." Smith v. Robinson, ___ U.S. at ___, 104 S.Ct. at 3473. The Court in Smith reached the same conclusion with respect to equal protection claims under Section 1983, but did not rule on the due process claims.
The plaintiffs maintain that Smith and Tatro stand only for the proposition that if a party succeeds on its Education Act claim then it can not pursue a remedy under either Section 504 or Section 1983, but if the party fails under the Education Act then it still has the potential of alternative claims under Sections 504 and 1983. This Court's reading of Smith and Tatro is broader than that of the plaintiffs. If a party's claim concerns some aspect of his educational program cognizable under the Education Act the Education Act is the exclusive remedy for the party. The decisions in Smith and Tatro were handed down as this opinion neared completion, and since the extent of their application has not been discussed by this or any other circuit, the Court in the interest of efficiency and a final resolution of this case will proceed to discuss the merits of the plaintiff's Section 504 and Section 1983 claims.
The Eighth Circuit recently applied Section 504 to claims of discrimination in the education of handicapped children. Monahan v. Nebraska, 687 F.2d 1164 (8th Cir. 1983). The relevant issue in Monahan concerned whether damages for an improper educational placement were recoverable under Section 504. The appellate court viewed the reference to discrimination in Section 504 as indicating that a violation of the section required a different showing than did a violation of the Education Act. For the latter Act, the showing of an improper placement, educational program, or evaluation would be sufficient to constitute a violation. Id. at 1170. Relying on its belief that Section 504 did not create general tort liability and giving heed to the Supreme Court's admonition in Rowley that courts were not to substitute their judgment for that of the state and local educational authorities, the Eighth Circuit held that "either bad faith or gross misjudgment should be shown before a Section 504 violation can be made out, at least in the *1466 context of education of handicapped children." The Court explained that it could "not believe that Congress intended to create liability under Section 504 ... as long as the state officials involved have exercised professional judgment, in such a way as not to depart grossly from accepted standards among educational professionals ...." Id. at 1171.
Applying the Monahan analysis, this Court concludes that the defendants have not violated Section 504. The Court has already found that the witnesses who administer or work for the defendants are sincere, knowledgeable and dedicated educators with the best interests of the children they serve foremost in their minds. The plaintiffs' have not provided any evidence of bad faith or gross misjudgment on the part of the defendants. The plaintiffs do maintain that the defendants' refusal to transfer the severely handicapped to regular schools despite the advances in the education of the handicapped rises to the level of an unreasonable refusal to modify a program. Southeastern Community College v. Davis, 442 U.S. 397, 412-13, 99 S. Ct. 2361, 2370, 60 L. Ed. 2d 980 (1979).[84] The defendants' programs have been evolving with the advances in education. For example, Missouri once educated moderately handicapped students in separate schools. They are now placed in regular schools. Another example is the effort that has been made by both the DESE and the SSD to intensify the standards for placement outside the regular school environment. Other examples have been previously cited, but these two suffice to show that the educational systems under attack have not been static. The Court recognizes that there is an ongoing debate on the proper educational placement for the profoundly handicapped. The Court's function, however, is not to decide the debate nor interfere with the decision of Missouri's educators unless they have substantially departed from "acceptable professional judgment, practice or standards." Monahan v. Nebraska, 687 F.2d at 1171. The Court finds that Missouri's system of educating the severely handicapped is in the mainstream of acceptable professional thought. Nor have the defendants exercised their professional judgment in such a manner as to grossly depart from the accepted professional standards. Supportive of this finding are: (1) Forty-nine states currently educate some children in separate schools, and the other state, Hawaii, will still determine on occasion that other placement is more appropriate. See Dept. of Ed., State of Hawaii v. Katherine D., 727 F.2d 809 (9th Cir.1983); (2) Missouri provides for local districts to take over separate programs on a voluntary basis; (3) The defendants provide a continuum of placements and services that is fluid and allows each child to progress to less restrictive environments as he is ready; (4) To date the Secretary of Education has approved the compliance plans submitted by the State of Missouri; *1467 (5) The experts who testified on behalf of the defendants maintained that the Missouri state school system is on the cutting edge of the field. Fanning at Vol. 10; Burton at Vol. 11. Dr. Hall stated that the SSD provides the best educational program for the handicapped in the state.
Normally, a conclusion that the defendants have satisfied the requirements of or are acting consistently with the case law of the circuit would end the inquiry. The Court, however, hesitates to stop at this point today. At least one other circuit, the Seventh, has questioned the bad faith or gross misconduct standard enunciated in Monahan, and none of the other circuits have applied it. The Seventh Circuit's concern arises over the application of Title VI cases to Section 504. Originally intended as an amendment to the Civil Rights Act of 1964, Section 504 is patterned after Title VI of the Civil Rights Act, which prohibits race discrimination.[85] In 1981 the Rehabilitation Act was amended to provide that the remedies set out in Title VI would also apply to Section 504 actions. 29 U.S.C. ง 794a(a)(2). The Seventh Circuit Court believed that these two factors weaken the Monahan standard because Title VI has been interpreted as not requiring proof of intentional discrimination unless compensatory relief is sought. Timms v. Metro Sch. Dist. of Wabash Co., Ind., 722 F.2d at 1318 n. 4, citing Guardian Ass'n v. Civil Service Comm., ___ U.S. ___, 103 S. Ct. 3221, 3235 n. 27, 77 L. Ed. 2d 866 (1983).[86] Whether the Eighth Circuit Court intended the standard announced in Monahan to be applied in all Section 504 cases dealing with the education of the handicapped is not clear. The language used in Monahan does not hint of any limitations on the application of the standard. If that is the case, then the undersigned Court has already found the defendants in compliance with Section 504. It may be, however, that despite the broad language, the Circuit Court intended the standard posited in Monahan to apply only to cases where compensatory damages are sought. Monahan, after all, was such a case. If so, then the Court must further address the plaintiffs' Section 504 claim. The plaintiffs do not seek compensatory damages.
Section 504 prohibits discrimination against the handicapped in any program which receives federal assistance. The plaintiffs view education in a regular school environment as the program in question. They argue that the defendants are violating Section 504 by excluding the severely handicapped they serve from an educational program in a regular school and concomitantly from its benefits.
The plaintiffs focus on a regular school education as the federally funded program in question is misplaced. As with the Education Act, the congressional concern underlying Section 504 and its regulations is broader. The concern is that handicapped children not be excluded, denied, or discriminated with regard to a free appropriate public education.[87] 34 C.F.R. ง 104.33(a). There is no evidence in the record that the defendants have excluded any child in Missouri from receiving a publicly *1468 paid for education nor denied any child the opportunity to enjoy the benefits of a public education. This Court has already found, under the Education Act, that the defendants, on a systemic basis, are providing a free appropriate public eduation to the children they serve. The defendants are complying with the placement requirements and the regular school preference. Their compliance with the Education Act is sufficient, in this situation, to satisfy Section 504 and its underlying Congressional intent. This Court is convinced that when a Section 504 claim is based on some facet of the Education Act, such as the plaintiffs claim here, compliance with the requirements of the Education Act also establishes compliance with Section 504 even assuming, as urged by the plaintiffs, that the two Acts do provide independent causes of action. In the realm of elementary and secondary education for the handicapped Section 504 does not require anything beyond that required by the Education Act.[88]
*1469 A comparison of Section 504 with the Education Act further supports this conclusion. Both Section 504 and its accompanying regulations, at subpart D, 34 C.F.R. ง 104.31-39, and the Education Act and its regulations are directed toward ensuring a free appropriate education to each handicapped child. Section 504, passed with the Rehabilitation Act in 1973, is a general provision directed at combating discrimination of the handicapped in connection with any program receiving federal assistance. It does not require a recipient of federal funds to do any more than eliminate discrimination and ensure equal treatment of the handicapped in the federally assisted program. Affirmative action is not required. Southeastern Community College v. Davis, 422 U.S. at 410-11. The Education Act, on the other hand, passed after the Rehabilitation Act is in direct response to the issue posed here: what type of public elementary and secondary education must a state which receives federal funding under the Act provide to the handicapped. It provides that the state must assure equal access to a free appropriate public education for each handicapped child. Hendrick Hudson Central School Dist. v. Rowley, 458 U.S. at 200, 102 S. Ct. at 3047. Congress, however, when dealing specifically with the public education of the handicapped through the Education Act did not require "strict equality of opportunity and services." It recognized that the handicapped, to receive a meaningful educational opportunity would require extra help in the form of special aids and services generally not afforded to the nonhandicapped. Id. at 198-99, 102 S. Ct. at 3046-47. Unlike Section 504, which does not require affirmative action on the part of federal recipients, the Education Act requires the states that participate to take affirmative steps to ensure the provision of an appropriate education to each handicapped child. See id. at 183, 102 S. Ct. at 3039; Southeastern Community College v. Davis, 442 U.S. at 411, 99 S. Ct. at 2369; Timms v. Metro Sch. Dist., 722 *1470 F.2d at 1317; Monahan v. Nebraska, 687 F.2d at 1170. For example, under the Education Act each participating state must identify the eligible children in the state, diagnose their educational needs, develop an individualized educational program to meet the needs of each one, place each one in the least restrictive educational environment in which the child can receive a satisfactory education, and provide their parents with a mechanism whereby they can challenge and change the results of any of the above. 20 U.S.C. ง 1412. No federal statute affords this specialized treatment and these benefits to the general, nonhandicapped population.[89] In light of the comprehensive detail and specific nature of the Education Act, the undersigned Court will not assume that Congress intended Section 504 to create compliance requirements in the area of the education of the handicapped beyond those set out in the Education Act. See Smith v. Cumberland Sch. Comm., 703 F.2d 4, 10 (1st Cir.1983); Darlene L. v. Ill. St. Bd. of Ed., 568 F. Supp. 1340, 1346-47 (N.D.Ill.1983).
The regulations in subpart D that accompany Section 504 also lend credence to the view that compliance with the Education Act is, at the least, sufficient to satisfy Section 504. First, the regulations, although not as extensive, mirror the major requirements of the Education Act. A recipient that operates a public elementary or secondary school must identify, 34 C.F.R. ง 104.32(a); evaluate, ง 104.35(a) and (b); provide a free appropriate educational program designed to meet the unique needs of ง 104.33(a) and (b); place in the least restrictive educational environment which can provide a satisfactory education to, ง 104.34(a); ง 104.35(c); and reevaluate, ง 104.35(d); each child within the recipient's jurisdiction. The recipient must also provide a review process. Id. at ง 104.36. If a party has satisfied the more comprehensive requirements under the Education Act, then it has satisfied the procedural requirements of Section 504. Smith v. Cumberland Sch. Comm., 703 F.2d 4, 9 (1st Cir.1983). Second, the regulations themselves point out that one way to establish compliance with Section 504 is by implementing "an individualized educational program developed in accordance with the Education of the Handicapped Act ...." 34 C.F.R. ง 104.33(2). Third, the reach of these regulations has been called into question by the Supreme Court. On both the occasions that the Court has written on Section 504 with regard to education it has pointed out that the regulations can not require any changes beyond what is necessary to eliminate discrimination. Univ. of Texas v. Camenisch, 451 U.S. 390, 399, 101 S. Ct. 1830, 1836, 68 L. Ed. 2d 175 (1981) (Burger, J. concurring); Southeastern Community College v. Davis, 422 U.S. at 410, 99 S. Ct. at 2369. Each time the Court has emphasized the limited nature of what Section 504 requires of federal recipients. This concern with the scope of the post-secondary education regulations has been recognized as extending to the regulations concerning elementary and secondary education. New Mexico Ass'n of Retarded Citizens v. New Mexico, 678 F.2d 847, 852 (10th Cir.1982). Although neither the Supreme Court nor any other federal court, to this Court's knowledge, has held that the regulations go too far and are invalid, the regulations themselves and the reservations stated by the Supreme Court both serve to indicate that the compliance requirements of Section 504 do not extend beyond the requirements of the Education Act.
Finally the Court notes that several cases confronted with claims under both the Education Act and Section 504 have reached the same conclusion: The Education Act sets the outer limits on what is required of a state in the area of educating the handicapped. See Timms v. Metro Sch. Dist., 722 F.2d at 1317-18; Colin K. *1471 v. Schmidt, 715 F.2d at 9; Smith v. Cumberland Sch. Comm., 703 F.2d at 9 n. 5 and 10; Darlene L. v. Ill. St. Bd. of Ed., 568 F.Supp. at 1346-47. Stacey G. v. Pasadena Indep. Sch. Dist., 547 F. Supp. 61, 75 n. 8 (S.D.Tex.1982). See also S-1 v. Turlington, 635 F.2d 342 (5th Cir.1981) (analyzed claims under both statutes together). The Tenth Circuit in analyzing a challenge to New Mexico's educational system for the handicapped based solely on Section 504 intimated that the requirements under the Education Act are broader and extend farther than does Section 504. New Mexico Ass'n of Retarded Citizens v. New Mexico, 678 F.2d at 853. New Mexico does not participate in the Education Act program. No opinion has come to this Court's attention which has held the other way.
The Court is not suggesting that to satisfy Section 504 a federal fund recipient must always comply with the requirements of the Education Act. To the contrary, this Court is of the opinion, based on the foregoing, that compliance with Section 504 is less demanding than is compliance with the Education Act. That being the case, the Court is holding only that when the Section 504 claim concerns a facet of the education of handicapped children covered by the Education Act, such as the educational program or placement, a showing of compliance with the latter satisfies the former. The defendants are complying with the Education Act. The Court, therefore, finds that the defendants also are not violating Section 504.
Constitutional Challenges
The plaintiffs raise two constitutional challenges to the separate facilities; one is based on the equal protection clause and the other on the due process clause of the fourteenth amendment to the United States Constitution. With regard to the equal protection claim, the plaintiffs argue that the handicapped children placed in separate schools pursuant to Missouri law, Mo.Rev. Stat. ง 162.675(3), are denied access to an adequate education in a regular school afforded other children. They maintain that the classification established by the section does not further any state interest in providing an education to these children and can not withstand any level of scrutiny under the equal protection clause.
Ordinarily upon finding that a state classification exists, and it is uncontested here that Section 162.675(3) sets out a classification, the next question is which level of scrutiny should be used to determine the validity of the classification. The Court does not need to reach that question, however, since it finds that the classification contained in Section 162.675 satisfies the most stringent level of review, strict scrutiny. The Court cautions that it is not finding, nor does it mean to imply that strict scrutiny is the appropriate standard; only that even assuming strict scrutiny to be applicable Section 162.675 survives the equal protection challenge.[90]
*1472 Section 162.675(3), the challenged statute, defines "severely handicapped children" as those children whom professionals have determined, after evaluating their handicapping conditions, can not benefit from or meaningfully participate in regular school programs for handicapped children. Under strict scrutiny analysis this classification must be "precisely tailored to serve a compelling state interest." Plyler v. Doe, 457 U.S. 202, 217, 102 S. Ct. 2382, 2395, 72 L. Ed. 2d 786 (1982). The defendants maintain, and the plaintiffs concede that the state's interest is in providing an adequate education to all children, handicapped and nonhandicapped, within the state. The Court finds that provision of a public education is a compelling state interest. The importance of an education to the individual and to society has long been recognized. An education allows the individual to be more self-sufficient and a more productive member of the community. It also aids him in participating in the social and political institutions that undergird this nation. Plyler v. Doe, 457 U.S. at 211, 102 S. Ct. at 2392; San Antonio Indep. Sch. Dist. v. Rodriguez, 411 U.S. at 30, 93 S. Ct. at 1295; Brown v. Bd. of Ed., 347 U.S. at 493, 74 S. Ct. at 691. The framers, however, did not create, explicitly or implicitly a direct constitutionally based right to an education. *1473 Plyler v. Doe, 457 U.S. at 221, 102 S. Ct. at 2397; San Antonio Indep. Sch. Dist. v. Rodriguez, 411 U.S. at 35, 93 S. Ct. at 1297. Rather, the provision of a public education has fallen to the states. In light of the significance of an education, its provision is seen as one of the state's most important functions. Hendrick Hudson Central Sch. Dist. v. Rowley, 458 U.S. at 207-08, 102 S. Ct. at 3051-52; Plyler v. Doe, 457 U.S. at 221, 102 S. Ct. at 2397; San Antonio Indep. Sch. Dist. v. Rodriguez, 411 U.S. at 30, 93 S. Ct. at 1295; Brown v. Bd. of Ed., 347 U.S. at 493, 74 S. Ct. at 691. Missouri, in unison with the other forty-nine states, has undertaken to provide a public education to all children residing within the state. Mo. Const. Art. 9 ง 1(a); Mo.Rev.Stat. ง 160.051. The Court also finds that the classification in Section 162.675(3) is precisely tailored to serve the State's interest in providing an adequate education. The section allows only those children who can not benefit from or meaningfully participate in a regular school program for the handicapped to be placed elsewhere. The only criteria contained in the section "benefit" and "meaningful participation" are directly connected with the quality of the educational opportunity in the regular school. If a child, like his handicapped and nonhandicapped counterparts attending regular schools, can benefit from an educational program there, then the section requires that he also attend a regular school. If, however, the child unlike his counterparts would not benefit, then the section requires that he be placed in an educational setting where he will benefit. To require that all children, even those who can not benefit or meaningfully participate, be placed in a regular school would itself constitute an equal protection violation. This subgroup of school age children would be denied the opportunity to receive an adequate education.
The plaintiffs also challenge the classification as applied. They claim that handicapped children who could benefit from attending a regular school and interacting with nonhandicapped peers are denied that opportunity under Section 162.675(3). In other words, the classification as applied is overinclusive. The Court finds that not only is the statute precisely drawn, but it is also applied in a manner consistent with the equal protection clause. Section 162.675(3) is consistent with Congress' recognition in the Education Act, 20 U.S.C. ง 1412(5)(B), that not all handicapped children can receive a satisfactory education in a regular school. In order to assure that each handicapped child is placed in the appropriate setting Congress in the Act, and the regulations, established set procedures to follow in making placement decisions. The Court has already found the defendants to be in compliance with these procedures. Each child is evaluated on an individual basis by a number of professionals across a range of physical and mental modalities. The results are then reviewed by an IEP team. The team develops an IEP for the child and determines the appropriate placement to implement the IEP. The placement decision is based on educational need and not some criteria extraneous to the section. Also, the Court has already found the defendants in compliance with the provisions requiring a continuum of placements, and review of each IEP and of each placement on at least an annual basis. Moreover, the DESE has been keeping pace with the changes in the field of educating the handicapped. Pertinent to this issue, the evidence indicates that as educational theory and methods have improved allowing more children to receive an adequate education in regular schools the DESE has been making the requirements for separate school placement more and more stringent.
Aside from the traditional equal protection analysis, the Court also concludes that Section 162.675(3)'s consistency with the requirements of the Education Act establishes that it is valid under the equal protection clause. This Court shares the conviction of the Tenth Circuit that the Education Act is grounded, at least in part, on the fifth section of the fourteenth amendment, which gives Congress the power to enact laws to implement or enforce the amendment. Crawford v. Pittman, 708 F.2d 1028, 1036 (10th Cir.1983). Neither *1474 the Act nor its legislative history actually acknowledges any reliance on the enacting power created in section five. Congress does not have to recite "section five" or "fourteenth amendment" as a source of power, however, in order for a Court to find that Congress has exercised that power. E.E.O.C. v. Wyoming, 460 U.S. 226, 103 S. Ct. 1054, 1064 n. 18, 75 L. Ed. 2d 18 (1983). All that is necessary is that the legislative purpose or history indicate its exercise. Ibid. Here, the legislative history of the Education Act indicates that Congress was concerned with ensuring that handicapped children received the equal protection of the laws with respect to public education.[91] See Conf.Rep. 94-664; House Rep. 94-332; Sen.Rep. 94-168; 20 U.S.C. ง 1400(b)(9). With the passage of the Education Act, Congress intended to provide handicapped children equal access to educational opportunities at public expense. Hendrick Hudson Central Sch. Dist. v. Rowley, 458 U.S. at 200, 102 S. Ct. at 3047. It preferred that each handicapped child be placed in a regular school alongside nonhandicapped peers, but realized that for some handicapped children to have an opportunity for a satisfactory education would require placing them outside the regular classroom and even the regular school. 20 U.S.C. ง 1412(5)(B); 34 C.F.R. ง 300.551. Section 162.675(3) of Missouri law along with Section 162.680(2), Missouri's least restrictive environment provision, satisfies this acknowledgment by Congress that certain handicapped students will need to attend a nonregular school to ensure that they receive an equal educational opportunity. When a state classification is challenged on equal protection grounds and the classification is consistent with and in response to a federal statute enacted to assure implementation of the fourteenth amendment's equal protection clause then the reviewing court is hard pressed to find the state classification invalid, especially where there is no challenge to the underlying federal act. Here, the Court finds the classification established by Section 162.675(3) consistent with the equal protection clause.
The plaintiffs also raise a substantive due process challenge to the separate schools. They assert that severely handicapped children have an interest in receiving an education in a regular school with nonhandicapped children that is substantively protected by the due process clause. They argue, therefore, that placing handicapped children in separate schools substantially violates the due process clause. The gist of the arguments raised by the plaintiffs in support of this claim are no different from those raised in support of their equal protection and statutory challenges, and no more persuasive. The Court doubts very much whether the interest urged by the plaintiffs is protected, but even if it is, the Court concludes that the defendants have acted in a reasonable manner in placing the more profoundly and severely handicapped in separate schools.
The first step in analyzing a substantive due process claim is to determine whether there is a protected liberty interest.[92]*1475 No court, to this Court's knowledge, has found the interest urged by the plaintiffs, the interest of a severely handicapped child in being educated in a school attended by nonhandicapped children, to be a protected interest. The Court does not deny that there is some support for the view that receipt of an education, per se may be a protected interest. The Supreme Court has found a liberty interest in teaching and learning a foreign language, Meyer v. Nebraska, 262 U.S. 390, 43 S. Ct. 625, 67 L. Ed. 1042 (1922) (the concept of liberty encompasses the right "to acquire useful knowledge"); in sending one's child to private school, Pierce v. Society of Sisters, 268 U.S. 510, 45 S. Ct. 571, 69 L. Ed. 1070 (1962); and in Blacks being educated with Whites, Bolling v. Sharpe, 347 U.S. 497, 74 S. Ct. 693, 98 L. Ed. 884 (1954) (due process clause of the Fifth Amendment.) In Griswold the Court cited Meyer and Pierce for the proposition that a state can not "contract the spectrum of available knowledge." Griswold v. Connecticut, 381 U.S. 479, 483, 85 S. Ct. 1678, 1681, 14 L. Ed. 2d 510 (1965). None of these cases go as far as the plaintiffs now urge. What the plaintiffs really seek here is the constitutional recognition of a particular theory on how best to educate the more profoundly and severely handicapped. Furthermore, this theory of education, which is currently the subject of much debate and controversy, is not the type of interest to be constitutionalized.[93] A ruling in the plaintiffs' favor would eliminate the flexibility and experimentation ongoing in this ever changing field.
Assuming, however, that the parents of the plaintiffs have a liberty interest in having their children educated in a regular school under Pierce or that the severely handicapped may have a protected interest in associating with the nonhandicapped under Bolling or NAACP v. Alabama, 357 U.S. 449, 78 S. Ct. 1163, 2 L. Ed. 2d 1488 (1958); or even that a liberty interest akin to that urged by the plaintiffs does exist, the Court finds that the defendants have acted in a manner consistent with the due process clause. Finding a recognized liberty interest does not end the inquiry. Liberty interests are not sacrosanct. Youngberg v. Romeo, 457 U.S. 307, 320, 102 S. Ct. 2452, 3460, 73 L. Ed. 2d 28 (1982); Roe v. Wade, 410 U.S. 113, 153-54, 93 S. Ct. 705, 726-27, 35 L. Ed. 2d 147 (1973). Substantive due process does not act as a barrier shielding protected interests from all governmental constraints. So long as a state acts rationally and not arbitrarily, and imposes a restraint reasonably related to a legitimate government end then the due process clause, for substantive purposes, is satisfied. Youngberg v. Romeo, 457 U.S. at 321, 102 S. Ct. at 2461; Kelley v. Johnson, 425 U.S. 238, 248, 96 S. Ct. 1440, 1446, 47 L. Ed. 2d 708 (1976). To determine whether a restraint is arbitrary or reasonable, the liberty interests of the individual(s) are balanced against the interests of the state. Youngberg v. Romeo, 457 U.S. at 320-21, 102 S. Ct. at 2460-61; Roe v. Wade, 410 U.S. at 154, 93 S. Ct. at 727. Here, the interest of the state is in providing each child, handicapped and nonhandicapped alike, with a beneficial educational opportunity. Mo.Rev.Stat. ง 162.675(3). The professionals administering Missouri's system of public education have concluded that for some handicapped children to have a beneficial educational experience they need to have access to separate schools. The State's interest in providing an adequate education outweighs the plaintiffs' interest in attending a particular type of school or in associating with nonhandicapped *1476 children, and the State's method of only placing in a separate school those children who could not receive a beneficial education in a regular school is reasonably connected to this end. The plaintiffs argue that the separate school placements are not reasonably related to the provision of an adequate education because handicapped children can not receive an adequate education in a separate school and because the separate placement will stigmatize them. The Court has previously found that the separate schools can and do provide adequate educational opportunities, and that some handicapped children can not benefit from a regular school environment. The evidence also indicates that the "stigma" attaches to the handicapped status rather than to attendance at a particular school. Mild and moderately handicapped children in regular schools are subject to teasing and verbal harassment due to their handicaps. Moreover, for the children who are only, at best, minimally aware of their environment stigma is not an important concern. Placing each child in an educational setting suited to allow the child to develop fundamental life and social skills is more important than placing a child in a regular school where he would not benefit just to avoid a possible stigma. Parham v. J.R., 442 U.S. 584, 600-01, 99 S. Ct. 2493, 2503-04, 61 L. Ed. 2d 101 (1979) (failure to treat a mental disorder may create more of a stigma than the knowledge that one is being treated for the disorder).
Recent Supreme Court decisions support the conclusion that the defendants have not substantively violated the due process clause. The Court, in Youngberg when faced with a substantive due process claim by a mentally retarded individual challenging the training he was receiving in the state institution in which he had been placed, stated that due deference should be given to the decisions made by the professionals working in the institution when balancing the respective interests. Youngberg v. Romeo, 457 U.S. at 322, 102 S. Ct. at 2461. The Court reasoned that courts were no better qualified to make these types of decisions and that deference would limit the judiciary's interference into the internal operations of the state institutions. Id. at 322-23, 102 S. Ct. at 2461-62. The Court concluded that the "decision, if made by a professional, is presumptively valid; liability may be imposed only when the decision by the professional is such a substantial departure from accepted professional judgment, practice, or standards as to demonstrate that the person responsible actually did not base the decision on such a judgment." Id. at 323, 102 S. Ct. at 2462. The Court believes that this same reasoning applies equally as well to decisions made by professionals concerning the education of the handicapped. Rowley admonished courts not to become enmeshed in educational theory and policy squabbles. Such decisions were better left to state and local educators. Hendrick Hudson Central Sch. Dist. v. Rowley, 458 U.S. at 207-08, 102 S. Ct. at 3051-52. In an earlier case presenting a substantive due process claim, the Court warned against judicial intrusion into academic decision making. Bd. of Curators, Univ. of Missouri v. Horowitz, 435 U.S. 78, 92, 98 S. Ct. 948, 956, 55 L. Ed. 2d 124 (1978) (without deciding whether medical student had a substantive due process claim to challenge her dismissal from school for academic reasons, ruled that her dismissal did not violate the clause). The evidence cited earlier in this opinion establishes that the professional educators for the defendants have acted reasonably and within the recognized area of professional judgment, practice, and methods in deciding to provide separate schools for the handicapped children who would not benefit from a regular school setting.[94]*1477 The defendants have not violated the due process clause in this regard.[95]
Conclusion
Based on the foregoing discussion, this Court concludes that the special educational programs and the separate facilities of the defendants, considered systemically, do not violate the statutory or constitutional provisions relied upon by the plaintiffs. The undersigned Court, therefore, finds plaintiffs' claims to be without merit. As noted in the opinion above, the Court finds the issues in favor of defendants and against plaintiffs. The injunctive and declaratory relief sought by the plaintiffs is denied.
NOTES
[1] The parties relied on a particular terminology in discussing the different schools. The plaintiffs referred to the separate schools attended only by handicapped children as "segregated" schools and local neighborhood schools attended by the nonhandicapped and the less severely handicapped of the community as "integrated" schools. The defendants referred to the same type of schools as "clustered" and "dispersed," respectively.
The Court will use "special" or "separate" schools for the handicapped only schools. It will use "regular," "local," or "neighborhood" for the public schools attended by the nonhandicapped. Also the use of "schools" encompasses the separate facilities also challenged.
[2] The plaintiffs consist of five organizations and thirteen individuals. The five organizational plaintiffs are all advocacy groups. They include the St. Louis Developmental Disabilities Treatment Center Parent's Association, the Missouri Association for Retarded Children, the Missouri Association of Autistic Citizens, Concerned Parents of Caruthersville, and the Missouri Developmental Disabilities Protection and Advocacy Services, Inc. All are not-for-profit corporations, organized and existing under Missouri law. The first four organizations are made up of relatives and friends of the handicapped. The latter organization is funded by the Developmental Disabilities Office of the Department of Health and Human Services and charged with advocating for the rights of the handicapped in Missouri. Stips. 40-44. See Title 42 U.S.C. ง 6000 et seq.
The thirteen individual plaintiffs are all handicapped and had all attended or were attending a special school. As of June, 1983, nine of them attended separate schools maintained by the defendants, one received instruction at home, one attended a regular public school while awaiting the outcome of a challenge to his placement in a special school, and two no longer attended public school because they had surpassed the statutory age for eligibility to receive a public education in Missouri. Each brought suit through their next friend.
[3] Defendants include the Missouri Department of Elementary and Secondary Education, Dr. Arthur L. Mallory the Commissioner of Education, Dr. Leonard W. Hall the Assistant Commissioner in charge of Special Education, the Missouri State Board of Education, the Missouri Department of Mental Health, Paul R. Ahr the Director of the Department of Mental Health, the Special School District of St. Louis County, Pemiscot County Special School District, St. Louis City School District, and seven other local school districts.
All of the school districts and the state departments and agencies were organized pursuant to state law. All the school districts and the State receives federal money from the Department of Health and Human Services (HHS) and the Department of Education (DOE). The Missouri Department of Elementary and Secondary Education, the Department of Mental Health, and the two special school districts maintain the separate schools challenged by the plaintiffs.
The State of Missouri represented its departments, agencies, officials, one of the special school districts, and seven of the local districts at trial. The Special School District of St. Louis County and the St. Louis City School District were represented by their own counsel and presented evidence on their own behalf.
[4] The term "education" is used in a broader than normal sense when discussing the more profoundly handicapped. Typically, "education" is thought of in terms of academics: math, language, science, etc. Academics are only secondary considerations when planning an educational program for the severely handicapped. The focus is on teaching "everyday" skills that most people take for granted: dressing, eating, toileting, ambulating, speaking, etc. The Court employs the term in its broader sense throughout the opinion.
[5] When the Court speaks of the handicapped children the plaintiffs seek to "integrate," it will always be with these exceptions in mind.
[6] Although the plaintiffs do not press any individual claims and resolution of the systemic challenges presented does not hinge on the nature of the individual plaintiffs' handicaps, a brief description of their handicaps should serve as a useful backdrop in analyzing the challenges to the defendant's system. The individual plaintiffs have been referred to by their initials throughout the proceedings in order to protect their privacy. Their full names are on file under seal. Discussed, first, are the plaintiffs who have attended or are attending special schools under the direct auspices of the DESE or the St. Louis Co. Special School District (St. Louis Co. SSD). The age of each child is as of June 15, 1983, the date the stipulations were filed. Finally, the plaintiffs are listed in alphabetical order without regard to the relative severity of their conditions.
P.B. is nine years' old and attends a school within the St. Louis Co. SSD. P.B. was voluntarily admitted to the Developmental Disabilities Treatment Center (DDTC) in St. Louis in 1976. She was last diagnosed as (1) profoundly mentally retarded, (2) having a mixed seizure disorder, and (3) a flaccid quadriplegic. She has a mental age of six months, a fine and gross motor age of less than two months, and a language and self-care level of three to five months. If a child is at a three months' level it means that she is performing or doing the things one would expect a typical three months' old baby to be able to do. P.B. is unaware of her environment, unaware of where her body is in space, does not track objects, and does not initiate nor seek interaction with others. She is completely dependent on others for self-care. Stip. 53-54; P. Exh. 198; Friedebach at Vol. 10; Emmons at Vol. 13.
Both James Friedebach and Ellen Emmons testified for the defendants. James Friedebach, a licensed, clinical psychologist and the Supervisor of Pupil Accounting and Contract Services for the Division of Special Education, DESE, reviews the evaluations of the handicapping conditions of students referred to the special schools and has participated on numerous evaluation teams. Ellen Emmons is a teacher in one of St. Louis County's special schools, and testified with regard to her pupils.
C.E., an eleven year old, attends one of the special schools administered by the Department of Elementary and Secondary Education (DESE). She has a mental age of two years ten months, and a social age of four years two months. She can communicate and make simple requests, is toilet trained, and can discern colors and shapes. C.E. exhibits many characteristics of an autistic child. She is disinterested in people, has no interest in seeking approval, resists even minor change in her environment, and is overly responsive to the changes. Because C.E. will not generalize, she must be taught each pattern of behavior. Stip. 46; P.Exh. 193; Friedebach at Vol. 10.
J.H. is currently homebound. He is fourteen, blind in both eyes, cerebral palsied, mixed quadriplegic, and has a history of seizure disorder. Although he can not speak, he does vocalize and does appear to understand some things said to him. He can not feed himself nor is he completely toilet trained. J.H. does at times seem to enjoy interacting with people who are familiar to him, but his response usually depends on his health. He was recommended for homebound care because he has difficulty with infections. J.H. is completely dependent on others for self-care. Stip. 62-63; P.Exh. 187; Friedebach at Vol. 10.
P.P. is twelve and also attends a separate school administered by the DESE. He was voluntarily admitted to the DDTC due to viral encephalitis. The last evaluation put P.P. at a mental age of one month, social age of one month, a motoric age of three months. P.P. relies on others to feed, dress, move, and toilet him. He does vocalize by humming, will often react to his name by turning his head, and can fix on an object although he can not consistently track it. P.P. is diagnosed as profoundly, mentally retarded secondary to viral encephalopathy and as having profound seizure disorders. Stip. 51-52; P.Exh. 189; Friedebach at Vol. 10.
M.R., age twelve, attends a DESE school. She is more advanced than some of the other children. She has a mental age of one year three months, a motoric age of one to two years, and a social age of three years. Although M.R. can move independently she does not run, skip, or hop. She still requires assistance dressing and eating. M.R. does appear curious about her environment and expresses herself by gestures, but her attention span remains only a few minutes' long. P.Exh. 199; Friedebach at Vol. 10.
S.R. is twenty-two years old. He was voluntarily admitted to the DDTC, and while he was school age he attended a DESE school and also received homebound instruction. His last evaluation noted a mental level of two months, a language level of two to six months, and a social level of eight months. Although S.R. appears to be aware of his environment, he does not show any interest in it nor does he track or fixate on objects. He will, however, sometimes respond to his name. S.R. is dependent on others for all his needs. He is diagnosed as being profoundly, mentally retarded and as having a seizure disorder. Stip. 57; P.Exh. 185; Friedebach at Vol. 10.
C.S. is thirteen and attending a separate school administered by the St. Louis Co. SSD. She is profoundly mentally retarded due to an interuterine infection, is a spastic quadraplegia, and has a seizure disorder. C.S. has been evaluated as having a mental age of less than one month, a motoric age of one to two months, and her social and language levels are no more than three to five months. She is nonverbal and nonambulatory; she has no self-help skills. C.S. is alert, but generally unresponsive to stimuli in the environment. She also can not differentiate among people. On occasion, however, she will respond to her name or track an object. Her attention span is poor. Finally, C.S. is defensive toward contact with others. When approached by another person she will move into a fetal position. Stips. 49-50; P.Exh. 191; Friedebach at Vol. 10; Emmons at Vol. 13.
A.D.W. is eight. The DESE referred him to a special school. His parents challenged his placement in a special school under the Education of All Handicapped Children Act. He is presently attending a public school pending the outcome of the challenge. A.D.W. is at a two to three year level in social behavior, two and one-half to four year level in motoric ability, and one and one-half year level in language. He is ambulatory, almost toilet trained, able to partially dress himself, and able to speak in short sentences. He has a good attention span when interested, but he prefers to spend time alone. Stips. 47-48; P.Exh. 200.
James Friedebach did not discuss A.D.W. because of A.D.W.'s pending lawsuit in federal district court in the Eastern District of Missouri. The defendants maintained that a discussion of A.D.W.'s particular condition would be improper. This Court in summarizing A.D.W.'s handicapped condition as described in his student records does not intend to nor does it take a position on the propriety of A.D.W.'s placement.
K.W. is seventeen and attends a separate school maintained by the St. Louis Co. SSD. He was voluntarily admitted to the DDTC. K.W. has been diagnosed as profoundly mentally retarded due to cerebral anoxia. At fourteen his language level was evaluated at six to twelve months, his motoric level at seven to eight months, and his mental level at eight to ten months. K.W. is nonverbal, but does make sounds when he wants something, and can carry out simple commands. He is also nonambulatory, but capable of generally propelling himself in his wheelchair in wide areas and on smooth surfaces. K.W. is alert to his environment and responsive. Stips. 64-65. P.Exh. 192; Friedebach at Vol. 10.
W.W. is a fifteen year old attending one of the DESE's schools. He has a mental age of from one to four months, a social level of sixteen months, and a motoric level of twenty-two months. W.W. is ambulatory and vocalizes, but can not speak. He has shown no desire to express his needs. He has a short attention span and does not respond to his name or commands on any type of consistent basis. W.W. has a tendency to spend his time rocking or beating his chest. His only interaction is a reaching and grabbing movement. He is viewed as profoundly mentally retarded. Stips. 55-56; P.Exhs. 183, 184A, and 184E; Friedebach at Vol. 10.
The remaining three plaintiffs W.C., fourteen, M.P., sixteen, and A.W., twenty-three, all attend or have attended special education classes in the Pemiscot County Special School District (Pemiscot Co. SSD). Stips. 58-61. They appear to be at a higher functioning level. W.C. tested at a mental age of three years eight months. The reports from 1980-81 indicate that he is working on writing his name, the alphabet, and numbers. He is also learning to tell time, recite his address and phone number, identify emergency or signal words. P.Exh. 196. A.W., had a mental age of four years ten months in 1978. She can do some simple math; she can recognize colors, numbers, and letters; and she can write. A.W. has a poor attention span, however, and tends to go to sleep. P.Exh. 197. The record was not complete enough to describe M.P. P. Exh. 195.
[7] Although there are several individual plaintiffs, the plaintiffs have never approached this case as a challenge to the individual educational programs and placements of the individual plaintiffs. The plaintiffs have consistently challenged the system and the concept of educating profoundly handicapped students in separate schools. They even sought class certification, but after a hearing on certification the Court denied their request.
[8] These figures do not include children who attend private or parochial schools. The defendants suggest that none of the private schools have programs for the more profoundly handicapped, and many do not serve any handicapped children.
[9] "Stip. 1.12" means part 1, stipulation number twelve. The plaintiffs stipulated with all the defendants except the St. Louis City School District and the Special School District of St. Louis County in part 1. The plaintiffs stipulated with the City School District in part 2, and the Special School District in part 3. "Supp. Stip." means supplemental stipulation.
"SD Exh." means state defendants' exhibit. "SLSD Exh." means St. Louis City School District's exhibit. "SLCSSD" means St. Louis County Special School District's exhibit. "P. Exh." stands for plaintiffs' exhibit.
[10] The plaintiffs dropped both the State School for the Blind and the State School for the Deaf as defendants on the eve of trial. Both schools are administered directly by the DESE and neither one educates any nonhandicapped children.
[11] The State also provides a free education to school age children in the custody of the Division of Youth Services and the Department of Corrections. Neither educational program is challenged by the plaintiffs. Stip. 1.14.
[12] The educational resource teacher, the itinerant teacher, and the resource room are all intended to assist the handicapped child attending a regular classroom to overcome his handicap and participate at a level on par with his nonhandicapped classmates. The educational resource teacher is a specialist in developing strategies to help handicapped children overcome learning difficulties. The resource teacher's role is to assist the regular classroom teacher in developing a program and an instructional method tailored to the particular child having difficulty. The itinerant teacher differs from the resource teacher in that the former works directly with a handicapped child in the academic areas where the child needs special attention. The resource teacher does not deal directly with the child. Both of these strategies occur in the regular classroom. The resource room provides a place for a child experiencing greater difficulty to go for more intensive assistance. It provides the child with the opportunity to focus on a particular problem without the distractions present in a regular classroom. State Plan 1984-86 at A30-A32. The self-contained classrooms are classrooms attended only by handicapped students. These are students who even with the use of aids or supplements can not meaningfully participate in a regular classroom on a full time basis. Sometimes they are able to attend a regular class in an academic subject or in physical education, music, etc. The split time arrangement allows a child to spend part of his day in a self-contained class and part in a separate school. The special schools are the State Schools for the Severely Handicapped and the Phase III schools of the St. Louis Co. SSD. The public institutions and private agencies serve children who need a structured environment on a full time basis. Homebound instruction is designed for children who due to a physical defect or health impairment, can not safely travel elsewhere to receive an education.
[13] Each state is required by federal law to have a state plan in order to be eligible for funds under the Education of All Handicapped Children Act. 20 U.S.C. งง 1412(2), 1413. The most recent Missouri State Plans are in the record at P.Exh. 59 and 60.
[14] Dr. Roland Werner, Jr., is the Superintendent of Schools of the St. Louis County SSD. He has been the Superintendent for two years and was the Director of Special Education for the DESE six years prior to taking this position. R. Werner at Vol. 14; SLCSSD Exh. A.
[15] Dr. Leonard Hall is the Assistant Commissioner of Education for the State of Missouri and is responsible for the Division of Special Education. He began with the DESE in 1972 to assist in the formulation of what became Missouri's present law on the education of the handicapped. He has been the Assistant Commissioner since 1974.
[16] Dr. Heskett has been the Superintendent for two years. He was Assistant Superintendent for the seven years before that. Dr. Heskett is responsible for the overall administration and supervision of the state schools.
[17] The statewide supervisors are responsible for programming, pupil placement, staff development, related services, interagency services, pupil accounting and contractual services, media services and audio visual services.
[18] Missouri's school districts receive state funds in two forms: categorical money and foundation formula money. The Missouri Legislature appropriates a designated amount of money annually for the public schools of the state. Categorical aid, such as for transportation or for exceptional student classes, is paid from the appropriation first. What remains is known as the foundation formula, which is paid out on an equalizing basis. The amount of formula money, money which the local school system may use at its discretion, decreases as the categorical aid commitments increase. Moore at Vol. 12.
John Moore is an Assistant Commissioner of Education responsible for overseeing food service, transportation, school building services, and state aid. He has been an Assistant Commissioner for eight years.
[19] Chapter One provides money earmarked for state operated programs for the handicapped. The funds are provided on a per child basis. Congress appropriates a sum certain which is divided by the number of handicapped that are eligible for funding under the Act. In 1983-84 the fund was parceled out at $425 per child.
The state school system for purposes of Chapter One monies may count any handicapped student that has been served by a state program for at least a year. If the child, however, is no longer being served in a state program then the state must pass on the amount for that child to the education program serving the child. Any youngster who has never been in a state program is not eligible and can not be counted. Also any youngster counted under the Education Act for funding purposes can not be counted under this Act.
The State Schools received approximately $1.7 million under Chapter One. The remainder of the money goes to the School for the Blind, the School for the Deaf, and the DMH.
[20] The Act allows a state to keep money it does not spend one year for use the following year.
[21] Education Act funds are allocated on a per child served basis. Each state receives a certain percentage of the nationwide cost to educate a student in a public elementary or secondary school multiplied by the number of handicapped students, ages three to twenty-one, that are served in the state. In 1982-83, Missouri received $205 per child under the Education Act. The Act requires that 75% of these funds be treated as entitlement funds. Entitlement funds are passed on by the state in proportional allocations to the local and regional public schools and state agencies serving the children counted. A state may treat the other 25% as discretionary funds. Five percent or $300,000 may be used for administration expenses; the remainder must be used for support and direct services. 20 U.S.C. ง 1411(c) and (d).
[22] Delores John is the Director of the DESE section on special education. She is responsible for monitoring compliance with state and federal laws on the education of the handicapped and with administering funds to the local districts for special education. Before assuming the post, she taught two years in a regular classroom and two years in a classroom for children with behavior disorders. She also spent six years in counseling, and in administrating a handicapped program for a local school district. John at Vol. 11.
[23] The discretionary grants have been applied to five major areas: (1) deaf-blind programs at the local level, (2) local programs for the more severely handicapped, (3) priority areas identified on a yearly basis, (4) grants to and contracts with universities and colleges for technical assistance and to disseminate information, and (5) grants to local schools for personnel development and unforeseen contingencies. In 1982-83, $2.4 million in discretionary money went to these five categories, with half the money going for grants in the first two categories. Supp. Stip. 2.
[24] One other source of revenue often mentioned is the local tax effort. Missouri requires any school district sending a child to a State School or some other state run agency to pay an amount to the state equal to the local tax effort per child. Mo.Rev.Stat. ง 162.740. Although the payments are made directly to the DESE and the DMH, neither department has direct access to the funds. Both must remit the money to the State treasury. Id. at ง 162.745.
[25] The fifty-two State Schools and the number of children served in each are as follows:
Greene Valley State School, Springfield 180
Mapaville State School, Mapaville 81
H. Kenneth Kirchner State School, Jefferson
City 32
Shady Grove State School, Poplar Bluff 37
Lakeview Woods State School, Lee's
Summit 187
Boonslick State School, St. Peters 89
Delmar A. Cobble State School, Columbia 39
Maple Valley State School, Kansas City 113
State School No. 10, Gideon 28
Parkview State School, Cape Girardeau 51
B. W. Sheperd State School, Kansas City 138
Hubert Wheeler State School, St. Louis 178
State School No. 14, Bowling Green 25
Special Acres State School, Flat River 32
State School No. 18, West Plains 23
Verelle Penniston State School, Chillicothe 27
E. W. Thompson State School, Sedalia 51
State School No. 22, Neosho 17
B. W. Robinson State School, Rolla 36
Citadel State School, Potosi 18
State School No. 25, Ste. Genevieve 13
State School No. 26, Maryville 18
State School No. 27, Essex 17
State School No. 30, Mountain Grove 13
Helen M. Davis State School, St. Joseph 76
State School No. 33, Richmond 25
Oakview State School, Monett 40
State School No. 35, Keytesville 8
Mississippi Valley State School, Hannibal 79
State School No. 37, Passaic 13
Autumn Hill State School, Union 50
State School No. 41, Lutesville 10
Sunrise State School, Marshfield 13
Briarwood State School, Harrisonville 15
State School No. 46, Warrensburg 20
College View State School, Joplin 74
New Dawn State School, Sikeston 86
State School No. 53, Boonville 13
State School No. 55, Eldon 10
State School No. 56, Marshall 17
State School No. 59, Waynesville 12
Current River State School, Doniphan 21
State School No. 61, Salem 16
State School No. 63, Anderson 20
State School No. 65, Owensville 8
State School No. 66, Nevada 20
State School No. 67, Arcadia 9
State School No. 68, Piedmont 11
Gateway State School, St. Louis 195
State School No. 73, Mexico 15
State School No. 74, Dixon 9
Dale M. Thompson/Trails West State
School, Kansas City 122
Stip. 1.16.
[26] The prevocational training area is not a typical school shop. The training area is meant to provide a setting to teach the "severely handicapped" job and work related skills they can generalize and apply in a job. Similarly, the home living area is not a typical home economics room. It is designed like an apartment, and used to teach the severely handicapped the skills necessary to live independently or semi-independently.
[27] George Yard has a Doctorate Degree in special education and currently is an associate professor of Special Education at the University of Missouri, St. Louis. He has worked for the DMH and the St. Louis County SSD, and as a paid consultant for the DESE. SLCSSD Exh. GG; Yard at Vol. 15.
Walter A. Kopp is the Director of Special Education for the St. Louis City Public Schools. He has held the position since 1967. He has a Master's Degree in elementary administration and has done additional advanced work in special education in the areas of mental retardation and learning disabilities. SLSD Exh. 50; Kopp at Vol. 16.
Lois Wilkerson is a Special Education Administrator with the St. Louis City Public Schools. She has a Master's Degree in elementary education and thirty additional hours in special education. Ms. Wilkerson taught behavior disordered children for three and a half years, served as a resource teacher for two years, and was an IEP specialist for a year and a half. She is currently responsible for diagnostic services in three regions of the City's school district. She has participated in over 350 IEP conferences in the last two years. SLSD Exh. 52; Wilkerson at Vol. 16.
Jacqueline Gitel is employed in the Office of Special Education of the St. Louis City Public Schools. She has a Master's Degree in education with emphasis on special education. Ms. Gitel's duties include reviewing all diagnostic information and participating in IEP conferences. SLSD Exh. 53; Gitel at Vol. 17.
[28] The DESE also has the option of placing the child with a private agency. Mo.Rev.Stat. ง 162.735. Children who exhibit severe emotional or behaviorial problems or who have low incidence severe handicaps are more likely to be referred to private agencies. The private agencies are "not-for-profit" and charge the DESE less than cost. Local school districts are charged the actual cost.
[29] 1979-80 1980-81 1981-82 1982-83
_______ ________ ________ ________
Total Served by DESE 3223 3161 3094 2935
1. State Schools
2. Private Agencies
3. Homebound
Special Education 105,426 108,026 107,528 136,996
Youngsters
[30] Often the parents and/or the local school district are against returning the child from a State School to a regular school. The local district is against the return because it does not believe it can adequately handle the child. The parents want the child to remain in the State School where he has progressed. The DESE spends much time and effort in answering and resolving the concerns of each. If the child is on the borderline, was accepted in the earlier period, and will not be developmentally harmed by remaining in a State School then the child will not be referred back to the local school district. The state school system, however, will not accept any initial referral based on the wishes of the parents. Heskett at Vol. 9; Hall at Vol. 17.
[31] Dr. Heskett reported that he is aware of only twenty to thirty challenges involving State School placements in the last two to three years. Only three or four involved the choice between a State School and a regular school. Most involved the choice between a State School and institutional placement, with the parents favoring the latter option.
[32] Functional skills are the "everyday" skills that most people take for granted: dressing, eating, toileting, etc. They are skills so basic to life that if one can not do them for himself someone else must do them for him.
Generalization refers to the ability to apply what one has learned in one setting to a similar setting calling for that knowledge. The handicapped have difficulty generalizing.
[33] A child may be referred to the DMH by his parents or guardian on a voluntary basis, Mo. Rev.Stat. ง 632.110; by a juvenile court, Mo. Rev.Stat. งง 211.201 through 211.203; or by a circuit court, Mo.Rev.Stat. ง 552.020. The DMH accepts only a referred child, only if, after evaluation by department personnel placement with and treatment by the DMH is deemed appropriate. Mo.Rev.Stat. ง 632.120. The department admits children who suffer from mental disorders, mental illness, mental retardation, developmental disabilities, and alcohol or drug abuse if they are suitable for the residential therapeutic and habilitation program. The relevant statutory chapters also provide procedural safeguards and require periodic reviews of the necessity of a residential placement. See SD Exh. 14a.
[34] The following is a table of the number of children residing in and being educated in DMH facilities.
Reside Educate
Higginsville State School and Hospital 70 70
Marshall State School and Hospital 87 87
Nevada State School and Hospital 31 31
St. Louis State School and Hospital 29 1
St. Louis DDTC 81 27
The children not educated at the DMH facilities receive educational services at the following locations: Missouri School for the Blind 10; Special School District of St. Louis County 55; St. Louis City School District 3; State Schools for the Severely Handicapped 14.
[35] Earl W. Crawford has been the Educational Supervisor at the Marshall State School and Hospital for five years.
Gerold W. Stewart is the coordinator of client services for the DMH. He is responsible for monitoring the diagnostic process and IEP development.
[36] Wanda McPheron is the supervisor of Programming for the State Schools. Her responsibilities include ensuring that the IEPs comply with state and federal law.
[37] Most of the evidence on the SSDs comes from the testimony of witnesses from and exhibits of the St. Louis Co. SSD. The Pemiscot Co. SSD did not represent itself at the trial and no witnesses from the district testified. All the information on the Pemiscot SSD must be garnered from the portions of the depositions of Russell Gilmore, an administrative assistant for the district; Robert Herring, the Superintendent of Schools of the district; and Charles Williams, the Director of Programming for the district, offered into evidence. Their testimony can be briefly summarized.
The SSD serves the approixmately 850 handicapped children who reside in the seven local school districts of Pemiscot County. Challenged here is the SSD's "Unit II" program which served forty of these children during the 1982-83 school year. The program is located in a school building formerly used by the McCarty School District and located on the campus of McCarty elementary and middle school. Although the Unit II program is technically a separate program, during the 1982-83 school year nine of the children attended at least one nonacademic class in the regular school building. The IEPs of the nine children had called for some interaction.
The plaintiffs challenge the Unit II program on the grounds that it does not go far enough. They maintain that more interactions should occur and that the interactions that occur for the high school age handicapped children are not appropriate because they are not with age peers. Because of the nature of the Unit II program this Court's findings with reference to the State Schools and the St. Louis County SSD will apply to this special district also.
[38] The Phase II program has experienced several problems. Securing classroom space is one problem. The SSD relies on the local districts to provide the classrooms for the Phase II program. Declining enrollments in the local districts have caused them to sell school buildings and thus actually diminish the number of available classrooms. The St. Louis desegregation plan is expected to further exacerbate the space problem. The vocational schools have functioned under a similar plan for three years. The ratio of children transferring to the county districts to children transferring to the city district is five to one. The overall ratio is expected to be at least as high. R. Werner at Vol. 13; Harmon at Vol. 14; Gitel at Vol. 17. Since the local districts satisfy their regular class needs first, the SSD is left scrambling for sufficient classroom space or left to settle for unwanted space.
The Phase II staff also has had to cope with the misconceptions of the principals and regular teaching staff of the local public schools. They structure the school setting with the nonhandicapped child in mind and expect the handicapped child to conform. The staff has experienced difficulties in getting the regular teachers to accept mainstreaming because of the differences in the Phase II children. The regular school personnel also do not understand the special needs of the handicapped children. An example is the inflexible lunch period. The handicapped child requires a longer period in order to receive feeding instruction and to interact. Another example is toileting. The children in Phase II have more toileting accidents than do their nonhandicapped peers and need instruction in toileting, but in the regular school the bathroom is not in or adjacent to the classroom. Also the bathroom is shared with nonhandicapped peers making instruction more difficult. Finally, the regular education staff is not very tolerant of toileting accidents. They do not expect school age-children to have such a problem.
Dr. Harmon is the Deputy Superintendent of Schools for the SSD. Harmon at Vol. 14; SLCSSD Exh. DD.
[39] Paulette Bolazina is the Principal/Coordinator (teacher-in-charge) at the Sullivan School, a Phase III school. She has a Master's Degree in special education from St. Louis University and thirty hours of postgraduate work. She has been a teacher-in-charge with the SSD since 1976. Bolazina at Vol. 14; SLCSSD Exh. H.
[40] Doris D. Eldridge is the Assistant Supervisor for Personnel Services for the St. Louis Co. SSD. Her responsibilities entail protecting the rights of students, serving as the Civil Rights compliance officer, developing policies and procedures for dealing with the students, and working with the State on money matters. From 1975-81, she served as the Director of Pupil Personnel for the district, and then was promoted to her present position. She has a Master's Degree in communicative disorders. Eldridge at Vol. 15; SLCSDD Exh. N.
[41] The SSD developed the manual as a response to an inquiry by the Office of Civil Rights. The manual informs local school districts and the SSD staff that pupil-teacher ratios, classroom space, availability of related services, parental attitudes, and school district attitudes can not control a placement decision. Instead, determinative factors include the functional level, health, and IEP of the child. Eldridge at Vol. 15.
[42] In 1981-82, 797 of the 2,007 youngsters served in Phase III programs were assigned to Phase I and Phase II classes. SD Exh. 16.
[43] Janet E. Hauser is an Area Coordinator with the SSD, responsible for the Early Childhood Special Education Program. Hauser at Vol. 14; SLCSDD Exh. I.
[44] The SSD also has two Skill Centers which serve a total of four hundred handicapped children. The program is included within the Phase III count. About two-thirds of the children are from Phase II programs and the rest from Phase III programs. The goal of the Skill Centers is to mesh work skills with necessary academic skills to provide each student with an employable skill. For example, in the shop area there is a mechanic and an academic teacher. There are eight similar work areas. The program is designed for youngsters 16 to 21. The Phase II students come to the program because they are having difficulty in Phase II, and the Phase III students come because they are ready for a more open environment. Some of the children go on to vo-tech school, to a Phase II class, or to a work environment.
The St. John's project is another vocational program maintained by the SSD. At the time of the trial fifteen Phase III students were doing custodial, food service, and laundry work for a hospital. A Phase III teacher accompanied them to teach them such job-related skills as ability to arrive on time, to interact properly, and to stay on task.
[45] The SSD also has a program for severely behavior disordered (SBD) youngsters in its Phase III schools. The SBD educational program is highly structured and maintained separately from the programs for the other students. The programs are kept separated because SBD children need a stimulus free environment in order to attend to their work. Also, because they can pose a danger to other children. The teachers and aides who work with these children are trained to handle negative behavior and to reinforce positive behavior. Hauser at Vol. 14.
According to Dr. George J. Yard, whose doctorate and area of expertise is in the field of behavior disorders, (BD), behavior disorder children make up two and one-half to three percent of the school age population. Twenty percent of the severely handicapped are behavior disordered. A BD child is one who can not interact with his peers, parents, or authorities because his behavior is so significantly disorganized for a significant period of time. They may be verbally abusive or physically abusive to themselves, others, or property. Autistic children as well as children with conduct disorders such as hyperactivity or withdrawal fall within the BD category. Yard at Vol. 15.
[46] The following is a list of the twenty-one programs, the number of districts served by each program, and the number of students served during the 1981-82 school year.
District No. of Districts No. of Students
Bevier C-4 4 3
Bolivar Co-op 15 0
Camden County R-II 2 13
Cameron R-I 5 0
Carrollton R-VII 2 5
Clark County R-I (Kahoka) 6 6
Clinton 3 5
Ecco Co-op (Marshfield) 7 9
Greenfield R-IV 9 6
Kirksville R-III 5 18
Lafayette County C-1 6 9
(Higginsville)
Lebanon R-III 2 15
Leeton R-X 6 4
Lewis County C-1 1 5
Lutie R-VI 3 10
Moberly 3 8
Moniteau County R-1 8 13
Monroe City R-1 5 9
Montgomery County R-II 4 20
Tarkio R-I 4 7
Seymour 1 -*
* Seymour began its program in 1982-83.
Stips. 1.34 and 1.38. The same figures were not available for the 1982-83 year, but the numbers should not have differed significantly.
[47] When a local district takes over a state school program the DESE is no longer responsible for administering, staffing or providing the direct educational and related services. The DESE does remain responsible for ensuring that the local programs provide an appropriate educational program in compliance with the law. The DESE has found, however, that often a local district will refuse to provide a necessary component of an appropriate program if the money to pay for the component must come from within its existing budget. The district will sometimes threaten to abandon the entire program. The DESE uses discretionary grants to encourage the local districts to provide necessary services.
Under federal law the state may hold back up to twenty-five percent as discretionary funds from its Education Act allocation. 20 U.S.C. ง 1411. The rest is to be passed directly to the local districts to supplement their special education programs for the mildly and moderately handicapped. As Missouri has withheld more money in discretionary funds to pay for these local programs for the profoundly handicapped, six percent in 1981-82, eight percent in 1982-83, and twelve percent in 1983-84, the result has been a decrease in the money available at the local level to supplement programs for the mildly and moderately handicapped. Heskett at Vol. 9; John at Vol. 12; Hall at Vol. 17.
[48] The Education Act of 1975 refined previous attempts by Congress to ensure the education of the handicapped children of the nation. In 1966, Congress enacted the Elementary and Secondary Education Amendments, P.L. 89-750, which created a program of grants to assist states, a National Advisory Committee on Handicapped Children, and a Bureau of Education for the Handicapped within the Office of Education. This was known as Title VI. In the Elementary and Secondary Education Amendments of 1970, P.L. 91-230, Congress repealed Title VI and created the forerunner to the Education Act. The amendments continued to provide grants to the states, and maintained the Bureau and the National Advisory Committee. In addition, Congress allocated grants for research, program development, personnel development, and curriculum development and dissemination. In 1974, Congress extended the provisions of the 1970 Amendments for three years in the Elementary and Secondary Education Amendments of 1974, P.L. 93-380. The 1974 Amendments increased the funding, and added due process procedures and privacy safeguards. The 1974 enactment also set a goal of free, full educational opportunities for all handicapped children, a priority for use of the funds, and required a plan from each state to show that the handicapped children were being served in regular schools whenever appropriate. H.R.Rep. No. 332; 94th Cong., 1st Sess. (1975) (House Rep. 94-332); S.Rep. No. 168, 94th Cong., 1st Sess. reprinted in U.S.Code & Adm. News 1425, 1429-1430 (1975) (Sen.Rep. 94-168). The Senate version of the Education Act was introduced to ensure that the provisions contained in the 1974 Amendments were expanded to benefit the handicapped. Sen.Rep. 94-168 at 1430.
[49] The Supreme Court in Brown summed up the importance of an education in an oft quoted passage.
Today education is the most important function of state and local governments. Compulsory school attendance laws and the great expenditures for education both demonstrate our recognition of the importance of education to our democratic society. It is required in the performance of our most basic public responsibilities, even service in the armed forces. It is the very foundation of good citizenship. Today it is the principal instrument in awakening the child to cultural values, in preparing him for later professional training, and in helping him to adjust normally to his environment. In these days, it is doubtful that any child may reasonably be expected to succeed in life if he is denied the opportunity of an education.
Brown v. Board of Education, 347 U.S. at 493, 74 S. Ct. at 691. See Plyler v. Doe, 457 U.S. 202, 221-22, 102 S. Ct. 2382, 2397, 72 L. Ed. 2d 786 (1982); San Antonio Indep. Sch. Dist. v. Rodriguez, 411 U.S. 1, 30, 93 S. Ct. 1278, 1295, 36 L. Ed. 2d 16 (1973). The House Report stressed the historical nature of the concern. "An educated citizenry has been an objective of the Nation since the earliest thinkers began planning a government for what then were the colonies." House Rep. 93-805 at 4151.
[50] Missouri first enacted a compulsory attendance law in 1919. The present law was enacted in 1977. Mo.Rev.Stat. ง 167.031. The section still contains an exclusion for children whom the chief school officer of the district determines are physically or mentally incapacitated. Section 167.033, however, excludes from the exception all handicapped children who receive special educational services as provided by ง 162.670 et seq. In particular, ง 162.700(1) requires each local school district, not served by a SSD, to provide special educational services to the handicapped children within its boundaries.
[51] Statistics from the U.S. Office of Education show that in 1948 only twelve percent of handicapped children received special education services, twenty-one percent in 1963, and thirty three percent in 1967. Miller, 54 Ind.L.Jo. at 11 n. 34; Sen.Rep. 94-168 at 1430.
[52] The Education Act speaks in terms of the Commissioner of Education. The responsibilities of the Commissioner, formerly within the Department of Health, Education, and Welfare, however, were transferred to the Secretary of Education with the passage of the Department of Education Organization Act, 20 U.S.C. ง 3401 et seq., in 1979.
[53] The cases this Court has found which have denied systemic challenges, have denied the challenges not because they were systemic, but because of their subject matter. As an example of these cases see Fallis v. Ambach, 710 F.2d 49 (2nd Cir.1983).
[54] The defendants also maintain that the regulations accompanying the Education Act support a finding that private actions are limited to the educational services afforded an individual child. They call the Court's attention to the comments following 34 C.F.R. ง 300.552, in particular the admonition that "the overriding rule in this section is that placement decisions must be made on an individualized basis."
The Court does not find such a cause of action limitation in the regulations, 34 C.F.R. ง 300. Furthermore, the phrase cited by the defendants goes only to the question of how placements are to be made. It does not speak to potential causes of action. If anything remedying a violation of this "overriding rule" would seem to support finding a cause of action.
[55] The plan sets out compliance mechanisms. Each educational service provider must submit to the DESE a document indicating the development and maintenance of an IEP for each handicapped child served by it. The DESE may also request, at random, the IEPs and supporting documents of particular children to assess the adequacy of the programming and may make periodic, on-site visits. Id. at 48-49.
[56] The procedures used by DMH and the SSDs do not significantly differ from the one described in the text. The 1980 agreement between the two agencies makes the DESE responsible for the placement of children served by the DMH. As for the SSDs, an SSD team rather than a DESE team must approve a local district referral before a handicapped child is placed in a Phase III program. The differences do not alter the Court's decision
[57] By law, "handicapped children" in Missouri are defined as
children under the age of twenty-one years who have not completed an approved high school program and who, because of mental, physical, emotional or learning problems, require special educational services in order to develop to their maximum capacity.
Mo.Rev.Stat. ง 162.675(2). The law denotes as a subgroup of handicapped children, "severely handicapped children" which the law defines as
handicapped children under the age of twenty-one years who, because of the extent of the handicapping condition or conditions, as determined by competent professional evaluation, are unable to benefit from or meaningfully participate in programs in the public schools for handicapped children. The term `severely handicapped' is not confined to a separate and specific category but pertains to the degree of disability which permeates a variety of handicapping conditions and education programs.
[58] The plaintiffs also claimed that the defendants determine whether to place a child in a separate setting based solely on the child's I.Q. score. The Education Act prohibits the states from relying on only one procedure or test in evaluating the needs of a child. 20 U.S.C. ง 1412(5)(C); 34 C.F.R. ง 300.532(d). The defendants are in compliance with the Act and the regulations. State Plan 1984-86 at 69-71; P. Exh. 124 at 79-83; Friedebach at Vol. 10. Friedebach and R. Werner both stressed that the placement decision does not hinge on the child's I.Q. score. Also considered by an IEP team, is the child's communications, adaptive behavior, gross and fine motor, and mental level, along with the child's health, social skills, and the necessary services to aid the child. Friedebach at Vol. 10; R. Werner at Vol. 13; Wilkerson at Vol. 16; Gitel at Vol. 17.
[59] The full text of ง 1412(5)(B) states:
(5) The State has established
. . . . .
(B) procedures to assure that, to the maximum extent appropriate, handicapped children, including children in public or private institutions or other care facilities, are educated with children who are not handicapped, and that special classes, separate schooling, or other removal of handicapped children from the regular educational environment occurs only when the nature or severity of the handicap is such that education in regular classes with the use of supplemental aids and services cannot be achieved satisfactorily.
[60] Relying on Webster's dictionary, the plaintiffs maintain that schooling means "instruction in school," and, therefore, "separate schooling" as used in the Act means instruction in a regular public school, but not a regular classroom. The plaintiffs' definition, however, would result in Congress, having already listed special classes, repeating itself with the use of "separate schooling." They do not explain why Congress would recite the same alternative placement twice. The Court believes, irrespective of Webster, that the better definition of "schooling" within the statutory context is school.
[61] Commentators discussing the placement provision in Section 1412, have also viewed it as calling for a continuum of alternative placements to meet the varying needs of the children to be served. J. Shryban, Due Process in Special Education 17 (1982); (Shryban, Due Process); Colley, The Education for All Handicapped Children Act (EHA); A Statutory and Legal Analysis, 20 J. of L. & Ed. 137, 148 (1981); (Colley, 20 J. of L. & Ed.) Note, Education of Handicapped Children: The IEP Process and the Search for an Appropriate Education, 56 St. John L.Rev. 81, 112 (1981); (Note, 56 St. John L.Rev.); Enforcing the Right to an "Appropriate Education": The Education for All Handicapped Children Act of 1975. 92 Harv.L.Rev. 1103, 2220-21 (1979) (Note, 92 Harv.L.Rev.); 62 Ia.L. Rev. at 1419 n. 969, Miller, 54 Ind.L.J. at 3 n. 11, 6-7, 10-11; 62 Ia.L.Rev. at 1419 n. 969; Comment, the Handicapped Child Has a Right to an Appropriate Education, 55 Neb.L.Rev. 637, 672 n. 124 (1976) (Comment, 55 Neb.L.Rev.).
[62] The Supreme Court in Rowley noted Congress' reliance on PARC and Mills.
The fact that both PARC and Mills are discussed at length in the Legislative Reports suggests that the principles which they established are the principles which, to a significant extent, guided the drafters of the Act. Indeed, immediately after discussing these cases the Senate Report describes the 1974 statute as having "incorporated the major principles of the right to education cases." S.Rep. at 8. Those principles in turn became the basis of the Act, which itself was designed to effectuate the purposes of the 1974 statute H.R.Rep. at 5.
Hendrick Hudson Dist. Bd. of Ed. v. Rowley, 458 U.S. 176 at 194, 102 S. Ct. 3034 at 3044, 73 L. Ed. 2d 690.
[63] It is not clear to what extent Congress intended to pursue the mainstreaming presumption. The Education Act shows that Congress preferred regular classroom placement. It is not as apparent that once beyond a regular classroom that Congress had a preference. Both PARC and Mills set up a heirarcy: regular classroom, special classroom, separate school. It is not clear from the Act that Congress also adopted this heirarchy. Section 1412 merely lumps special classes, separate schooling, and other settings together. At least one federal judge has posited that Section 1412, and the mainstreaming preference applies only to those children who can in some respect be satisfactorily educated in a regular classroom. If the child can not be placed in a regular classroom for even part of the school day then the local district may determine, free of any mainstreaming restraints, where to locate the child's classroom. Roncker v. Walter, 700 F.2d at 1065-66 (dissenting, Kennedy, J.). Although the Court finds some merit to this position it is unnecessary to make such a finding to resolve the present issue.
[64] The regulations also require each educational service provider to review annually the placement of each child, to base the placement on the child's IEP, and to place the child in the appropriate placement nearest the child's home. Id. at ง 300.552(a). The State educational agency has the further responsibility of informing, training, and assisting the teachers and administrators who serve the handicapped to assure that they understand and comply with the placement provisions. Id. at 300.555. The State agency is responsible for monitoring the compliance of the other educational service providers. Id. at 300.556.
[65] The court did not rule on what was the appropriate placement, citing the age of the evaluative information on the children. The court did explicitly find that placement in a self-contained classroom violated the children's right to a free appropriate public education. The services in the self-contained class were not sufficiently intensive, the instruction would not be sufficiently individualized, and the curriculum not sufficiently flexible so as to adjust to the children. The court also found the possibility of mainstreaming the children into nonacademic classes to be detrimental to their self-image. Id. at 1387.
[66] At issue in Lora were the special day schools for the emotionally handicapped provided by the New York City Board of Education. The district court found special day schools to be an integral part of an acceptable continuum of alternative educational placements. Id. at 1164, 1169. The court pointed out that "mainstreaming" is a preference for regular school, regular class placement and not a mandate that all children be so placed. Id. at 1168-69. Mainstreaming does not require the elimination of all separate educational settings. Id. at 1167. The Second Circuit vacated the opinion on other grounds. Lora v. Bd. of Ed. of City of New York, 623 F.2d at 250-56.
[67] In discussing this point the Court will focus on the DESE placements and to a lesser extent the placements by the St. Louis Co. SSD. The DMH follows the same procedures as the DESE. In fact, the latter is responsible for placing the children of the former in educational settings. The information available on the Pemiscot Co. SSD shows that it too follows a pattern similar to that of the DESE and the St. Louis Co. SSD.
[68] Subsection two provides that:
To the maximum extent practicable, handicapped and severely handicapped children shall be educated along with children who do not have handicaps and shall attend regular classes. Impediments to learning and to normal functioning of such children in the regular school environment shall be overcome whenever practicable by the provision of special aids and services rather than by separate schooling for the handicapped.
Read literally Missouri's use of the word "practicable" instead of "appropriate" might be cause for concern. Practicable which means reasonably possible or feasible, could be more limiting than appropriate, which means fitting or proper. To the extent that the defendants are considering only practicality, in a narrow sense, then they are violating the placement presumption of Section 1412(5)(B). The evidence related in the text indicates, however, that the defendants are not shunning their placement responsibilities by relying on a narrow usage of the word "practicable." Use of the word "practicable" is not so odd when it is remembered that Missouri enacted its present special education laws in 1974. At that same time the Elementary and Secondary Education Amendments of 1974, which first incorporated this presumption in favor of local, public school education, was just being enacted, and the Education Act was still a year from passage.
[69] The plaintiffs point to the St. Louis Co. SSD to support their position that the children in separate schools are not appropriately placed. It is true that the Phase III schools educate a higher number of children than would be statistically expected. While the local public school districts of St. Louis County educate seventeen percent of the State's school children, the SSD's Phase III schools educate over forty percent of the State's children in separate schools.
The witnesses for the SSD provided several reasons for the size of the Phase III program. One, the county has a significant school age population that attends private and parochial schools, and, therefore, is not counted within the seventeen percent. Two, the SSD was one of the earliest school districts to deal specifically with handicapped children and has a reputation that causes people with severely handicapped children to settle in the county to take advantage of the programs. Three, the district serves children from a Juvenile Detention Center and the DDTC. Fourth, the students attending the skill centers, approximately 400 in number are also counted in the Phase III program. Fifth, even counting all 2,007 youngsters, that number still represents only sixteen percent of the handicapped children served by the SSD. R. Werner at Vol. 13; Hauser at Vol. 14; Huskey at Vol. 14; Eldridge at Vol. 15; Hall at Vol. 17.
The numbers presented on their face do not, when considered with the various explanations for them, establish that the SSD is systemically violating the least restrictive environment provision. As for whether particular children are misplaced, the Court leaves the resolution of that question to later cases with properly developed records and with their focus on the particular child.
[70] The DESE provides teachers and administrators serving the handicapped with the federal and state regulations concerning placement along with information on actions of the State Advisory Committee for Special Education Personnel Development. The state also conducts in-service training programs on the subject and the regional special education consultants are available to and do meet with the teachers and administrators.
The SSD of St. Louis County has developed an IEP manual that has been distributed to the professional staff of the district. The manual was designed to inform the staff regarding the applicable federal and state regulations concerning placement determinations. The manual provided a format to follow in making the determinations. The district was seeking to establish a consistent approach among the 1300 professional staff who could or have served on IEP committees.
[71] Listed below is the number of children referred from each State School to a less restrictive setting as indicated in the year end reports of the State Schools. P. Exhs. 1-57.
State School No.
No. Referred
Green Valley 1 11 (2 to St. Sch. for Blind)
Mapaville 2 3 (1 to Div. of Voc. Rehab.)
Kirchner 3 3 (2 to Div. of Voc. Rehab.)
Shady Grove 4 1
Lakeview Woods 6 3
Boonslick 7 3 (2 to Div. of Voc. Rehab.)
Columbia 8 3
Maple Valley 9 6 (4 to Div. of Voc. Rehab.)
Kennett 10 0
Parkview 11 4 (1 to Div. of Voc. Rehab.)
Shepherd 12 4 (1 to St. Sch. for Blind)
(3 to Div. of Voc. Rehab.)
Wheeler 13 0
Bowling Green 14 2 (1 to Div. of Voc. Rehab.)
Flat River 15 0
West Plains 18 4 (1 to Div. of Voc. Rehab.)
Cameron 19 2 (1 to Div. of Voc. Rehab.)
Chillicothe 20 0
Thompson 21 1 (1 to Div. of Voc. Rehab.)
Neosho 22 0
Robinson 23 0
Citadel 24 0
Ste. Genevieve 25 4 (2 to Sheltered Workshop)
Maryville 26 2 (1 to Div. of Voc. Rehab.)
Essex 27 0
Mtn. Grove 30 0
Davis 32 6 (4 to Div. of Voc. Rehab.)
Richmond 33 1 (to St. Sch. for Blind)
Monett 34 3 (1 to Div. of Voc. Rehab.)
Keytesville 35 1 (to Div. of Voc. Rehab.)
Hannibal 36 7 (2 to St. Sch. for Blind)
Passaic 37 1
Union 40 0
Lutesville 41 1 (to Div. of Voc. Rehab.)
Marshfield 42 0
Fulton 44 0
Harrisonville 45 1
Warrensburg 46 1 (to Div. of Voc. Rehab.)
Joplin 48 3
Siikeston 49 0
Bolivar 52 1
Boonville 53 0
Eldon 55 1
Marshall 56 2
Louisburg 57 2
Waynesville 59 1
Coniphan 60 1
Salem 61 2
Anderson 63 2 (1 to Div. of Voc. Rehab.)
Linn 65 1 (to Div. of Voc. Rehab.)
Nevada 66 1
Arcadia 67 0
Piedmont 68 0
Camdenton 69 3
Gateway 70 2
Mexico 73 1
Dixon 74 0
Kansas City 75 4 (to Div. of Voc. Rehab.)
[72] Dr. Hall, Dr. Heskett, and Ms. John believed that not every district was ready to educate the severely handicapped. Ms. John noted the difficulty the local districts had in providing educational services to the mildly and moderately handicapped. The regular education administrators of the local districts have not fully embraced the concepts of parental involvement and due process. The local districts, without prodding from the DESE, do not expend much effort in including parents in the IEP process nor providing them with a due process mechanism for objecting to their child's program.
The concept of least restrictive environment has also been a difficult concept for the local districts, to accept and implement. When 94-142 became law and mildly and moderately handicapped children came under the auspices of the local districts, the districts faced space problems. They did not have a place to put the classrooms for this group. Many obtained mobile classrooms for the handicapped students. Many of the classes remain in the mobile units even with the best efforts of the DESE to get them moved into the regular buildings. Also, the local districts have often balked at accepting handicapped students back from the state program. The DESE has had to negotiate long and hard to get the local districts to accept the child. The DESE usually avoided a due process fight with the district only by providing the district with discretionary funds.
[73] The Plaintiffs maintain that all of the state schools should be closed because some of them have already been closed. The children should become the responsibility of local school districts because then they would be placed in the least restrictive environment. Closing all of the state schools tomorrow would be inconsistent with the Education Act. First and foremost the Education Act is concerned that each handicapped child receive a free appropriate public education. Only secondarily does the least restrictive environment come in to play. Taken together, a child is entitled to be placed in the least restrictive environment where he can receive an appropriate education. The DESE has determined in twenty-one instances that a local district can provide an appropriate education. To speed up the transfer process on that basis, however, would result in the view of the DESE, in children being placed with districts either unable or unwilling to provide them with an appropriate education.
The Education Act recognizes that a local district will not always be the proper service provider. The Conference Committee on Bill S. 6 (The Education Act), added a definition of intermediate educational unit to the bill. The definition was added to include state created educational agencies that served handicapped students on a regional basis. Conference Rep. No. 94-664, 94th Cong., 1st Sess., 31 (1975); 20 U.S.C. ง 1401 (22). The Education Act also provides for a state educational agency to provide educational services when a local school district is unable or unwilling to provide a free appropriate public education, or has one or more handicapped children who can be better served in a State or regional educational facility. 20 U.S.C. ง 1414(d). The State education agency also has the authority under the Act to require local school districts to consolidate their programs on a regional basis to ensure adequate quality, size, and scope. Id. at 1414(c) and (d); House Rep. 94-332 at 17.
Shifting the educational responsibility to a local district does not guarantee that the children affected will be moved into a regular public school. Of the twenty-three local programs now serving severely handicapped youngsters only nine are currently located in a regular school building and two others are partially located in a regular school building. Of the rest, the two split programs and one other remain in the old state school building, seven are in mobile units sitting on the school grounds, and four are in rented buildings away from the regular schools. Supp. Stipulation 5. The same holds true for the state schools. Some are located on the campus or in the regular school buildings of local districts. Dr. Heskett testified that the DESE, when it was first establishing a state school program, always contacted the local school district about renting space or buying land. Testimony of Heskett at Vol. 8. The evidence indicates that just because a severely handicapped child is educated by a local school district, and in a regular school building does not mean that the child also interacts with nonhandicapped children. Id. at Vol. 9. Finally, the Court notes that the DESE's approach of transferring responsibility to those local districts that actively seek it comports with the approach suggested and followed by Dr. Sailor, one of the plaintiffs' expert witnesses. In deciding where to locate the handicapped classes in the San Francisco area he chose the public schools where the parents, teachers, and principal all were in favor of having the class. The project did not force a handicapped class on a school that did not desire one. Sailor at Vol. 1; Brown at Vol. 3 (another expert).
[74] The plaintiffs relied on a number of out-of-state witnesses connected in some way with special educational programs in their own areas. Rather than mention each one's background as he or she is cited, they are listed here:
Richard Brinker is a research scientist with Education Testing Service (ETS). He has a Doctorate Degree in Psychology and Human Development. Before joining ETS he taught and worked with a program for the multiply handicapped at the University of Nebraska. Brinker at Vol. 6; P. Exh. 256.
Louis Brown is a professor at the University of Wisconsin, Madison, with a Doctorate Degree in Mental Retardation. He teaches students who are preparing to teach the more severely handicapped. Currently he is actively assisting the Madison public school system in their program to integrate the district's handicapped children into regular schools. Brown at Vol. 13; P. Exh. 257.
Phillippa Campbell is an adjunct professor at Kent State University and responsible for or involved in various programs designed to assist handicapped infants and young children at Children's Hospital in Akron, Ohio. She has a Master's Degree in Special Education with an emphasis on learning disabilities. Campbell at Vol. 4; P. Exh. 258.
Sharon Freagon is a professor at Northern Illinois University in the Department of Learning Development and Special Education. She has a Ph.D. Dr. Freagon has worked with the parents and teachers of the more profoundly handicapped, teaches the latter group, and currently is working with the public school system of DeKalb, Illinois, on integrating severely handicapped children. Freagon at Vol. 4; P. Exh. 259.
H.D. Bud Fredericks works for the State of Oregon in its Teaching Research Division of the Department of Education. His responsibilities focus on teaching methods for the severely handicapped. He holds a doctorate degree in Education. Fredericks at Vol. 7; P. Exh. 260.
Warren Grund has a doctorate degree in Special Education Administration. He is presently employed by the North Syracuse Central School District as the Director of Special Education. Grund at Vol. 7; P. Exh. 262.
Jane Nisbet was a teaching and research assistant at the University of Wisconsin, Madison at the time of trial. She is now an assistant professor at Syracuse University. Ms. Nisbet has a Master's Degree in Special Education and has worked as a PT and as a special education teacher in the Madison School District. Nisbet at Vol. 3; P. Exh. 263.
William M. Peters is the Executive Director of the DeKalb County Special Education Administration (DCSEA). DCSEA is a special education cooperative composed of ten school districts and serving 2,000 students. Mr. Peters has been the assistant or executive director since 1975. He has a Master's Degree in Education Administration with emphasis on Special Education. Peters at Vol. 5; P. Exh. 264.
Wayne Sailor is a professor of Special Education at San Francisco State University. He is in charge of area programs for the severely handicapped and is the project director of the California Research Institute on Integration of Children with Severe Disabilities. He also was actively involved in the program to "integrate" the San Francisco Unified School District. He has a Doctorate Degree in Psychology. Sailor at Vol. 1; P. Exh. 265.
John R. Schroeder is the Coordinator of Specialized Educational Services for the Madison School District. His responsibilities include providing educational programs and related services for emotionally disturbed and multiply handicapped children. He too has a Master's Degree in Special Education. Schroeder at Vol. 5; P. Exh. 267A.
Martha Snell is an associate professor of Special Education at the University of Virginia. She teaches and supervises graduate students preparing to teach the severely handicapped. She has her Doctorate Degree. Snell at Vol. 2, P. Exh. 266.
Jane W. Toews is currently the Director of Classroom Services at Teaching Research in Oregon. She is responsible for the personnel budget, quality of programming, and the IEPs of profoundly handicapped children in five classes placed in Oregon's public schools. Ms. Toews has a Master's Degree in Special Education. Toews at Vol. 8; P. Exh. 267.
Besides the witnesses from the DESE and the St. Louis Co. SSD, most of whom have already been identified, the defendants also called in some experts of their own. They follow:
Thomas A. Burton is head of the Department of Special Education at the University of Georgia. He has a Doctorate Degree in Special Education with emphasis on mental retardation. He has taught the mentally retarded and has been an educational and program consultant for various projects and agencies. Burton at Vol. 11, SD Exh. 7.
Peter S. Fanning is the Executive Director of Special Education for the State of Colorado. He holds the same type of position as Dr. Hall holds in Missouri. He has worked as the Director of a special education program in a midsized city, as a professor at the University of Arizona, and as an intern with the Chief State School Officers helping to draft the Education Act. He has his Doctorate Degree in Educational Administration and Special Education. Fanning at Vol. 10; SD Exh. 46.
Jay Gottlieb is a professor of educational psychology at New York University. He has a Doctorate Degree in Pscycho-Educational Research in Mental Retardation. Dr. Gottlieb spent a total of seven years at the Research Institute for Educational Problems and on project PRIME studying mainstreaming and the effects of mainstreaming on handicapped children. Gottlieb at Vol. 16; SLCSSD Exh. HH.
James Newby is the Director of Special Education for the Davenport, Ia., Community School District. He is responsible for the overall administration and supervision of the program. He has a Doctorate Degree in Special Education Administration. Newby at Vol. 12; SD Exh. 47.
John M. Throne is a professor of Special Education at Kansas University and a senior scientist in the University's Bureau of Child Research. He has also worked as the executive director of a private school for the mentally retarded. He has a Doctorate Degree in Psychology with a minor in Special Education. Throne at Vol. 17; SLSD Exh. 20.
George L. Yard is an associate professor in the Behavioral Studies Department at the University of Missouri, St. Louis. He has taught special education courses, directed a special education school, and worked in the St. Louis Co. SSD. Dr. Yard, has a Ph.D. in Special Education, has also worked for the DMH and been a consultant to the DESE. Yard at Vol. 15; SLCSDD Exh. 66.
The Court found all of these witnesses to be qualified by experience and education to discuss the issues to which they testified. All were sincere in their beliefs as to what is educationally best for the more profoundly handicapped. They represent the two schools of thought on the education of the more severely handicapped.
[75] Ms. Eldridge testified that the SSD received approximately two hundred teacher applications for one opening. Eldridge at Vol. 15. In addition, the local districts would have available to them the teachers employed in the challenged facilities. If the rural areas had difficulty finding a teacher the school district could hire a temporarily certified teacher and then use the State's program for funding the training of these teachers. John at Vol. 12. The plaintiffs maintain that sufficient therapists would also be available. The local districts could contract with the OTs and PTs currently under contract with the defendants and further utilize the therapists they currently employ. Nor will dispersing the classes into age appropriate public schools affect the intensity of the therapy services according to the plaintiffs. They maintain that the local districts can adopt an indirect service delivery model. In the indirect model the therapist does not work directly with the children but trains the teacher and aides to do it. Campbell at Vol. 4. Also, because of declining enrollments and the accessibility requirements of Section 504 of the Rehabilitation Act sufficient classroom space should be available. Fire safety concerns could be more easily dealt with because fewer severely handicapped children would be in any one building.
Funds exist to cover the transition. The money currently being used for separate facilities could be used by the local districts. Although the plaintiffs admit that there would be some short run transition costs, they say that over the long term costs would either remain constant or decline. They reason that any increases in staffing or equipment costs will be offset by swings in building and administration costs. The "severely handicapped" will no longer have their own building or administration costs. Rather, they will share these "overhead" costs with other public school children. Sailor at Vol. 1; Peters at Vol. 5; Schroeder at Vol. 6; Grund at Vol. 7.
The plaintiffs also claim that moving the severely handicapped into regular schools would also mean that they are closer to their homes with a resultant decrease in time spent on buses to and from school. Schroeder at Vol. 6: The plaintiffs asserted that thirty-one percent of the state school students have one way bus rides of over an hour and that one way bus rides in the St. Louis County SSD also average over an hour. PE 1A-57A; Moore depo. The average route time of the severely handicapped students in the California, Missouri School District's special education program is only one half hour. Fletcher depo. The plaintiffs say that the local districts can contract for transportation services, allow private carriers, and receive money from the state to cover the excess cost of transporting the severely handicapped.
[76] The defendants claim that the educational programs and related services provided in the separate facilities can not be provided with the same efficiency or intensity if the classes are dispersed as desired by the plaintiffs. Dispersal of each separate school into at least three regular schools of appropriate age level will increase the costs of the program and result in other problems. However, The defendants admit that if only one child is considered or only a particular portion of an IEP is considered then often it is feasible to place the child or perform that portion of the IEP in a regular school environment. Heskett at Vol. 8; Emmons at Vol. 13. The focus, however, must be on the entire program and all the children served. Heskett at Vol. 8; Hall at Vol. 17. Not all programs can be as effectively provided in a regular school. One example is the feeding program. An effective feeding program for the "severely handicapped", in which they must be taught such things as lip closure and swallowing, requires a longer lunch period, and a less noisey and less crowded cafeteria than is available in a regular school environment. A crowded cafeteria also is not the most appropriate place to have to deal with rumination, spillage, and toileting accidents. These would be disruptive, if not repulsive, to the nonhandicapped. Burton at Vol. 11; Emmons at Vol. 13; Bolazina at Vol. 14. Another example is the toileting program. The schools in the major urban areas are typically older and multistoried. The elementary and middle schools have one rest room per sex, located in the basement of the building. The high schools may have more rest rooms, but not more than one per floor. To carry out the toileting program would require use of these "public" rest rooms. The instruction will be less effective because either the teacher will have to cope with nonhandicapped children coming in and out, or close the rest room to them, resulting in less instruction time. This situation has already posed a problem for the instruction of the moderately handicapped. Kopp at Vol. 15; Wilkerson at Vol. 16; M. Werner at Vol. 16; Gitel at Vol. 17. Another example is the program for the behavioral disordered children. They require a highly structured environment without distractions and with a trained staff, to benefit educationally and to improve behaviorially. A regular school could not provide this environment and would not have a staff trained to deal with these children. Newby at Vol. 12; Hauser at Vol. 14; Yard at Vol. 15; Hall at Vol. 17.
Not only will the educational programs suffer if dispersal occurs, but so will the quality of the occupational and physical therapy services. As the severity of a child's handicapping condition increases so must the intensity of the services provided. A separate setting is the most efficient environment for providing services of sufficient intensity to the severely handicapped. Fanning at Vol. 10; Newby at Vol. 12; R. Werner at Vol. 13; Kopp at Vol. 15; Hall at Vol. 17. To match the intensity level of the services in the separate facilities, the local districts would have to hire more therapists. Werner at Vol. 13; Eldridge at Vol. 15. The present therapists will be spending time, previously spent providing services, traveling to the various schools to which the classes have been dispersed. Heskett at Vol. 8; Burton at Vol. 11; Eldridge at Vol. 15. The therapists currently serving the mild and moderately handicapped will not be able to fill the gaps because they already have full schedules themselves. Bolazine at Vol. 14. Furthermore, reliance on an indirect service model is not the answer because the indirect model is being used where appropriate now, and can not be used where the IEP does not call for it. Bolazine at Vol. 14; Eldridge at Vol. 15. The Madison School District had to double the number of physical and occupational therapists when it dispersed its separate schools, and had to create the new position of therapist assistant. Schroeder at Vol. 5. Dispersal will result either in a decrease in these services, or will require additional resources to be committed and additional therapists to be hired. This is at a time when both the DESE and the SSD are experiencing difficulties finding therapists to fill their positions and the money to pay them. Heskett at Vol. 8; John at Vol. 12; Eldridge at Vol. 15; Hall at Vol. 17.
The defendants claim that closing the separate schools would not necessarily lower the bus route times, but would increase the cost of transportation. The setting does not guarantee shorter bus routes. The route time depends on where each child lives in relation to the school he is assigned to attend. Nearly all the local districts currently have routes that exceed an hour. Fitzmaurice at Vol. 6 and 12. Even though fewer "severely handicapped" children would be attending any one school they would still be geographically dispersed. To hold down transportation costs and local districts will want to modify a minimum number of buses to serve these children. Fitzmaurice at Vol. 6 and 12. Additional buses will be needed, however, just to serve the additional schools. Furthermore, to decrease the route times would require the use of additional buses. Buses are the major factor in transportation costs. Fitzmaurice at Vol. 12; Hall at Vol. 17. A new bus can cost between $14,500 and $21,500 before modifications for the handicapped. Additional buses also increase driver, aide, mileage, and maintenance costs. Fitzmaurice at Vol. 12; Hall at Vol. 17. Running their own buses though is cheaper for a school district than to contract for the service or to hire private carriers. Heskett at Vol. 8.
The additional therapists and the additional buses will increase the costs of educating the severely handicapped. Currently, none of the educational funds in Missouri are unencumbered. The state has relied on discretionary funds provided under the Education Act and state funds to cover the costs of the State School phase outs. The local districts have not had to contribute any additional monies to these programs. The discretionary funds would not cover a dispersal as envisioned by the plaintiffs.
The defendants maintain that additional obstacles stand in the way of dispersal. One is the need for classroom space. Even though public school enrollments are on the decline classroom space has become more scarce. In St. Louis, for example, as the enrollment has declined buildings have been sold or shut down. Also with the advent of desegregation the city school district has reduced its pupil-teacher ratio and thereby required more classrooms. At the same time the county school districts have sought additional classroom space to handle the influx of city students under desegregation. Already the classes for the mild and moderately handicapped are having difficulty finding classroom space. Currently, no excess classroom space exists in the county school districts or the city school district that could absorb the severely handicapped classes. Werner at Vol. 13; Harmon at Vol. 14; Kopp at Vol. 15; Wilkerson at Vol. 16; M. Werner at Vol. 16. The local districts will have to find classroom space to at least match the number of classes in the separate facilities. If no classrooms are available in the local districts then the districts will have to reopen buildings, find new buildings, or use the separate schools in some modified form. M. Werner at Vol. 16. Any cost savings from shutting down the separate schools would be offset to a significant degree. Furthermore if the DESE continues to maintain separate facilities for only the medically fragile and physically abusive then there may be no building related cost savings.
Another obstacle posed by the defendants are the attitudes of the regular education administrators and teachers. The administrators and staff do not understand the special needs of the severely handicapped. Wilkerson at Vol. 16; Hall at Vol. 17. They believe that the severely handicapped should fit the mold of a nonhandicapped child. For instance they believe that all children by the time they reach school age should be toilet trained. They do not understand when the handicapped do not possess this ability. Gitel at Vol. 17. Also the regular education teachers are typically unwilling to monitor, supervise, or interact with the handicapped children. They see the smaller class of handicapped children and believe that their teacher should be able to handle all of their problems. Wilkerson at Vol. 16. Due to the small increments of learning and the need for repetitive teaching methods the teachers need breaks during the teaching day. Bolazina at Vol. 14. The administrators are not receptive to severely handicapped classes because of the potential problems posed and the paper work. Kopp at Vol. 15. The severely handicapped unless handled properly by the entire staff can disrupt a regular education program and distract the nonhandicapped children. Burton at Vol. 11; Emmons at Vol. 13; Yard at Vol. 15; Throne at Vol. 17. The poor attitudes and serious insensitivity of the regular education personnel would have a deleterious effect on the teachers of the severely handicapped. Staff and administrative support is vital to forestall burn out among these teachers. The support present in a separate school with its entire focus on the needs of the severely handicapped would be missing from the regular school environment with its primary focus on the nonhandicapped. Newby at Vol. 12; Bolazina at Vol. 14; Hauser at Vol. 14; Gottlieb at Vol. 16.
Health and safety considerations also cause the defendants some concern. One, they are concerned with fire safety. Kopp at Vol. 15; Wilkerson at Vol. 16. The precautions taken by the regular schools in this regard were not formulated with the severely handicapped in mind, and would have to be adapted. M. Werner at Vol. 16. The separate schools are staffed with people trained in how to evacuate the severely handicapped, have audio and visual alarm systems, have two exits from each classroom, and in general, are newer buildings designed with the severely handicapped in mind. Heskett at Vol. 8; Kopp at Vol. 15; M. Werner at Vol. 16. Another concern is the day to day safety of the children. The severely handicapped do not have the ability to deal with problems they could encounter in a public school, nor the knowledge to seek help. Kopp at Vol. 15; Hall at Vol. 17. The schools do not have sufficient staff to monitor the severely handicapped at all times during the school day. Wilkerson at Vol. 16. The concerns range from being accidentally knocked down to being victimized. The moderately handicapped have been victims of extortion and sexual misconduct. Heskett at Vol. 8; Wilkerson at Vol. 16. The defendants also question the hygiene of the older schools. Many severely handicapped youngsters are highly susceptible to infections and suffer from allergies. They spend some time each day on mats on the floor. The defendants question whether the regular schools can be sufficiently cleaned and maintained so as not to endanger the health of the severely handicapped. Kopp at Vol. 15; Wilkerson at Vol. 16.
The defendants cited three other advantages to the separate settings: (1) The separate settings were designed solely with the needs of the severely handicapped in mind. The buildings have a dual alarm system, two exits from each class, extra-wide hallways for wheelchairs and other equipment, extra large classrooms for equipment, a home living area and a vocational area designed for the severely handicapped, rest rooms adjacent to each classroom, and a sink in each classroom. The regular schools do not have these facilities. Heskett at Vol. 8; Kopp at Vol. 15; M. Werner at Vol. 16. (2) The separate settings also allow the children to be grouped by functional level. Dispersal would make this impractical. Newby at Vol. 12. (3) A separate setting provides a better student teaching experience. The student can see how an entire program meshes together. This is more likely to weed out those potential teachers most susceptible to burn out. Newby at Vol. 12.
Finally, the defendants point out that the local school districts used as examples by the plaintiffs do not really represent the dispersal sought by the plaintiffs. All of the local districts that took over a State School program continue to keep all of the classes together rather than disperse them to age appropriate schools. Heskett at Vol. 8.
[77] Feasibility should be a concern. In this day of limited public resources, each state must maximize the use of its educational dollar. The states should strive to ensure that each education dollar is effectively and efficiently spent. Money, that is spent on an educational program or service which is wasted in some way or not utilized to its fullest is money taken from the programs or services of other children. Feasibility, however, does not translate into appropriate. It can be feasible to place a child in a certain educational environment, but not appropriate for the sake of his education to do so. Besides, based on the record before the Court, grave doubts arise as to the feasibility of a wholesale transfer and dispersal of all but the medically fragile and physically abusive to regular schools. Where once one school served these children there would now be at least four schools: one regular elementary, middle and high school, and the separate facility for the exceptions noted.
[78] The plaintiffs presented two other unsubstantiated reasons why a regular school better prepares a child for the "real" world. First, Dr. Sailor claimed that a regular school provides more settings in which to teach a child a skill and thereby aid the child's generalization of that skill. He maintained that the tendency in a separate school is to keep the child in the same room the entire day. Sailor at Vol. 1. Second, Dr. Brown claimed that regular schools due to their proximity with the community provide the handicapped child greater opportunities to go into the community to practice a functional or social skill or go to a job site to learn a work skill.
As Dr. Heskett pointed out in responding to Dr. Sailor's claim a separate school has the same physical settings as does a regular school: classrooms, hallways, cafeterias, and restrooms. In addition the separate facilities have home living areas and vocational rooms designed especially to teach this population functional skills. The shops and home economic rooms in regular schools are not so designed. Moreover, students, that are ready assist in the cafeteria, the custodial people, or the grounds people. Heskett at Vol. 8. The evidence indicates that at times children are kept in the classroom for lunch rather than going to the cafeteria. Lunch, however, is not just free time, it is another learning situation. For some children the classroom is more conducive to learning eating and feeding skills, and therefore, they are kept in the classroom for instruction. The decision is based on educational need. Burton at Vol. 11; Emmons at Vol. 13; Bolazina at Vol. 14. The bathrooms are adjacent to the classrooms in the separate schools. This is to aid the teacher in toileting instruction and in cleaning up after the children. If the toileting instruction had to occur in the bathroom of a regular school, then to be successful the bathroom would need to be closed to nonhandicapped children. Kopp at Vol. 15, Wilkerson at Vol. 16; Gitel at Vol. 17.
The proximity claim of Dr. Brown is not persuasive. There is no evidence in the record regarding the location of Missouri's separate and regular schools in relation to businesses that might potentially hire the handicapped or to potential community outings. Location is not as important as the motivation of those in charge of the special education program to provide field trips and job placement, and the communication level between the school and the community. The plaintiffs have not presented any inherent reasons why the staff of a separate school can not be as competent as that of a regular school. Witnesses for the DESE and the SSD maintained that they take the children in separate schools on more community outings than are taken by the regular schools. Part of their educational method includes practicing the skills taught in school in community settings. They also have job placement programs. Heskett at Vol. 8; R. Werner at Vol. 13; Bolazina at Vol. 14; Huskey at Vol. 14. Even if a regular school happened to be closer to more job opportunities the opportunities could still be less for the profoundly handicapped. In a separate school the focus is on placing only a few handicapped students at any one time. Whereas in a regular school the focus is more broad, the nonhandicapped, and mild and moderately handicapped as well as the profoundly handicapped are would all be seeking employment.
[79] The witnesses maintained that busing nonhandicapped children into separate schools is not as effective as integrating the handicapped children into regular schools. Busing lowers the number of interaction opportunities. Not only are there fewer nonhandicapped children around, but they are there for only segments of the day. When nonhandicapped children are bussed in they are in the separate school solely for the purpose of interacting thereby, losing the spontaneity and naturalness of regular school interactions. Also, busing is an additional cost. Sailor at Vol. 1; Snell at Vol. 2.
[80] The defendants stressed throughout the trial the lack of empirical data to support the benefits of interaction claimed by the plaintiffs. See Fanning at Vol. 10; Burton at Vol. 22; Gottlieb at Vol. 16; Throne at Vol. 17; Hall at Vol. 18. Many of the plaintiffs' witnesses admitted that no research data existed to support their position. Sailor at Vol. 1; Nisbet at Vol. 3; Freagon at Vol. 5; Schroeder at Vol. 6; Frederick at Vol. 7; Brown depo. Dr. Fredericks testified there is no data that all things being equal an education in a regular school with nonhandicapped children will achieve better results.
Mr. Brinker testified regarding a study he made. He concluded that severely handicapped children are more likely to interact with nonhandicapped children than with other handicapped children. The study compared the number of interactions between handicapped and nonhandicapped children when the latter are brought into the former's classroom with the number of interactions between handicapped children when the nonhandicapped children are not in the classroom. Brinker at Vol. 6. The study also showed that as teacher involvement (instruction) increased interactions among the handicapped students declined. Dr. Gootlieb for the defendants retorted that the study did not show that interactions increase when nonhandicapped children are in the school environment. He claimed that the study only showed that handicapped children have a greater tendency to interact with nonhandicapped children when they are put together for that purpose, than to interact with each other when the teacher is presenting a lesson. He maintained that it is only logical to expect time set aside for interacting to produce more interactions than time allotted for lessons. Gottlieb at Vol. 16.
The only actual data appears to concern the effect of interactions on the attitudes of the nonhandicapped toward the handicapped. The studies conclude that the nonhandicapped will have a positive attitude toward the handicapped if the former are properly trained to interact and not just thrown together with the handicapped, the interactions are highly structured, and if the handicapped child is developmentally able and ready to interact. If any one of these factors is absent, then the nonhandicapped child will probably come away with a negative attitude. Also, the studies indicate that if the training of the nonhandicapped children stops then the number of interactions decreases. Although the actual studies were not presented to the Court, they are referred to now as part of the basis for the opinions of Drs. Heskett, Burton, and Fanning.
[81] Granted the defendants' witnesses from the DESE and the SSD had some stake in the status quo, the stake for many would not be very significant. No one really stood to lose their job over this case. The administrators who testified would still be needed to oversee the special education program of the DESE statewide, and the SSD administration would not be affected. The teachers, with experience with these children, would probably be welcomed by the local school districts, and there is some evidence that they would be better paid by the local districts.
[82] The court by this ruling does not intend to denigrate the integrity of the plaintiffs' witnesses. They are highly motivated and dedicated individuals, committed in good faith, to advancing their theory and belief of what is educationally best for handicapped children.
[83] Section 504 reads, in pertinent part that:
No otherwise qualified handicapped individual in the United States, as defined in Section 706(7) of this title, shall, solely by reason of his handicap, be excluded from the participation in, be denied the benefit of, or be subjected to discrimination under any program or activity receiving federal financial assistance ....
29 U.S.C. ง 794 (1978). Section 706(7) provides that
... the term "handicapped individual" means, for purposes of subchapters IV and V of this chapter, any person who (i) has a physical or mental impairment which substantially limits one or more of such person's life activities, (ii) has a record of such an impairment, or (iii) is regarded as having such an impairment.
20 U.S.C. ง 706(7) (1978). Section 504 falls within Subchapter V.
[84] Davis presented the Supreme Court with its first opportunity to interpret Section 504. The case concerned the exclusion of a hearing impaired individual from a college nursing program. Based on evidence that the hearing impairment would prevent Davis from participating in the entire program and could pose a safety problem for patients assigned to her the Court upheld the denial of admission. The Court stressed that Section 504 did not preclude the college from considering Davis' handicap and excluding her from the program if her handicap prevented her from meeting all of the requirements of the program. Id. at 405-06, 99 S. Ct. at 2366-67. Section 504 prohibits only discrimination based on a handicap. A handicapped individual who is otherwise qualified to participate in a program can not be denied the opportunity to participate solely because she is handicapped. Id. at 406, 99 S. Ct. at 2367.
Davis argued that with certain modifications of the training program she could learn some of the functions of a registered nurse and at the same time not endanger any patients. Id. at 408, 99 S. Ct. at 2368. The Court answered that Section 504 did not require affirmative action to modify a program. A program needed only to be modified to the extent necessary to eliminate discrimination. Id. at 410, 99 S. Ct. at 2369. The Court added, however, that the line between unnecessary affirmative modifications and necessary modifications to eliminate discrimination was not always clear. It pointed out that situations may arise, due to changes in circumstances or innovations, where a refusal to modify a program would constitute discrimination. Id. at 412-13, 99 S. Ct. at 2370. The plaintiffs now rely on this caveat.
[85] Title VI reads in pertinent part:
No person in the United States shall on the ground of race, color, or national origin, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any program or activity receiving Federal financial assistance.
[86] At least one court has questioned the application of race case principles to cases dealing with discrimination of the handicapped. Garrity v. Gallen, 522 F. Supp. 171, 206 (D.N.H.1981). The Garrity court cited two reasons why courts should not analogize "race" to "handicap." First, unlike race there are no readily apparent divisions among the handicapped. Second, whereas race is not a precursor of ability, handicap and ability are inextricably intertwined. Id. at 206. Also, the Timms court concluded that it was unclear whether Title VI principles applied to Section 504. Timms v. Metro Sch. Dist., 722 F.2d at 1318 n. 4.
[87] Where a child is placed is only a component of an appropriate education. Id. at ง 104.33(b). The Section 504 regulations do express a preference for educating the handicapped with nonhandicapped children, but the regulations do not mandate it. A child, who a placement team finds can not receive a satisfactory education in a regular school with the use of supplemental aids and services may be educated elsewhere. 34 C.F.R. ง 104.35(c).
[88] The plaintiffs set out five benefits that they claim are available to children attending regular schools. (1) the opportunity to interact with nonhandicapped children, (2) a more motivated, highly qualified staff, (3) a greater range of available activities, (4) a locally elected school board, and (5) a six hour school day. In essence, they claim that the children attending the separate schools are being denied these benefits, solely because they are handicapped. Section 504 requires modification of programs necessary to eliminate discrimination, which they claim in this instance entails transferring the severely handicapped to regular schools.
Even assuming a local educational program is the appropriate program to focus upon for this inquiry, the same conclusion is reached for two reasons. First, Section 504 requires that the handicapped seeking participation in or the benefits of a federally assisted program must be qualified despite their handicap to participate in the program. The Court has already found that on a systemic basis the defendants have procedures in place to ensure that the proper placement decisions are made. A decision that a child should be placed in a separate school is also a decision that the child is not qualified for a regular school program.
Second, the benefits claimed would either not be beneficial to this group of children or are not inherent to a regular school setting. The first two benefits, interaction opportunities and teacher quality, have been discussed. The evidence established that for handicapped children who are not ready to interact, interaction opportunities will not be used and the exposure will often prove harmful to the child's further development. Similarly, there is no resulting benefit in teacher quality by placing the children in regular schools. The teachers in the separate schools must be certified to teach the severely handicapped. No evidence has been presented to the effect that teachers employed by the defendants are less competent. Witnesses for the plaintiffs who observed in the separate schools found the teachers competent, and witnesses for the defendants testified that they are highly motivated. The Court's impression of the two teachers who testified for the defendants supports this testimony. Also, the evidence indicated that teachers in the separate schools are better able to combat burn out, the primary concern of the plaintiffs.
The plaintiffs' third claim is that a regular school environment provides a variety of extracurricular activities, has a library, and has personnel not available in the separate schools. They did not, however, show how many handicapped children now participate in these activities. Nor did they show what activities are offered to the handicapped by the local school districts that have taken over state school programs. Similar to the interaction opportunities the availability of numerous activities is meaningless unless the child is able to actually participate. The evidence indicates that most, if not all, of the handicapped children in the separate schools have either severe speech and communication impairments, motoric limitations, environmental awareness deficiencies, significant mental handicaps, or a combination thereof. The availability of organized sports, cheerleading, student council, the math club, national honor society, etc., is not beneficial to a child that can not hold its head up, or is not aware of his environment, or can not communicate, or can not even do rudimentary academic exercises. Likewise, access to a library is not beneficial to a child that has not developed the mental or physical capacity to read. No evidence was presented to indicate that students who might possess basic reading skills are not furnished sufficient reading materials. The evidence indicates that counselors and social workers are made available when a child's IEP calls for them. The benefit of having certified art and music teachers is not clear. Section 504 does not require equality for its own sake. Resources are too scarce to provide the handicapped with activities or personnel from which they can not benefit.
The fourth benefit, like the interaction opportunities, is tied to a regular school environment as the system is now set up. The state schools do not have a "local" school board as do the regular schools, and the special school districts. The plaintiffs claim that parents of children in separate schools are denied the opportunity to petition a local school board responsive to community needs to redress their grievances. Although, the state schools do not have a "local" school board, parents have sufficient outlets for expression of their concerns and redress of their grievances. They have the opportunity to participate in the formulation of their child's educational program, something not available to the parents of nonhandicapped children. They are also guaranteed notice of any change in their child's program and may institute at any time a challenge to the child's identification, evaluation, educational program, placement, or review through established administrative review procedures. Federal law requires public hearings and consultation with individuals involved in or concerned with the education of the handicapped. 20 U.S.C. ง 1412(7). Missouri provides for public hearings and for the Commissioner of Education to establish an advisory committee to review services and consider problems. Mo.Rev.Stat. ง 162.685; ง 162.690. Missouri has at least one advisory committee. The committee consists of parents, educators, university people, private vendors, and therapy service providers. Eldridge at Vol. 15. Dr. Hall testified that he spends half of each working day dealing with parents, and holds at least one forum per month. Hall at Vol. 17.
The final benefit claimed does cause the Court some concern. The plaintiffs claim that the children in separate schools are denied a full school day. By law, the regular public schools must provide a six hour school day. Mo.Rev. Stat. ง 160.041. The state schools, however, do not fall within ง 160.041. They provide a five hour school day. The Court notes first that the length of the school day is not a product of the setting. Both Special School Districts have school days of longer duration than six hours. The St. Louis State School and Hospital has a six hour school day. Defs. ans. to Interrogatories # 7. Nevertheless, the Court is concerned, about the five hour school days in the state schools and the DMH facilities. The defendants did not put on any evidence to indicate why they have shorter days. At trial they objected to the plaintiffs offering of this evidence; they claimed that the length of the school day had not been pled, and, therefore, was not an issue in the case. It may be that some handicapped children would not benefit from an additional hour, but that is a determination that must be made on an individual basis. If the DESE has limited the school day for all of these children solely because they are handicapped, then it would be in violation of Section 504. The Court, however, does not reach this question because the plaintiffs at trial informed the Court that "[t]he length of the school day we are offering as evidence on the issues of Section 504 violations and equal protection violations, and we don't mean to make this an issue as such that we are seeking specific relief from." Transcript Vol. 6, lines 14-18. Since the length of the school day is not a product of the school environment this does not warrant a change in the placements. The State should review its five hour school day provisions in the light of this opinion and particularly this footnote.
[89] Another example of the difference in the reach of the two statutes is the consideration given the finances of the school system. Under the Education Act a lack of funds is not a defense to noncompliance. Roncker v. Walter, 700 F.2d at 1063. In comparison under Section 504, modifications to accommodate the handicapped are limited so as not to cause any undue financial hardship. New Mexico Ass'n of Retarded Citizens v. New Mexico, 678 F.2d at 854.
[90] It is the Court's view that strict scrutiny is not the appropriate standard. Strict scrutiny applies when the classification affects a fundamental interest or a suspect class. Public education is not a right created by the Constitution, and, therefore, is not a fundamental interest. Plyler v. Doe, 457 U.S. 202, 221, 102 S. Ct. 2382, 2397, 72 L. Ed. 2d 786 (1982); San Antonio Indep. Sch. Dist. v. Rodriguez, 411 U.S. 1, 35, 93 S. Ct. 1278, 1297, 36 L. Ed. 2d 16 (1973). Nor have the handicapped been recognized as a suspect class. To date the Supreme Court has recognized only race and national origin as suspect classes. It has not addressed the question with regard to handicapped individuals. At least two Circuits have taken up that question and have rejected handicapped status as creating a suspect class. Brown v. Sibley, 650 F.2d 760 (5th Cir.1981); Doe v. Colautti, 592 F.2d 704, 711 (3rd Cir.1979). See also Dopico v. Goldschmidt, 518 F. Supp. 1161 (S.D.N.Y.1981); Sherer v. Waier, 457 F. Supp. 1039 (W.D.Mo.1977). Only one case has been brought to this Court's attention that has held that handicapped persons are members of a suspect class. In re G.H., 218 N.W.2d 441 (N.D.1974). A suspect class must be readily ascertainable and have been subject to a history of unequal treatment and political powerlessness. San Antonio Indep. Sch. Dist. v. Rodriguez, 411 U.S. at 28, 93 S. Ct. at 1294. The handicapped do not fit the traditional notions of a suspect class. First, the handicapped are not as readily ascertainable as are the traditional suspect classes of race and national origin. This is even more true when one seeks to subdivide the handicapped into classes. Several different definitions of "severely handicapped" were held by the various witnesses that testified. Second, unlike race or national origin, a handicapping condition does have an effect on the individual's abilities. See Southeastern Community College v. Davis, 442 U.S. 397, 99 S. Ct. 2361, 60 L. Ed. 2d 980 (1979). Finally, the passage of the Rehabilitation and the Education Acts detracts from the political powerlessness concern.
Whether a rational basis or the intermediate level of scrutiny is the more appropriate standard is more difficult to determine. Although the Supreme Court has not dealt with an equal protection claim involving a handicapped class, two equal protection cases involving public elementary and secondary education provide some insight into the problem. In Plyler, the more recent of the cases, the Court applied the intermediate tier of scrutiny and found that a Texas law which denied state education money to local school districts to educate undocumented, alien children violated the equal protection clause. Two points argue against application of Plyler. In Plyler the Court stressed that the states did not have authority in the realm of classifying aliens, and therefore, the special deference afforded the Congress in that area did not also apply to the states. Id. 457 U.S. at 225, 102 S. Ct. at 2399. The primary responsibility for public education, however, has traditionally been left to the states and localities. Brown v. Bd. of Ed., 347 U.S. at 493, 74 S. Ct. at 691. Also, Plyler points out that the middle level of scrutiny allows the Court to apply a heightened level of review when absolute and enduring constitutional principles are involved. Plyler v. Doe, 457 U.S. at 218 n. 16, 102 S. Ct. at 2395 n. 16 (citations omitted). There is debate as to the proper method for educating the more severely handicapped. The testimony evidenced strongly held opinions by well regarded professionals on both sides of the separate school โ regular school issue. The concern at issue lacks the absolute and enduring nature spoken of by the Court.
The other case is San Antonio Indep. Sch. Dist. v. Rodriguez, 411 U.S. 37, 93 S. Ct. 1299. The Supreme Court in that case applied a rational basis standard and determined that Texas' system of distributing state tax money to local school districts did not violate the equal process clause even though it still resulted in the poorer districts having less money to spend on education. Furthermore, the Court expressed reluctance to intercede in an area left primarily to the states.
In addition to matters of fiscal policy, this case also involves the most persistent and difficult questions of educational policy, another area in which this Court's lack of specialized knowledge and experience counsels against premature interference with the informed judgments made at the state and local levels. Education, perhaps even more than welfare assistance, presents a myriad of "intractable economic, social, and even philosophical problems." The very complexity of the problems of financing and managing a statewide public school system suggests that "there will be more than one constitutionally permissible method of solving them" and that, within the limits of rationality, "the legislature's efforts to tackle the problems" should be entitled to respect.
* * * * * *
The ultimate wisdom as to these and related problems of education is not likely to be divined for all time even by the scholars who now so earnestly debate the issues. In such circumstances, the judiciary is well advised to refrain from imposing on the States inflexible constitutional restraints that could circumscribe or handicap the continued research and experimentation so vital to finding even partial solutions to educational problems and to keeping abreast of ever-changing conditions.
Id. at 55, 93 S. Ct. at 1308. These statements apply equally as well to the review of educational policies and theory with regard to the handicapped, and were reflected in the Court's opinion in Rowley, where it cautioned courts against substituting their judgment for that of the state and local educational authorities. Hendrick Hudson Central Sch. Dist. v. Rowley, 458 U.S. at 207-08, 102 S. Ct. at 3051-52.
[91] Both Houses stated views that the Education Act was designed to implement the equal protection clause. The House Committee stated that it believed the "State laws and court orders must be implemented and that Congress has the responsibility to assure equal protection of the laws and thus to take action to assure that handicapped children have available to them appropriate educational services." House Rep. 94-332 at 19. The Senate Committee wrote that it believed that "Congress must take a more active role under its responsibility for equal protection of the laws to guarantee that handicapped children are provided equal educational opportunity." Sen.Rep. 94-168 at 9, U.S.Code Cong. & Admin.News 1975, p. 1433. See also Id. at 22. Furthermore in the Conference Report, the Conference Committee wrote: "The Senate Bill and not the House Amendments state that it is in the national interest that the Federal Government assist state and local efforts in order to assure equal protection of the law. The House recedes." Conf.Rep. 94-664 at 28-29. The same basic statement is also found in the first section of the Act. "[I]t is in the national interest that the Federal Government assist state and local efforts to provide programs to meet the educational needs of handicapped children in order to assure equal protection of the law. 20 U.S.C. ง 1400(b)(9). Several commentators have also mentioned the equal protection concerns of the Act. See Colley, supra, at 142; Miller, Ind.L.Rev. at 17 n. 56; Puget Sound L.Rev. at 185.
[92] The plaintiffs argue that based on the least restrictive environment provisions of the Education Act and Missouri law the handicapped have a protected property interest in being educated in an environment with nonhandicapped peers. Undoubtedly the Education Act and Missouri law create an entitlement recognized for purposes of procedural due process. State and federal statutes, however, do not of themselves create substantive due process rights. Substantively protected rights must flow either directly from the Constitution or be peripheral to those explicitly set out. Griswold v. Connecticut, 381 U.S. 479, 483, 85 S. Ct. 1678, 1681, 14 L. Ed. 2d 510 (1965). Education is not such a right. See n. 98.
[93] Substantive due process applies only to liberty interests recognized as emanating from the Constitution. See n. 90.
[94] The plaintiffs maintain that the professionals who make the placement decisions are not able to exercise their independent judgment because there is no regular school placement option for them to choose.
The defendants' continuums do not inhibit the IEP teams professional judgment. The defendants do not label a group of children as "severely handicapped" and then automatically place them in separate schools. Rather each IEP team reviews the unique characteristics of each child and determines where in the continuum of placements, which includes placements in a regular classroom and in a separate classroom in a regular school, the child would be placed appropriately. The full continuum is available to all of the handicapped children.
[95] The plaintiffs raise two additional challenges, one under 42 U.S.C. ง 1983 and the other based on Missouri law. Each requires only limited comment.
Based on this Court's earlier findings that the defendants are in compliance with the Education Act and the Rehabilitation Act and have not violated the equal protection or due process clauses of the Fourteenth Amendment, the plaintiffs do not have a claim to assert under Section 1983. Section 1983 does not provide any substantive rights of its own. It is procedural in nature, designed to assure that an aggrieved individual has a vehicle by which to redress constitutional violations or the violation of certain federal statutes. Middlesex County Sewage Auth. v. National Sea Clammers Assoc., 453 U.S. 1, 19-20, 101 S. Ct. 2615, 2625-2626, 69 L. Ed. 2d 435 (1981); Pennhurst State Sch. & Hosp. v. Halderman, 451 U.S. 1, 27-30, 101 S. Ct. 1531, 1545-1546, 67 L. Ed. 2d 694 (1981); Chapman v. Houston Welfare Rights Organ., 411 U.S. 600, 606, 617-18, 99 S. Ct. 1905, 1910, 1915-1916, 60 L. Ed. 2d 508 (1979); Miener v. Missouri, 673 F.2d 969, 976 n. 6 (8th Cir.1982). Without the finding of an applicable statutory violation or a constitutional violation Section 1983 does not create a right of action.
As for the state law claim, the Court believes that it is precluded from reaching the merits of the claim by the Supreme Court's most recent Pennhurst decision. Pennhurst State Sch. & Hosp. v. Halderman, ___ U.S. ___, ___-___, 104 S. Ct. 900, 910-911, 79 L. Ed. 2d 67, 81-82 (1984). The Supreme Court analyzed the competing interests in federal supremacy and in state sovereignty as recognized in the Young and Edelman line of cases. Edelman v. Jordan, 415 U.S. 651, 94 S. Ct. 1347, 39 L. Ed. 2d 662 (1974) (can not recover retroactive monetary relief in suit against state official for violation of federal law); Ex parte Young, 209 U.S. 123, 28 S. Ct. 441, 52 L. Ed. 714 (1908) (a suit against a state official alleging conduct in violation of the Constitution is not a suit against a state, and, therefore, not barred by the Eleventh Amendment. Pennhurst State Sch. & Hosp. v. Halderman, ___ U.S. at ___-___, 104 S.Ct. at 908-910, 79 L. Ed. 2d at 79-81. It ruled that the overriding need to promote federal supremacy when a federal statute or the Constitution is involved is not present where the concern is whether state officials are complying with state law. Id. at ___, 104 S.Ct. at 911, 79 L. Ed. 2d at 82. In such a situation no federal interest is present, yet "it is difficult to think of a greater intrusion on state sovereignty than when a federal court instructs state officials on how to conform their conduct to state law. Such a result conflicts directly with the principles of federalism that underlies the Eleventh Amendment." Id. at ___, 104 S.Ct. at 911, 79 L. Ed. 2d at 82. The principles recognized and applied in Pennhurst also apply here where the plaintiffs ask the Court to determine whether state education officials are complying with state law.
The Court notes in passing that even if Pennhurst did not apply, it would rule for the defendants on the merits. The aforementioned evidence indicates that the defendants are complying with state law.
Also, see Wilson v. Marana Unified School Dist. of Pima County (9th Cir.1984), 735 F.2d 1178 at 1183. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2388837/ | 161 F. Supp. 2d 432 (2001)
CONGREGATION KOL AMI and Rabbi Elliot Holin, Plaintiffs,
v.
ABINGTON TOWNSHIP; Board of Commissioners of Abington Township; The Zoning Hearing Board of Abington Township and Lawrence T. Matteo, Jr., Defendants.
No. CIV. A. 01-1919.
United States District Court, E.D. Pennsylvania.
July 11, 2001.
*433 Jonathan Auerbach, Berger & Montague, P.C., Philadelphia, PA, Anthony R. Picarello, Jr., Roman P. Storzer, Washington, DC, for Plaintiffs.
Harry G. Mahoney, Michael L. Barbiero, Carla P. Maresca, Deasy Mahoney & Bender, Ltd., Philadelphia, PA, Marci A. Hamilton, Yardley, PA, R. Rex Herder, Jr., Acton, Herder & Bresnan, Ambler, PA, for Defendants.
Linda L. Bocchino, Asst. U.S. Atty., Philadelphia, PA, Adam Szubin, U.S. Dept. of Justice Civil Division, Washington, DC, for Movants.
MEMORANDUM
NEWCOMER, Senior District Judge.
Currently before the Court is plaintiff's Motion for Partial Summary Judgment, and defendants' response thereto.
I. INTRODUCTION
Plaintiffs, Congregation Kol Ami and Rabbi Elliot Holin allege that the zoning laws of Abington Township, Pennsylvania violate the United States and Pennsylvania Constitutions because they prohibit houses of worship from locating in residential districts, yet allow other institutions to settle in those districts.[1]
II. BACKGROUND
Plaintiff Congregation Kol Ami ("Kol Ami") is a Pennsylvania non-profit corporation which has operated as a religious institution in the Philadelphia area since 1994. A Reform Jewish Congregation, it has about 200 member-families, and its purpose is to conduct religious exercises and operate a Hebrew School two days per week. Plaintiff Elliot Holin is the Rabbi of Congregation Kol Ami.
Defendant Abington Township (the "Township") is a First Class township[2] in Pennsylvania, and is empowered to act through its governing body, officials, employees and official bodies, and has the *434 power to regulate and restrict the use of land and structures within its borders. Defendant Board of Commissioners (the "Board") is the duly elected executive body of the Township. Its members select the members of defendant the Zoning Hearing Board of Abington Township ("ZHB").
The ZHB is the body that hears and decides: 1) appeals concerning the zoning ordinance at issue today, the May 9, 1996 Revised Abington Township Zoning Ordinance (the "1996 Ordinance"); 2) special exceptions to the 1996 Ordinance; and 3) variances from the terms of the 1996 Ordinance.
Defendant Lawrence T. Matteo, Jr. is the Director of Code Enforcement for the Township.
In 1978, the Township enacted Ordinance No. 1469 (the "1978 Ordinance") which created a V-Residence Zoning District. The V-Residence district permitted the following uses by right: single family detached dwellings, tilling of soil, township administrative buildings, public libraries, parks, and play or recreational areas. Religious institutions were permitted by special exception of the ZHB.
Then, in 1990, the Township amended the 1978 Ordinance with Ordinance No. 1676 (the "1990 Ordinance"). The 1990 Ordinance eliminated all uses by right in a V-Residence district, except for single family detached dwellings and accessories for those dwellings. It further eliminated all uses previously allowable by special exception including religious ones.
The May 9, 1996 Ordinance changed the designation of the Township's low density residential district from V-Residence to R-1 Residential. The 1996 Ordinance does not specifically allow religious institutions from locating in any of its four residential districts, R-1, R-2, R-3 and R-4. The R-1 district permits the following uses by right: agriculture, livestock, single family detached dwelling, and conservation and recreation preserve. It also permits the following uses by special exception: kennel, riding academy, municipal complex, outdoor recreation, emergency services and utility facility.
Article IV of the 1996 Ordinance further defines the uses permitted by special exception in an R-1 district. For example, section 706(E)(8) states that a municipal complex includes such uses as a municipal administration building, police barracks, library, or road maintenance facility. Additionally, section 706(G)(6) defines outdoor recreation as "[p]ublic or private miniature golf courses, swimming pools, ball courts, tennis courts, ball fields, trails, and similar uses ... [o]utdoor recreation shall [also] include any accessory use, such as snack bars, pro shops, club houses, county clubs" or other similar uses. Further, section 706(J)(3) states that term "utility facility" includes public transportation structures such as train stations and bus shelters.
The 1996 Ordinance was enacted to further the goals of the Township's Comprehensive Plan, first enacted in 1977. The purpose of the Comprehensive Plan is to serve as a "guide to orderly Township development in promoting health, safety, welfare and convenience of the people within it. It organizes and coordinates the relationships between land use patterns. It charts a course for growth and change." Comprehensive Plan for Abington Township, § I.A (1977).
In August 1999, plaintiffs entered into an agreement with the Sisters of the Holy Family of Nazareth ("the Sisters") to purchase property located at 1908 Robert Road, Abington Township, Pennsylvania (the "Property") for use as a place of worship. The Property, located in an R-1 district, is a 10.9 acre parcel of land on a 30 foot wide cul-de-sac road. It contains *435 several buildings including a 250 seat chapel, and the Sisters used the Property as a convent and as a place of worship from 1957 to 1995. Then in 1995, the Sisters leased the Property to the Greek Orthodox Monastery of the Preservation of Our Lord for similar uses.
In January 2000, plaintiffs initiated proceedings before the ZHB requesting the ZHB's approval to continue the Sisters' use of the property, the ZHB's approval of a special exception, or a variance to use the property as a place of worship. During those proceedings, Kol Ami representatives testified that its Congregation may grow from 201 households to 350 households in five years. Further, Kol Ami intends to conduct Sabbath services on Friday and Saturday, Bar Mitzvahs, Bat Mitzvahs, High Holiday Services, and outdoor wedding ceremonies. Kol Ami also plans to expand the existing parking from 20 spaces to at least 137 spaces. The ZHB heard evidence that plaintiffs' proposed use would increase the traffic in the neighborhood from 8 to 121 vehicles during peak afternoon hours, and from 4 to 109 vehicles on Saturday.
On March 20, 2001, the ZHB issued an Opinion and Order denying plaintiffs' requests. With respect to plaintiffs' request to continue the Sisters' use of the property, the ZHB denied that request finding that the plaintiffs' proposed use of the property differed from the Sisters' use. Accordingly, it found that the plaintiffs' use of the Property would cause more traffic, noise and other neighborhood disruptions than the Sisters' use. The ZHB's Opinion does not specifically address plaintiffs' request for a special exception, but the opinion concludes that the 1996 Ordinance does not permit places of worship to locate in an R-1 district, and recognizes that the 1996 Ordinance does not specifically allow a special exception for places of worship.[3] Finally, the ZHB's decision to deny plaintiffs request for a variance was based upon its conclusion that "there is no legal justification for the Applicant to obtain a variance."[4] In light of these facts, the Court now turns to the plaintiffs' Motion.
III. DISCUSSION
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) (1994). The party moving for summary judgment has the initial burden of showing the basis for its motion. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). Once the movant adequately supports its motion pursuant to Rule 56(c), the burden shifts to the nonmoving party to go beyond the mere pleadings and present evidence through affidavits, depositions, or admissions on file to show that there is a genuine issue for trial. See id. at 324, 106 S. Ct. 2548.
In their Motion for Partial Summary Judgment, plaintiffs only argue that the 1996 Ordinance fails rational review under the Equal Protection Clause, the Due Process Clause, and the First Amendment.[5]*436 Although plaintiffs argue that the 1996 Ordinance is facially unconstitutional, the Court will first examine whether prohibiting Kol Ami from locating on the Property by special exception in the circumstances here deprives plaintiffs of rights secured by the Constitution. This course of action will enable the Court to avoid making an unnecessarily broad constitutional judgment. See Brockett v. Spokane Arcades, Inc., 472 U.S. 491, 501-502, 105 S. Ct. 2794, 86 L. Ed. 2d 394 (1985); United States v. Grace, 461 U.S. 171, 103 S. Ct. 1702, 75 L. Ed. 2d 736 (1983).
It has long been the law that zoning regulations must bear a substantial relation to the public health, safety, morals or general welfare, and that legislators may not impose restrictions that unnecessarily and unreasonably interfere upon the use of private property or the pursuit of useful activities. See Seattle Title Trust Co. v. Roberge, 278 U.S. 116, 121, 49 S. Ct. 50, 73 L. Ed. 210 (1928). This general principal has been enforced through the Equal Protection Clause of the Fourteenth Amendment which commands that no State shall "deny to any person within its jurisdiction the equal protection of the laws," a direction that all persons similarly situated should be treated alike. City of Cleburne v. Cleburne Living Center, 473 U.S. 432, 440, 105 S. Ct. 3249, 87 L. Ed. 2d 313 (1985) (citing Plyler v. Doe, 457 U.S. 202, 216, 102 S. Ct. 2382, 72 L. Ed. 2d 786 (1982)).
When analyzing legislation under the Equal Protection Clause, courts generally apply a rational review test; that is they will generally sustain legislation unless it is not rationally related to a legitimate state interest.[6]See City of Cleburne, 473 U.S. at 440, 105 S. Ct. 3249; Schweiker v. Wilson, 450 U.S. 221, 230, 101 S. Ct. 1074, 67 L. Ed. 2d 186 (1981); United States Railroad Retirement Board v. Fritz, 449 U.S. 166, 174-175, 101 S. Ct. 453, 66 L. Ed. 2d 368 (1980).
The Supreme Court's decision in City of Cleburne provides substantial guidance for the Court's opinion today. There, the Supreme Court confronted a zoning ordinance that required special use permits to operate a group home for the mentally retarded in a residential district, yet did not require such permits for apartment houses, boarding and lodging houses, dormitories, hospitals, nursing homes and other similar places. See City of Cleburne, 473 U.S. at 447, 105 S. Ct. 3249. Upon consideration of the ordinance, the Court decided that there was no rational reason to impose a permit requirement on a home for the mentally retarded, but not the other places listed in the ordinance. See id., at 450, 105 S. Ct. 3249. In that case, just as in the instant case, the defendant city argued that the ordinance was aimed at avoiding concentration of population and at lessening congestion of the streets. See id. However, the Court concluded that "these concerns obviously fail to explain why apartment houses, fraternity and sorority houses, hospitals and the like, may freely locate in the area without a permit." Id.
Here, defendants argue that the 1996 Ordinance properly precludes Kol Ami from requesting a special exception *437 because Kol Ami's presence on the Property would cause traffic, light pollution, and noise to increase. However, the ZHB failed to consider whether any of these disruptions warrant the denial of a special exception.[7] In fact, the ZHB failed to specifically address plaintiffs' request for a special exception, but instead concluded that the 1996 Ordinance does not permit places of worship to locate in an R-1 district, and recognized that the 1996 Ordinance does not specifically allow a special exception for places of worship.
Not only does a house of worship inherently further the public welfare, but defendants' traffic, noise and light concerns also exist for the uses currently allowed to request a special exception. Indeed, there can be no rational reason to allow a train station, bus shelter, municipal administration building, police barrack, library, snack bar, pro shop, club house, county club or other similar use to request a special exception under the 1996 Ordinance, but not Kol Ami. Because the ZHB failed to consider whether traffic, noise, light or other disruptions warrant the denial of a special exception, and failed to apply the 1996 Ordinance in a way that accounts for that Ordinance's differing treatment of Kol Ami from the other permitted uses by special exception, the Court finds that defendants denied plaintiffs rights secured by the Constitution.
Accordingly, the Court will grant plaintiffs' Motion for Partial Summary Judgment, and enter judgment in their favor.
An appropriate Order will follow.
ORDER
AND NOW, this day of July, 2001, the Court hereby ORDERS as follows:
1) Upon consideration of plaintiffs' Motion for Partial Summary Judgment and defendants' response thereto, said Motion is GRANTED, the Court finding the 1996 Ordinance as defined in the accompanying memorandum, is unconstitutional as applied to plaintiffs by the Zoning Hearing Board of Abington Township.
2) Defendants' Motion to DISMISS is DENIED as moot.
3) The parties' pre trial memoranda shall raise and address any issues remaining for trial.
AND IT IS SO ORDERED
NOTES
[1] Plaintiffs seek partial summary judgment on the following counts in their Complaint: 1) count I, violation of the free exercise of religion pursuant to the First and Fourteenth Amendments of the United States Constitution; 2) count II, violation of freedom of conscience pursuant to Article I, Section 3 of the Pennsylvania Constitution; 3)count III, violation of freedom of speech pursuant to the First and Fourteenth Amendment of the United States Constitution; 4) count IV, violation of freedom of speech pursuant to Article I, Section 7 of the Pennsylvania Constitution; 5) count VII, violation of equal protection pursuant to the Fourteenth Amendment of the United States Constitution; 6) count VIII, violation of equal protection pursuant to Article I, Section 26 of the Pennsylvania Constitution; 7) count IX, violation of due process pursuant to the Fourteenth Amendment of the United States Constitution. Plaintiffs claims for federal constitutional violations have been raised pursuant to 42 U.S.C. § 1983.
[2] Abington Township operates as a First Class Township pursuant to the First Class Township Code of Pennsylvania, 53 PA. CONS.STAT. § 55101.
[3] See ZHB Op., at 20.
[4] ZHB Op., at 22.
[5] Although plaintiffs contend that the Ordinance also violates the Pennsylvania Constitution, plaintiffs do not develop this argument. Instead, in a footnote, they contend that the Pennsylvania Constitution at least applies the same standard of review as the United States Constitution. Thus, because plaintiffs Motion and supporting brief is directed only at whether or not the Ordinance can survive rational review, the Court only decides that issue today.
[6] When a statute classifies by race, alienage, national origin or gender, or impedes upon a fundamental right, courts will apply heightened standards of review. See City of Cleburne v. Cleburne Living Center, 473 U.S. 432, 440-41, 105 S. Ct. 3249, 87 L. Ed. 2d 313 (1985). However, as explained, plaintiffs' only argue now that the Ordinance cannot withstand rational review.
[7] Upon a review of the ZHB's March 20, 2001 Opinion and Order denying plaintiffs' request, it is clear that the ZHB only considered these disruptions when addressing whether Kol Ami's use of the property was a permissible continuation of a nonconforming use. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2420926/ | 81 F. Supp. 2d 494 (2000)
J. Morris ANDERSON, Plaintiff,
v.
INDIANA BLACK EXPO, INC., and Charles Williams, Individually, Defendants.
No. 99 Civ. 3903(RWS).
United States District Court, S.D. New York.
January 20, 2000.
*495 *496 J. Morris Anderson, Philadelphia, PA, Plaintiff, pro se.
Morris, Duffy, Alonso & Faley, New York, NY, for Defendant Indiana Black Expo; Andrea M. Alonso, of counsel.
OPINION
SWEET, Senior District Judge.
Defendants Indiana Black Expo (the "Expo") and Charles Williams ("Williams") have each moved, pursuant to Rule 56 of the Federal Rules of Civil Procedure, for summary judgment dismissing the complaint of plaintiff pro se J. Morris Anderson ("Anderson") for lack of personal jurisdiction over the named defendants. Alternatively, Expo has challenged venue in this jurisdiction, and requests either dismissal or transfer to the Southern District of Indiana as a result. For the reasons set forth below, these motions shall be granted to the extent that they request dismissal due to the absence of in personam jurisdiction over either Williams or the Expo.
The Parties
Anderson is a Pennsylvania resident and the owner of the Miss Black America Beauty Pageant (the "Pageant"), the principal place of business of which is located in Philadelphia, Pennsylvania.
*497 The Expo is an Indiana not-for-profit corporation, with its principal place of business located in Indianapolis, Indiana.
Williams is an Indiana resident, and at all times relevant to the instant action was President of the Expo.
Facts and Prior Proceedings
The facts set forth below are taken from the parties' Rule 56.1 statements, affidavits, and exhibits, and are not in dispute except where otherwise indicated.
Anderson is the founder and Executive Producer of the Pageant, and has produced the Pageant for a not-insignificant number of years. In 1991, Anderson filed suit against boxer Mike Tyson ("Tyson"), Williams, and the Expo in the wake of well-publicized accusations against Tyson for the sexual assault of various Pageant participants. The Pageant that year had been held in Indianapolis, Indiana. In that action (the "First Pennsylvania Action"), which was filed in the Eastern District of Pennsylvania, Anderson alleged various injuries arising out of the negative publicity associated with Tyson's behavior.
According to Anderson, repeated efforts were made to convince him to settle the First Pennsylvania Action. Discussions to that end took place in Pennsylvania, New Jersey, New York, and Washington, D.C., with Don King ("King") taking an especially active role in pushing settlement. In an October 19, 1991 meeting in Washington, D.C., the terms of a settlement agreement were finally agreed upon. Though Williams was not present in Washington for that initial meeting, during a meeting with lawyers the following day Williams participated telephonically, confirming his acceptance of the details of the agreement. In his papers, Anderson has pressed that both King and Don King Enterprises ("DKE"), as well as non-party Thadeus E. Watley ("Watley"), functioned as both the Expo's and Williams' agent throughout settlement negotiations.
However, neither Expo nor Williams signed any formal agreement in Washington, D.C. Instead, approximately a week thereafter Anderson traveled with Watley to New York City to meet with Williams and King at King's residence. There, after some initial hesitation concerning the wisdom of signing any agreement without first consulting the Expo's own counsel, Williams committed the Expo to the agreement to which it had already devoted itself in principle.
The terms of the written agreement (the "agreement") between Anderson and the Expo, dated October 30, 1991, are as follows:
Indiana Black Expo, Inc. ("IBE"), and J. Morris Anderson Production Company, the producer of the Miss Black America ("MBA") pageant, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, agree:
(1) The MBA pageant shall hereafter be an event of the IBE; and
(2) IBE shall provide the site, set and lights for the production of the MBA pageant.
This agreement shall apply for the 1992 IBE and MBA pageant. If J. Morris Anderson Production Company delivers a television audience of a minimum of 40% ADI, then J. Morris Anderson Production Company shall have an option to extend this agreement for the following year. Upon the same condition, J. Morris Anderson Production Company shall have the same option through the year 1997.
The agreement, which was signed by Anderson and by Williams on the Expo's behalf, contained an addendum that "[t]he IBE has the option to sell two (2) commercial spots MBA pageant national TV special & retain the profit."
Though the record reveals no memorialized contract between King and Anderson to complement the terms of the agreement between Anderson and the Expo, according to Anderson King allegedly made Anderson a variety of connected promises concerning his future promotion of the *498 Pageantincluding, inter alia, a promise to provide financial and promotional assistance to the Pageant, and to tie the Pageant in with other "pay-per-view" events promoted by King. The First Pennsylvania Action was ultimately dismissed with prejudice, though it is unclear from the parties' submissions whether this was due to a formal settlement among the parties.
While the Expo hosted the Pageant as promised in 1992, in 1993 it refused to host the Pageant, explaining that the Pageant had failed to comply with the agreement's television market share provision. The Expo notified Anderson of this refusal in June of 1993, shortly before taping was scheduled to begin in Indianapolis. As a result of this refusal to host the 1993 Pageant, Anderson was required to radically alter the production of the Pageant.
In 1994, Anderson filed suit once again in the United States District Court for the Eastern District of Pennsylvania, this time seeking recovery from Tyson, King, DKE, and Williams for breach of contract, misrepresentation, and assault. Discovery commenced in that action, as did motion practice.
In an opinion issued June 1, 1994, the Honorable Clarence C. Newcomer found that personal jurisdiction could not be exercised over either Williams or the Expo, explaining that "plaintiff is unable to prove that the defendants' ties to the state are sufficiently direct," and that their "indirect contacts with the state were not that which would make them anticipate being subject to a suit in Pennsylvania." Anderson v. Tyson, No. CIV. A. 94-0528, 1994 WL 237365, at *2 (E.D.Pa. Jun. 1, 1994).
In an another opinion, issued November 4, 1994, Judge Newcomer dismissed Anderson's claims against King and DKE, ruling in part that any oral contract between King or DKE and Anderson would be barred by New York's Statute of Frauds, and that Anderson could not recover for misrepresentation merely by characterizing an otherwise infirm breach of contract claim as a claim for fraud. See Anderson v. Tyson, Civ. A. No. 94-0528, 1994 WL 630207, at *3 (E.D.N.Y. Nov. 4, 1994). Judge Newcomer also held that Anderson's claim for assault would be dismissed for lack of standing, and because Anderson had failed to allege either King's or DKE's participation in the assault. See id. at *4. It was further observed that Tyson, who had never been served, was not a proper party to the action. See id. at *1. Judge Newcomer's rulings were subsequently affirmed by the Court of Appeals for the Third Circuit.
Anderson's complaint in this action, which essentially seeks recovery against the Expo and Williams for the Expo's failure to satisfy its obligations to the Pageant under the terms of their 1991 agreement, was filed on May 28, 1999. The complaint alleges fifteen causes of action, the first and fourteenth sounding in contract and dependant upon the exercise of diversity jurisdiction, and the remaining causes of action alleging violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq.
The Expo and Williams filed their respective motions on September 1, 1999, and after receiving briefing from both parties the matter was marked fully submitted on September 29, 1999.
Discussion
If challenged, a plaintiff ultimately bears the burden of establishing jurisdiction over a defendant by a preponderance of the evidence, see Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 197 (2d Cir.1990); Levisohn, Lerner, Berger & Langsam v. Medical Taping Sys., Inc., 10 F. Supp. 2d 334, 338-39 (S.D.N.Y.1998). To overcome a jurisdiction-testing motion where a court does not hold a formal evidentiary hearing, however, a plaintiff need only make a prima facie showing of jurisdiction. See Ball, 902 F.2d at 197. Where a defendant challenges jurisdiction after discovery by way of motion pursuant to Rule 56, Fed.R.Civ. P., "the court proceeds, as with any summary *499 judgment motion, to determine if undisputed facts exist that warrant the relief sought." Id.; see Gulf Union Ins. Co. Saudi Arabia v. Bella Shipping Co., No. 91 CIV. 2814(PKL), 1994 WL 455117, at *2 (S.D.N.Y. Aug. 22, 1994). While bare legal allegations may be sufficient to survive a pre-discovery dismissal motion for lack of personal jurisdiction, "without factual support, [such allegations] ... fail to make a prima facie showing at the summary judgment stage." Ball, 902 F.2d at 199. While discovery has not closed in the instant action, it is apparent from the parties' submissions that ample discovery was obtained during the pendency of Anderson's previous action before Judge Newcomer to justify application of this more demanding standard.
Personal jurisdiction over a nonresident defendant is typically to be determined by the law of the jurisdiction in which a federal court sits. See Bensusan Restaurant Corp. v. King, 126 F.3d 25, 27 (2d Cir.1997). Accordingly, an assessment of whether New York's Civil Practice Law and Rules ("CPLR") provides for jurisdiction over the Expo and Williams must be made. See CPLR §§ 301, 302 (McKinney 1990). A two-fold inquiry is required. First, a determination must be made as to whether New York law provides a basis for exercising personal jurisdiction over the defendant. If jurisdiction is proper as a result of this analysis, a court must then determine whether the exercise of such jurisdiction would offend federal standards of due process. See Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 171 F.3d 779, 784 (2d Cir.1999).
Insofar as jurisdiction is concerned, both the Expo and Williams have challenged whether they are amenable to suit in New York. Both claim to have no significant presence in the state, and to have had negligible contact with the state in connection with their dealings with Anderson.
In opposition, Anderson contends, among other things, that: (1) because his fourteen RICO-related claims involve a "federal question," this Court is the proper forum for adjudication of those claims; (2) that the Expo and Williams maintained a presence in New York through their agents King and DKE, and that King provided instructions to Watley from his offices in New York City; (3) that defendants' business dealings with Anderson were paid for by their New York Agents, King and DKE, and that such payments were made out of New York; (4) that the contract presently being sued upon was signed in New York by defendant Williams; (5) that "the contract was performed in the State of New York" because Anderson caused the Pageant to be aired on both New York City and Syracuse, New York television stations, and because a thirty-second commercial advertising the Expo was carried during those broadcasts; (6) that a good deal of the pre-production work for the 1992 and 1993 Pageants was performed in New York; (7) that personal jurisdiction exists over the defendants because both the Expo and Williams, through King, committed a "tort[i]ous act of intimidation" in New York; and (8) that jurisdiction may properly be exercised over the Expo and Williams because the Pageant had been previously aired in New York, and because the Expo's breach rendered Anderson unable to have the Pageant aired in New York.
Because, as set forth below, it is determined that personal jurisdiction does not exist over the defendants in this action, the Expo's contentions concerning venue shall not be addressed.
I. New York Law Does Not Provide A Basis For Exercising In Personam Jurisdiction Over Either The Expo Or Williams
A. "Doing Business" Under CPLR § 301
CPLR § 301 states that a New York court "may exercise jurisdiction over persons, property, or status as might have been exercised heretofore." The statute *500 incorporates all bases for jurisdiction previously recognized at common law. See Penny v. United Fruit Co., 869 F. Supp. 122, 125 (E.D.N.Y.1994). Activities rise to the level of "doing business" only when the defendant is engaged in "`such a continuous and systematic course' of activity that it can be deemed to be `present' in the state of New York." Klinghoffer v. S.N.C. Achille Lauro, 937 F.2d 44, 50-51 (2d Cir. 1991) (quoting Laufer v. Ostrow, 55 N.Y.2d 305, 310-311, 449 N.Y.S.2d 456, 458, 434 N.E.2d 692, 694 (1982)); see Mareno v. Rowe, 910 F.2d 1043, 1046 (2d Cir.1990).
Without any physical presence in New York, a foreign defendant may be subject to suit in New York if it conducts, or purposefully directs, business "`not occasionally or casually, but with a fair measure of permanence and continuity.'" Landoil Resources Corp. v. Alexander & Alexander Servs., Inc., 77 N.Y.2d 28, 33-34, 563 N.Y.S.2d 739, 741, 565 N.E.2d 488, 490 (1990) (quoting Tauza v. Susquehanna Coal Co., 220 N.Y. 259, 267, 115 N.E. 915, 917 (1917)). The test, a "simple pragmatic one," Bryant v. Finnish Nat'l Airline, 15 N.Y.2d 426, 432, 260 N.Y.S.2d 625, 629, 208 N.E.2d 439, 441 (1965), is necessarily fact-sensitive. See Landoil Resources Corp. v. Alexander & Alexander Servs., Inc., 918 F.2d 1039, 1043 (2d Cir.1990). However, a defendant's "[s]olicitation of business alone" cannot justify a finding of presence in New York pursuant to section 301, Laufer, 55 N.Y.2d at 310, 449 N.Y.S.2d at 459, 434 N.E.2d at 694, unless the solicitation "is substantial and continuous, and [the] defendant engages in other activities of substance in the state." Landoil, 918 F.2d at 1043-44; see Beacon Enters., Inc. v. Menzies, 715 F.2d 757, 763 (2d Cir. 1983).
According to undisputed portions of the record, neither the Expo nor Williams maintain a presence in New York such that this Court could properly exercise jurisdiction over them under Section 301. The Expo is an Indiana corporation, and is neither registered within New York as a foreign corporation nor authorized to do business within this state. Moreover, in uncontested submissions, the Expo has stated, inter alia, that: (1) it has neither supplied any goods or services to any New York resident or corporation, nor purchased any goods from any New York vendor or supplier; (2) it does not derive identifiable income or revenue from any entity in New York; (3) it has never maintained a bank account in New York; (4) it does not own, lease, possess or otherwise hold any interest in any real estate situated in New York; (5) it does not solicit any business in New York; (6) it does not advertise its business in New York; (7) it has never had a telephone listing in New York; and (8) it does not have any employees in New York. Williams, who is an Indiana resident, has similarly represented that he has not maintained any significant presence in New York.
Anderson has not submitted any evidence from which it could be inferred that these representations are incorrect, or from which it could be concluded at trial that either Williams or the Expo are subject to jurisdiction in New York under Section 301. Accordingly, section 301 does not provide a basis under which jurisdiction may be exercised over the defendants in this action.
B. Chick Is Not Subject To New York's Long-Arm Jurisdiction
1. Section 302(a)(1)
New York's long-arm statute provides in pertinent part:
(a) ... As to a cause of action arising from any of the acts enumerated in this section, a court may exercise personal jurisdiction over any non-domiciliary ... who in person or through an agent:
1. transacts any business within the state or contracts anywhere to supply goods or services in the state; or
2. commits a tortious act within the state ...; or
*501 3. commits a tortious act without the state causing injury to person or property within the state, ... if he ...
(i) regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered, in the state, or
(ii) expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce....
CPLR § 302(a). While its language is expansive, "[s]ection 302(a) does not extend New York's long-arm jurisdiction to the full extent permitted by the Constitution." Levisohn, Lerner, Berger & Langsam, 10 F.Supp.2d at 339.
Under CPLR § 302(a)(1), personal jurisdiction exists over a nondomiciliary who transacts business in New York so long as the cause of action itself "arises" out of the subject matter of the business transacted. See CPLR § 302(a)(1); Agency Rent A Car Sys., Inc. v. Grand Rent A Car Corp., 98 F.3d 25, 29 (2d Cir.1996). This test must be met for each cause of action asserted, see Nassar v. Florida Fleet Sales, 69 F. Supp. 2d 443, 446 (S.D.N.Y.1999), and is therefore highly fact- and claim-sensitive. A claim arises out of a party's transaction of business when there is a "substantial nexus" between the transaction of business and the cause of action sued upon. See Agency Rent A Car Sys., 98 F.3d at 31; Nassar, 69 F.Supp.2d at 446.
The transacting business prong of section 302(a)(1) confers jurisdiction over a defendant that "purposefully avails itself of the privilege of conducting activities within [New York], thus invoking the benefits and protections of its law." Viacom Int'l, Inc. v. Melvin Simon Productions, 774 F. Supp. 858, 862 (S.D.N.Y. 1991) (citations omitted). New York courts look to the totality of circumstances to determine whether the defendant has engaged in some purposeful activity in New York in connection with the matter in controversy. See Longines-Wittnauer Watch Co. v. Barnes & Reinecke, Inc., 15 N.Y.2d 443, 457, 261 N.Y.S.2d 8, 18, 209 N.E.2d 68, 75 (1965). On issues of contract formation and subsequent breach, jurisdiction under 302(a)(1) may well be available "if essential negotiations between the parties occurred in New York, even if those negotiations were only preliminary." CCS Int'l, Ltd. v. ECI Telesystems, Ltd., No. 97 CIV. 4646(LAP), 1998 WL 512951, at *3 (S.D.N.Y. Aug. 18, 1998).
Casual or sporadic acts, or even a single transaction of business in New York, are sufficient to give rise to jurisdiction under section 302(a)(1), provided that the claim itself arises out of those acts. See CCS Int'l, 1998 WL 512951, at *3. As the New York Court of Appeals explained in Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460, 527 N.Y.S.2d 195, 522 N.E.2d 40 (1988):
It [section 302(a)(1)] is a "single act statute" and proof of one transaction in New York is sufficient to invoke jurisdiction, even though the defendant never enters New York, so long as the defendant's activities here were purposeful and there is a substantial relationship between the transaction and the claim asserted.
71 N.Y.2d at 467, 527 N.Y.S.2d at 198-99, 522 N.E.2d at 43. However, while a single purposeful act in New York may be sufficient to confer jurisdiction, the nature and quality of a defendant's New York contacts "must be examined to determine their significance." See Nassar, 69 F.Supp.2d at 446.
While the New York Court of Appeals at one time appeared to suggest that a defendant's physical execution of a contract in New York might automatically constitute a jurisdiction-granting transaction for the purposes of a breach-of-contract action, see Parke-Bernet Galleries, Inc. v. Franklyn, 26 N.Y.2d 13, 17, 308 N.Y.S.2d 337, 340, *502 256 N.E.2d 506, 508 (1970), later decisions have indicated that such is not the case. See Presidential Realty Corp. v. Michael Square West, Ltd., 44 N.Y.2d 672, 673-74, 405 N.Y.S.2d 37, 38, 376 N.E.2d 198, 199 (1978) (observing that "physical presence alone cannot talismanically transform any and all business dealings into business transactions under CPLR 302," and holding that signing of agreement in New York did not suffice to confer jurisdiction); see also Abbate v. Abbate, 82 A.D.2d 368, 384, 441 N.Y.S.2d 506, 515 (2d Dep't 1981) (noting that, while "one `purposeful' act in this State is enough to serve as the basis for the exercise of long-arm jurisdiction over the nondomiciliary defendant," where that "act is purely ministerial, as where the parties reach full agreement on a contract in their respective home states and merely execute the formal document memorializing their agreement in New York, it is doubtful that jurisdiction would be sustained"); Ocala Waste Disposal Assocs. v. GGC, Inc., No. 87 Civ. 9240(MJL), 1989 WL 46652, at *3 (S.D.N.Y. Apr. 27, 1989) ("At the outset, we agree with defendant's contention that the mere signing of the purchase contract in New York during the course of [defendant] Gould's one-day sojourn here is insufficient to subject either Enterprise or its president to this Court's jurisdiction."). Merely because pen and ink were finally put to paper in New York thus does not necessarily mean that a plaintiff may bring his or her claims in New York. See 2 Weinstein, Korn & Miller, New York Civil Practice ¶ 302.09 (1999) ("Although the Court of Appeals stated in dictum in Parke-Bernet Galleries, Inc. v. Franklyn that `the clearest sort of case in which our courts would have 302 jurisdiction' would be a `situation where a defendant was physically present at the time the contract was made,' that statement should not be taken to mean that making or executing the contract in New York will ipso facto support jurisdiction. In fact, the place of execution, though often a weighty consideration, is rarely a sufficient condition for jurisdiction on a transaction of business and is not a necessary one.").
Even when viewed in the light most favorable to Anderson, the record does not contain evidence of contacts sufficient to warrant an exercise of jurisdiction under Section 302(a)(1). While it is not seriously disputed by the defendants that the agreement at issue in the instant litigation was ultimately signed in New York, Anderson's own submissions make apparent that the agreement between the Expo and Anderson's production company was negotiated and finalized elsewhere. The details of the agreement were settled upon in Washington, D.C., and the only matter left for resolution in New York was the formal execution of a written contract. Though Anderson has submitted certain evidence from which it might be concluded that Williams expressed last-minute doubts concerning the wisdom of signing the agreement ultimately memorialized, none of his submissions to the Court indicate that the terms of the specific agreement between Anderson and the Expo were further negotiated at the meeting at King's residence. Moreover, performance by the Expo under the terms of the agreement did not call for any activities by either Williams or the Expo in New York. Indeed, the Expo's endeavors were to be limited to Indiana, where the Expo is located and the Pageant was to be held. Performance, insofar as the Expo was concerned, was to be made in Indiana.
Under such circumstances, Williams' physical presence in New York at the time of signing does not itself warrant an exercise of jurisdiction over the defendants pursuant to Section 301(a)(2). Williams' presence in New York was merely the "last act marking the formal execution of the contract," see Longines-Wittnauer, 15 N.Y.2d at 457 n. 5, 261 N.Y.S.2d at 18 n. 5, 209 N.E.2d at 75 n. 5, and, without more, does not suffice to subject either the Expo or Williams to jurisdiction within the forum state.
*503 In urging this Court to nevertheless exercise jurisdiction over the Defendants, Anderson has suggested that both King and DKE, who are located in New York, and Watley, a Pennsylvania resident, functioned as the defendants' agents, and that any jurisdiction over these agents properly may be imputed to Expo and Williams as principals. Though this contention is not ultimately supportable given the evidence offered by Anderson, a brief discussion of jurisdictional agency is in order.
New York courts have held that a Section 302(a)(1) determination as to whether defendant has transacted business "through an agent" does not require a formal agency relationship. Rather, courts focus on the "realities of the relationship in question" to determine whether the agent acted in New York "for the benefit of, and with the knowledge and consent of the non-resident principal." Alto Prods. Corp. v. Ratek Indus. Ltd., No. 95 Civ. 3314, 1996 WL 497027(LMM), at *3 (S.D.N.Y. September 3, 1996) (quoting CutCo Indus. v. Naughton, 806 F.2d 361, 366 (2d Cir.1986)); D'Amato v. Lichine USA Co., No. 92 Civ. 8424, 1993 WL 437772 at *1 (S.D.N.Y. October 27, 1993). Courts have also required the principal to exercise some control over the agent in order to establish agency for jurisdictional purposes. See CutCo Indus., 806 F.2d at 365.
At the outset, it is worth noting that Anderson has failed to identify any New York negotiations of moment concerning the Expo's contract with Anderson. Thus, even if one were to find that Watley or King functioned as Anderson's agents for the limited purposes of negotiating the contract presently sued upon, jurisdiction could not be properly premised upon Section 302(a)(1). For example, even assuming that Watley functioned as Williams' and/or the Expo's agent during negotiations the only proposition with any real support in the record this alone would not suffice to create personal jurisdiction in New York. Watley is not a New York resident, and Anderson has not identified any significant negotiations in New York concerning the specific contract presently being sued upon.
Second, though Anderson understandably lumps together his interactions with both the Expo and King, given King's independent involvement in a number of matters connected to the Expo and the simultaneous presence of both the Expo and Tyson as parties-defendant in the First Pennsylvania Action, his own submissions indicate that King had his own business dealings with Anderson. Merely because a deal between the Expo and Anderson was connected to, or dependant upon, a secondary deal between King and Anderson contemplating the performance of various activities in connection with the Expo or the Pageant, or because the Expo's agreement with Anderson was signed at King's home in New York, however, does not mean that either King or DKE functioned as the Expo's agent.
Finally, Anderson has not submitted any evidence indicating that either King or DKE ever took or directed any actions on either the Expo's or Williams', as opposed to his own, behalf. Merely because King took an especially active role in seeking to obtain a settlement with Anderson, or because he paid Anderson money in connection with the production of the Pageant, would not make him an agent of the Expo or Williams. Moreover, even assuming arguendo that Watley at various times represented both the Defendants and King in their efforts to settle the First Pennsylvania Action, this does not also mean that King automatically must be considered the Expo's or Williams' agent.
The record does not contain any evidence of King's control of the Expo's affairs, other than an unremarkable and inadmissible comment regarding King's payment of the Expo's lawyers. Neither does the record contain any evidence that King took any action for the benefit of the Expo. To the contrary, it would appear *504 that King merely assumed an especially aggressive posture to quash a lawsuit involving Tyson, and that he engaged in various dealings with Anderson to protect his own interests. See Ocala Waste Disposal Assocs., 1989 WL 46652, at *5 ("While it may be true that Erber's negotiations with Ocala's representatives inured by way of a purchase contract to Enterprise's benefit, to conclude therefrom that Erber's activities in this state were undertaken with Enterprise's knowledge and consent or that Enterprise exercised some degree of control over Erber's activities would require a certain leap in logic.").
That King also had business dealings with the Expo, or that he made various and sundry alleged promises to Anderson concerning the promotion of the Pageant does not change this analysis. Even given the flexible nature of jurisdictional agency under New York law, the evidence presented by Anderson does not create a material dispute of fact concerning either King's or DKE's agency. See Yurman v. A.R. Morris Jewelers, L.L.C., 41 F. Supp. 2d 453, 459 (S.D.N.Y.1999) (finding that jewelry dealer was not agent for jurisdictional purposes of defendant, as plaintiff "has not established that Earl acted in New York for the benefit of, and with the knowledge and consent of Morris"); Worldwide Futgol Assocs., Inc. v. Event Entertainment, Inc., 983 F. Supp. 173, 178 (E.D.N.Y.1997) (observing that defendant's control over alleged agent Schanks was unclear, and that Schanks' actions as an independent broker between parties to contract did not suffice to make prima facie showing that he served as defendant's agent); Cato Show Printing Co. v. Lee, 84 A.D.2d 947, 446 N.Y.S.2d 710 (4th Dep't 1981) (finding that independent broker/middleman was not jurisdictional agent, given that codefendant exercised no control over him); c.f. Heinfling v. Colapinto, 946 F. Supp. 260, 265 (S.D.N.Y.1996) (observing that "a co-conspirator may be an `agent' as that term is used in § 302(a)(2)," but holding that plaintiff failed to show that alleged agent took acts in New York for benefit of co-conspirators, or that alleged agent acted under control of other conspirators).
2. Sections 302(a)(2) and 302(a)(3)
The exercise of personal jurisdiction over either the Expo or Williams would not be appropriate under Section 301(a)(2), as that provision of the long-arm statute only reaches tortious acts performed by a defendant who was physically present in New York when committing those acts. See Bensusan Restaurant, 126 F.3d at 28; Kelly v. MD Buyline, Inc., 2 F. Supp. 2d 420, 433-34 (1998).
Furthermore, jurisdiction over either the Expo or Williams pursuant to section 302(a)(3) has not been established. The exercise of jurisdiction pursuant to section 302(a)(3) requires, at a bare minimum, that the complaint adequately allege a tortious act committed by the Expo or Williams. See Kelly, 2 F.Supp.2d at 434. The detail provided must be such that the Court can determine whether the specific actions allegedly taken were, in fact, tortious. See Sterling Interiors Group, Inc. v. Haworth, Inc., No. 94 Civ. 9216(CSH), 1996 WL 426379, at *15 (S.D.N.Y. July 30, 1996), reconsideration denied, 1996 WL 537482 (S.D.N.Y. Sept.23, 1996). A review of Anderson's submissions does not reveal any such detail, and Anderson has not sufficiently asserted a tortious act committed by either the Expo or Williams for jurisdiction to lie under section 302(a)(3). Indeed, in this action Anderson does not assert any tort claims, and those claims that could be generously construed as such are either repackaged breach-of-contract claims or claims not involving acts taken by the named defendants. Furthermore, any injuries allegedly suffered in New York are too attenuated to justify an exercise of jurisdiction under Section 302(a)(3).
II. This Court Does Not Possess Personal Jurisdiction Over Either The Expo Or Williams For Purposes Of Anderson's RICO Claims
Section 1965 of RICO provides that:
*505 (a) Any civil action ... under this chapter ... may be instituted in the district court ... for any district in which such person resides, is found, has an agent, or transacts his affairs.
(b) In any action under § 1964 of this chapter ... in any district court ... in which it is shown that the ends of justice require that other parties residing in any other district be brought before this court, the court may cause such parties to be summoned ... and process ... may be served in any judicial district. ...
18 U.S.C. § 1965. As recently interpreted by the Second Circuit, Section 1965 does not confer universal personal jurisdiction over all RICO defendants. Rather, as the Court of Appeals explained in PT United Can Co. v. Crown Cork & Seal Co., 138 F.3d 65 (2d Cir.1998):
Reading all of the subsections of § 1965 together, ... § 1965 does not provide for nationwide personal jurisdiction over every defendant in every civil RICO case, no matter where the defendant is found. First, § 1965(a) grants personal jurisdiction over an initial defendant in a civil RICO case to the district court for the district in which that person resides, has an agent, or transacts his or her affairs. In other words, a civil RICO action can only be brought in a district court where personal jurisdiction based on minimum contacts is established as to at least one defendant.
Second, § 1965(b) provides for nationwide service and jurisdiction over "other parties" not residing in the district, who may be additional defendants of any kind.... This jurisdiction is not automatic but requires a showing that the "ends of justice" so require. This is not an unsurprising limitation. There is no impediment to prosecution of a civil RICO action in a court foreign to some defendants if it is necessary, but the first preference, as set forth in § 1965(a), is to bring the action where suits are normally expected to be brought.
Id. at 71-72; see Daly v. Castro Llanes, 30 F. Supp. 2d 407, 412-13 (S.D.N.Y.1998) ("Section 1965(a), however, does not grant jurisdiction over a defendant who was not found, did not reside, and did not transact his affairs or the affairs of the alleged RICO enterprise in New York."). To the extent that Section 1965(b) authorizes national service of process on other defendants "if the ends of justice [so] require," this phrase has been "interpreted to mean that § 1965(b) authorizes an assertion of personal jurisdiction if, otherwise, the entire RICO claim could not be tried in one civil action." Daly, 30 F.Supp.2d at 413; see PT United Can Co., 138 F.3d at 72 n. 5.
As explained above, New York's only link to Williams and the Expo is as the locus of the formal execution of the agreement presently being sued upon. Given the specific facts of this case, this is too slender a reed upon which to rest an exercise of jurisdiction over the Defendants. Moreover, it is not disputed that both Williams and the Expo are amenable to suit in Indiana, and that Anderson's RICO claims could have been brought in that jurisdiction. Consequently, the Court finds that personal jurisdiction does not exist with respect to either Williams or the Expo.
The Court has considered Anderson's other contentions, and determined them to be without merit.
Conclusion
For the reasons stated herein, the Court finds that Anderson has failed to carry his burden concerning the exercise of personal jurisdiction over defendants Expo or Williams. Accordingly, this action shall be dismissed.
Submit judgment on notice.
It is so ordered. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2576649/ | 8 F. Supp. 2d 1244 (1998)
LIBERTARIAN PARTY OF COLORADO, Richard Combs, and W. Earl Allen, Plaintiffs,
v.
Victoria BUCKLEY, in her official capacity as Secretary of State of the State of Colorado, Defendant.
No. CIV. A. 96-K-1983.
United States District Court, D. Colorado.
June 25, 1998.
*1245 William E. Zimsky, Abadie & Zimsky, LLC, Durango, CO, for Plaintiffs.
Elizabeth A. Weishaupl, Assistant Attorney General, Denver, CO, for Defendant.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
KANE, Senior District Judge.
This constitutional challenge to Colorado's ballot position statute, originally assigned to Judge Miller of this court, came before me for trial to the court on May 26, 1998. After hearing the evidence presented and considering the relevant legal authorities, I find the challenged statute neither offends the United States Constitution nor infringes on Plaintiffs' constitutional rights. Plaintiffs have failed to prevail on the merits of their claims and are not entitled to the permanent injunction they seek. Pursuant to Rule 52(a), Fed. R.Civ.P., the following constitute my findings of fact and conclusions of law.
I. INTRODUCTION.
Section 1-5-404(1) of the Colorado Revised Statutes prescribes the method for determining ballot position for partisan elections conducted in the State of Colorado. At the time Plaintiffs Libertarian Party of Colorado, Richard Combs and W. Earl Allen filed this action in 1996, § 1-5-404(1) (the "Ballot Position Statute") provided for a two-tier ballot in which the candidates of the "two (2) *1246 major political parties" would be placed in an order established by lot in the first tier and the candidates of the "remaining political parties or political organizations" would be listed in an order established by lot in the second tier. A "major political party" was defined by § 1-1-104(22) as "one of the two political parties whose candidate for governor at the last preceding gubernatorial election received the first and second greatest number of votes."
Because neither Combs nor Allen, nor any other candidate from the Libertarian Party, would qualify for the top ballot position, Plaintiffs claimed the Ballot Position Statute stigmatized and discriminated against them and all candidates generally who "are not members of the Republican or Democratic Parties" in violation of the Equal Protection Clause of the Fourteenth Amendment of the United States Constitution. (Complaint at ¶¶ 1-2, 22-24.) In addition, Plaintiffs claimed the Statute, because of the alleged phenomenon of "ballot position bias," burdened their fundamental rights to cast a "meaningful vote" for second-tier Libertarian candidates in violation of the First and Fourteenth Amendments of the Constitution. (Id. at ¶¶ 1-2, 32.) On these grounds, Plaintiffs moved for a preliminary injunction directing the State to redraw ballot positions for the then-upcoming 1996 election so that all candidates would be given an equal opportunity for the top position. Mot. Prelim. Inj. (dated Aug. 27, 1996) at p. 20. Because Judge Miller had not yet been sworn in at the time the suit was filed and assigned to him, I conducted the preliminary injunction hearing. Finding Plaintiffs had failed to demonstrate the requisite likelihood of success, I denied Plaintiffs' motion. Libertarian Party of Colorado v. Buckley, 938 F. Supp. 687 (D.Colo.1996).
In early 1998, before the trial on the merits was scheduled before Judge Miller, the Colorado General Assembly passed House Bill 98-1110, 1998 Colo. Legis. Serv. Ch. 95 (WEST). The bill added a new Part 13 to article 4, title 1 creating "minority party" status and an additional ballot tier to accommodate it. Thus, the new Ballot Position Statute as amended by HB 98-1110 provides for a three-tiered scheme placing "candidates of the two major political parties" in the first tier, those of "minority political parties" in a second tier, and candidates of the "remaining political organizations" in a third tier. In addition, however, the bill redefined "major political parties" to do away with the two-party limit.
The State notified the court of the amendment on May 21, 1998, one week before trial, stating that under the new ballot position scheme Plaintiffs would qualify for "minority party" status and would be placed in the second tier of the ballot. (Def.'s Mot. Amend Findings of Fact & Conclusions of Law, at p. 2.) Because Plaintiffs would have been in the second tier of the ballot under either statutory scheme, new or old, the State concluded that it "believed Plaintiffs' position with regard to this litigation is substantively unchanged, and that the issue before the court, on alleged position bias remains unchanged." Id. When asked for their view on this at trial, Plaintiffs summarily agreed. Plaintiffs also denied a need for additional discovery and declined to alter or amend their claims in any way.[1]
If any useful lesson may be learned in this case, it is to consider carefully questions asked by the trial judge. The parties' "agreement" that HB 98-1110 had no effect on their claims and defenses in this case was unresponsive to the question presented and appeared less the result of any measured consideration than of a desire to avoid it. The law has changed, and, though obscured somewhat by what appears to be a drafting error,[2] significantly so. The top tier is no *1247 longer reserved for "the two" highest vote-getters. Under the new definition of "major political party," as many as 10 political parties may qualify for the top tier. The parties have failed entirely to address the new law or to explain or substantiate, by reference to existing law or fact, why they believe it has "no effect" on the issues before me.
The conclusory assertion that the constitutional analysis is unaltered because Plaintiffs will not qualify for the top tier in the 1998 election under either statutory scheme is insufficient to create a justiciable controversy. The change goes to the heart of Plaintiffs' constitutional challenge, which no longer applies to the Statute as it now exists.
In sum, I am being asked to rule on the constitutionality of a statute (which through amendment has been altered in relevant part and, in my view, rendered indecipherable as written) based on facts and arguments developed around its predecessor. Accommodating this request would be the height of judicial irresponsibilityresulting in a federal court issuing an advisory opinion on the constitutionality of a state's no-longer existing ballot positioning scheme. Doubtless the endeavor would meet with strong objection from both sides in any other context.
The case presented is nonjusticiable. Nevertheless, out of an abundance of caution and to ensure a full record in the event of an appeal, I offer the following observations on the merits of Plaintiffs' claims based on my consideration of the witness testimony and other evidence received at trial. First, however, I pause to address the Defendant's Motion for Summary Judgment challenging Plaintiffs' standing to sue, which was filed months before trial but which remained pending at the time the case was reassigned to me.[3]
II. STANDING.
The State asserts each of the Plaintiffs lacks standing to pursue their constitutional challenge because none has suffered an actual injury as a result of the Ballot Position Statute. (Def.'s Mot. Summ. J. at pp. 2, 3.) Even if they had standing, the State argues Plaintiffs cannot, as a matter of law, establish the injury was to a constitutionally legally protected right. (Id. at p. 3.) Because the State's second contention turns on the ultimate question in this case namely, whether ballot position or "ballot position bias" infringes on any cognizable constitutional right of the Libertarian Party, its candidates or the individual plaintiffs Combs and AllenI consider it in my discussion on the merits. My observations here are limited to the State's first argument.
The basis for the assertion that Plaintiffs can demonstrate no actual injury is the parties' stipulation, at paragraph 4(o) of the Pretrial Order, that Plaintiffs "will not present any evidence [at trial] for the purpose of demonstrating that the specific impact of [the Ballot Position Statute] on the Libertarian Party and/or its candidates is different or distinct from the impact this statute has on independent candidates or other political organizations and/or their candidates which similarly do not qualify for one of the top two ballot positions." From this, the State inferred that Plaintiffs Allen and Combs "will present no evidence demonstrating the specific effect of the [S]tatute ... on themselves [or] .... [t]he party." (Mot. Summ. J. at pp. *1248 3, 4, ¶¶ 4,7.) The inference does not follow from the premise and is unpersuasive.
It is undisputed that at the time this action was filed, both Combs and Allen had qualified to be placed on the ballot as Libertarian Party congressional candidates for the election scheduled for November 5, 1996. (Pretrial Order, at p. 3, ¶¶ a, b.) It is also undisputed that they were excluded by operation of the Ballot Position Statute from being placed in the top tier of the ballot and that they failed to win the election. Whether these facts are sufficient to establish the unconstitutionality of the Statute will be discussed below. They are, however, sufficient to confer standing on the individual Plaintiffs.[4] Because the Libertarian Party is suing in its representative capacity on behalf of all candidates who have been excluded from the top tier of the ballot in the past and who will be excluded in the future, the party, too, has standing to sue.
III. MERITS.
A. Plaintiffs' Equal Protection Claim.
Plaintiffs claim the Ballot Position Statute precludes qualified candidates who are not members of the Republican and Democratic parties from ever enjoying top ballot position in Colorado. As set forth above, the April amendments to Colorado's Ballot Position Statute undermine the entire premise of Plaintiffs' equal protection challenge. If the alleged discrimination in favor of the Republican and Democratic parties was tenuous under the old Statute, see Libertarian Party, 938 F.Supp. at 692 (finding no constitutionally cognizable classification for the purposes of the Equal Protection Clause where Statute facially neutral such that Libertarian Party could, "over time ... develop sufficient voter support to ... qualify for top ballot position"), it is all but illusory now. Not only is there no longer a numeric limit of two for qualification as a "major political party" and eligibility for the top ballot position, but the Libertarian Party need only obtain 10% of the vote to so qualify. Given the number of unaffiliated voters in Colorado,[5] any assertion that 10% of the vote is unattainable reveals self-doubt uncharacteristic of any political party, let alone one whose candidates have already qualified for the ballot in previous elections. In short, Plaintiffs' equal protection analysis, contingent upon the establishment of some form of unconstitutional "classification," fails as a matter of law.
B. Plaintiffs' First Amendment Claims.
Alternatively, individual Plaintiffs Allen and Combs claim the Statute infringes on their First Amendment rights as voters to cast a meaningful vote for Libertarian Party candidates. The challenge hinges on the existence of "ballot position bias," which Plaintiffs define as a "phenomenon by which the first candidate listed on a ballot receives windfall votes [simply because of his ballot position]." (Pls.' Proposed Findings of Fact & Conclusions of Law, ¶ 15.) Because the first candidate on the ballot receives these windfall votes and can "never" be a Libertarian candidate,[6] Plaintiffs contend their own votes for Libertarian candidates are "diluted" and their first amendment voting rights unlawfully burdened.
The State challenges Plaintiffs' first amendment theory as a matter of law, but I find no need to consider the constitutional issues raised. The evidence presented failed utterly to persuade me that the "phenomenon of ballot position bias" exists in the first *1249 instance, and I reject Plaintiffs' first amendment claim on that basis alone.
Plaintiffs did little more at trial to establish the existence of ballot position bias than to resubmit the 1996 deposition of, and preliminary injunction exhibits related to, Dr. Delbert A. Taebel, professor of Urban Affairs and Political Science at the University of Texas School of Urban and Political Affairs. Dr. Taebel did not testify at trial and Plaintiffs neither updated nor supplemented his earlier testimony or conclusions. I discussed Dr. Taebel's testimony and written work on the subject of "ballot position bias" in my 1996 Order denying Plaintiffs' Motion for Preliminary Injunction. See Libertarian Party v. Buckley, 938 F.Supp. at 692-93. Plaintiffs presented nothing at trial to temper my initial conclusion that, even if I found Dr. Taebel's testimony persuasive, the impact of "position bias" in the type of elections at issue in Colorado is "minimal." Id. at 693. Further, Dr. Taebel's testimony that position bias increases as a candidate's name recognition decreases (Pls.' Ex. No. 2 (Taebel Article); Dep. Tr. at 22-23) actually supports, rather than undermines, the reasonability of a Statute that assigns a candidate's position on the ballot according to the demonstrated support for that candidate's party in the previous election.
As it stands, however, I find Dr. Taebel's testimony unpersuasive and cannot, on the basis of that testimony, conclude the phenomenon of "ballot position bias" exists, or exists in a magnitude sufficient to constitute an unjustifiable infringement on Plaintiffs' voting rights. Assuming, for the sake of argument, that the Ballot Position Statute infringes "`even slightly'" on voting rights, I reiterate my conclusion reached after the preliminary injunction hearing in this case that the "`character and magnitude'" of any such infringement is outweighed by the State's interest in regulating and organizing their elections. Libertarian Party, 938 F.Supp. at 693-94 (applying standard articulated in Anderson v. Celebrezze, 460 U.S. 780, 789, 103 S. Ct. 1564, 75 L. Ed. 2d 547 (1983)).
IV. CONCLUSION.
For the foregoing reasons, I find the controversy between the parties nonjusticiable. Alternatively, I reject Plaintiffs' contention that Colorado's Ballot Position Statute, codified as amended at Colo.Rev.Stat. § 1-5-104(1), unconstitutionally stigmatizes and discriminates against the Libertarian Party or its past and future candidates for office, or that it unconstitutionally infringes upon the voting rights of Plaintiffs Allen or Combs. Judgment shall enter against Plaintiffs and in favor of the Defendant Buckley, and the action dismissed.
NOTES
[1] The parties left unchanged their statements of claims and defenses (see Pretrial Order, ¶ 3(a) & (b)), as well as their Stipulation of Facts, (Pretrial Order, ¶ 4), both of which continued to frame the case in terms of the old Ballot Position Statute, including a definition of "major political party" as being limited to the "first or second greatest" vote-getters (¶ 4(k)), an assumption that all but the top two vote-getters are excluded from the top tier of the ballot (¶ 4(m) & (n)), and an assertion that the Statute is biased in favor of the Republican and Democratic parties (¶ 4(l)). These characterizations no longer reflect the law and are largely meaningless.
[2] The bill retained the language from the original Statute reserving the top tier of the ballot for "candidates of the two major political parties," but had already altered the definition of "major political party" in new § 1-1-104(22) to do away with the two-party limit. Old § 1-1-104(22) defined "major political party" as "one of the two political parties whose candidate for governor at the last preceding gubernatorial election received the first and second greatest number of votes." New § 1-1-104(22) defines "major political party" as "any political party ... whose candidate at the last preceding gubernatorial election received at least ten percent of the total gubernatorial votes cast." Thus, there can now be as many as ten "major political parties," and yet the top tier remains reserved for "the two" of them. The nonsequitor results in an obvious conundrum: If three parties receive 10 + % of the vote in an election, then which of the three will be "the two" that qualify for the top ballot position in the next election? The irrationality of the question suggests the continued reference to "the two major political parties" in new § 1-5-404(1) (and (2)) is a drafting error, and that the top tier of the ballot is now available to as many parties as received 10% or more of the total gubernatorial votes in the previous election.
[3] Because trial was less than a week away, I informed the parties that I would hear argument on the Motion for Summary Judgment on the day of trial and take the matter under advisement. In the meantime, trial on the merits would go forward as scheduled.
[4] The fact that neither Allen nor Combs has qualified for the 1998 ballot or has announced an intention to run does not render their case moot. See Meyer v. Grant, 486 U.S. 414, 417 n. 2, 108 S. Ct. 1886, 100 L. Ed. 2d 425 (1988)(although 1984 election in which appellees first hoped to present initiative to citizens of Colorado had passed, controversy was capable of repetition yet evading review and was not moot).
[5] I note that Plaintiffs, at trial, presented evidence showing registered party affiliation in Colorado as of April 2, 1998, was 876,042 Republican; 834,735 Unaffiliated; and 757,698 Democrat. (Pls.' Ex. 7.)
[6] Again, this is a premise not necessarily true under the old Ballot Position Statute (which would have allowed the Libertarian Party to vie for top ballot position if it developed sufficient support over time to come in first or second in a gubernatorial election) and even less so under the amended statute where 10% of the vote in a given election would qualify a Libertarian Party candidate for the top tier. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2576683/ | 8 F. Supp. 2d 1259 (1998)
Charles KOCH, Nancy Koch, Tim Koch, David Koch, Michael Koch, Jennifer Koch, and Brenna Marie Koch, d/o/b 6-17-89 and Andrew Christopher Koch, d/o/b/ 12-17-91, minor children, by and through their next friend and natural father, Tim Koch, and Allen David Koch, d/o/b 8-23-95, a minor, by and through his next friend and natural father, David Koch, Plaintiffs,
v.
SHELL OIL COMPANY and Feed Specialties Co., Inc., and Occidental Chemical Corp., f/k/a Diamond Shamrock Corp., Defendants.
No. Civ.A. 92-4239-DES.
United States District Court, D. Kansas.
May 15, 1998.
Order Vacating Opinion in Part on Reconsideration July 7, 1998.
*1260 Robert V. Eye, Irigonegaray & Associates, Topeka, KS, Ronald R. Hein, Stephen P. Weir, Hein & Weir, Chartered, Topeka, KS, for Plaintiffs.
Hal D. Meltzer, Gregory N. Pottorff, Turner & Boisseau, Chartered, Overland Park, KS, James P. Nordstrom, Fisher, Patterson, Sayler & Smith, Topeka, KS, Edward L. Keeley, McDonald, Tinker, Skaer, Quinn & Herrington, Wichita, KS, Bryce A. Abbott, Martin, Churchill, Blair, Hill, Cole & Hollander, Chtd., Wichita, KS, William R. Smith, Law Offices of Wm. R. Smith, Wichita, KS, for Defendants.
MEMORANDUM AND ORDER
SAFFELS, District Judge.
This matter is before the court on the motion of defendant Shell Oil Company (Doc. 239) and the motion of Feed Specialties Co., Inc. (Doc. 245) for summary judgment.
I. BACKGROUND
From April 1979 through October 1981, plaintiff Charles Koch fed his dairy cows a feed additive known as Rabon Oral Larvicide Premix ("R.O.L.Premix"). R.O.L. Premix contains Rabon Oral Larvicide, a product made from Rabon. Rabon is manufactured and sold by Shell Oil Company ("Shell") and Occidental Chemical Corporation ("Occidental"). R.O.L. Premix is distributed by Feed Specialties, Inc. ("Feed Specialties").
Beginning in May 1979, and continuing until July 1986, a significant number of Mr. Koch's cattle died. He purchased his last batch of R.O.L. Premix in September 1981, and ceased using the product at the end of October 1981 because he suspected that the product was involved in the death of his cattle. Mr. Koch himself has experienced health problems since the 1980's, which he attributes to his exposure to Rabon.
In March 1991, experts developed a test which could detect residual Rabon in fat tissue. In April 1991, these experts confirmed the presence of Rabon in tissue taken both from Mr. Koch, and from one of Mr. Koch's bulls that had died in 1981. On November 25, 1991, Mr. Koch filed suit against Shell and Feed Specialties, alleging that Rabon caused the death of a substantial portion of his dairy herd, as well as physical injuries to himself, his wife and children, and his grandchildren.
II. SUMMARY JUDGMENT STANDARD
A court shall render summary judgment upon a showing that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law. Fed. R.Civ.P. 56(c) The rule provides that "the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S. Ct. 2505, 2509-10, 91 L. Ed. 2d 202 (1985). The substantive law identifies which facts are material. Id. at 248. A dispute over a material fact is genuine when the evidence is such that a reasonable jury could find for the nonmovant. Id. "Only disputes over facts that might properly affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Id.
*1261 The movant has the initial burden of showing the absence of a genuine issue of material fact. Shapolia v. Los Alamos Nat'l Lab., 992 F.2d 1033, 1036 (10th Cir.1993). The movant may discharge its burden "by `showing'that is, pointing out to the district courtthat 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, 2553-54, 91 L. Ed. 2d 265 (1985). The movant need not negate the nonmovant's claim. Id. at 323.
Once the movant makes a properly supported motion, the nonmovant must do more than merely show there is some metaphysical doubt as to the material facts. Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 586, 106 S. Ct. 1348, 1355-56, 89 L. Ed. 2d 538 (1985). The nonmovant must go beyond the pleadings and, by affidavits or depositions, answers to interrogatories, and admissions on file, designate specific facts showing there is a genuine issue for trial. Celotex, 477 U.S. at 324 (interpreting Fed.R.Civ.P. 56(e)). Rule 56(c) requires the court to enter summary judgment against a nonmovant who fails to make a showing sufficient to establish the existence of an essential element to that party's case, and on which that party will bear the burden of proof. Id. at 322. Such a complete failure of proof on an essential element of the nonmovant's case renders all other facts immaterial. Id. at 323.
A court must view the facts in the light most favorable to the nonmovant and allow the nonmovant the benefit of all reasonable inferences to be drawn from the evidence. See, e.g., United States v. O'Block, 788 F.2d 1433, 1435 (10th Cir.1986) (stating that "[t]he court must consider factual inferences tending to show triable issues in the light most favorable to the existence of those issues"). The court's function is not to weigh the evidence, but merely to determine whether there is sufficient evidence favoring the nonmovant for a finder of fact to return a verdict in that party's favor. Anderson, 477 U.S. at 249. Essentially, the court performs the threshold inquiry of determining whether a trial is necessary. Id. at 250.
III. DISCUSSION
Defendants Shell and Feed Specialties ("defendants") initially contend that plaintiff Charles Koch's claim is barred by the two-year statute of limitations found in Kan.Stat.Ann. § 60-513. As a general rule, the cited statute requires that a tort action be brought within two years from the date the act giving rise to the cause of action first causes substantial injury. Kan.Stat.Ann. § 60-513(a), (b). However, if the fact of injury is not reasonably ascertainable until sometime after the initial tortious act, the limitation period commences at the time the fact of injury becomes reasonably ascertainable to the injured party. Kan.Stat.Ann. § 60-513(b). Ascertainment of the "fact of injury" for purposes of triggering the discovery rule contained in Kan.Stat.Ann. § 60-513(b) includes not only ascertainment of the injury itself, but also the cause of the injury. See, e.g., Gilger v. Lee Const., Inc., 249 Kan. 307, 820 P.2d 390, 400-01 (1991) (plaintiffs suspected carbon monoxide gas poisoning caused their illness, but medical opinions differed; evidence was controverted as to when injury was reasonably ascertainable and when plaintiffs realized their health problems were associated with the alleged improperly vented furnace).
Where evidence of the date on which a plaintiff should have reasonably ascertained he suffered substantial injury caused by the defendant is in dispute, it is a material issue of fact which should be resolved by the jury. See Gilger v. Lee Construction, 820 P.2d at 401. See also Hatfield v. Burlington Northern R.R. Co., 747 F. Supp. 634, 639 (D.Kan. 1990) (denying third-party defendant's motion for summary judgment where third-party plaintiff presented unrefuted evidence that it did not know the cause of its alleged injury until more than two years after the accident).
In this case, it is uncontroverted that Charles Koch first incurred substantial injury no later than October 30, 1981, with the death of one of his Holstein cows. It is also uncontroverted that he was aware of the injury on that date. However, he contends he was not aware of the cause of the injury until April 1991, after laboratory experts determined the presence of Rabon in the tissue samples he submitted.
Defendants contend that Charles Koch should reasonably have been aware of the cause of the injury in October 1981. This *1262 court rejected a similar argument by Feed Specialties in a Memorandum and Order issued March 18, 1993. Defendants, however, contend that facts revealed in Charles Koch's April 10, 1996, deposition compel a different conclusion. Specifically, defendants refer to Charles Koch's testimony that his veterinarian, Dr. Atterbury, commented to him in October 1981 "I didn't know you was feeding Rabon, there is your liver problems." Since Charles Koch was specifically told that the Rabon was the cause of the fatal liver problems, defendants contend his cause of action accrued in October 1981 and was barred by the limitations period in October of 1993.
In response, plaintiffs refer the court to their previously filed briefs. After careful examination of these documents, however, the court could find no argument or evidence addressing defendants' use of Charles Koch's April 1996 deposition testimony. As the non-movant, plaintiff is required to go beyond the pleadings and, by affidavits or depositions, answers to interrogatories, and admissions on file, designate specific facts showing there is a genuine issue for trial. Celotex, 477 U.S. at 324. This plaintiffs have not done. Accordingly, Rule 56(c) requires the court to enter summary judgment against plaintiffs for failing to sufficiently establish a genuine issue of material fact with regard to the date on which Charles Koch should have reasonably ascertained that the damage to his cattle was caused by Rabon. Summary judgment is denied, however, with respect to Charles Koch's claims for damages arising from harm to his person.
Defendants advance a similar argument with respect to the claims of Charles Koch's wife and children. According to the defendants, Charles Koch's wife and children should reasonably have been aware of the cause of their injuries by March 6, 1991, the date laboratory experts discovered the presence of Rabon in the tissue samples submitted by Charles Koch. As this was more than two years prior to the filing of the motion to add Mr. Koch's wife and children, defendants contend their claims are barred by the two-year limitations period of Kan.Stat.Ann. § 60-513.
Plaintiffs concede the tissue samples were tested on or about March 6, 1991, but present evidence that information regarding the test results was not provided to any Koch family members until April 1996. Defendants' argument, that the laboratory experts were plaintiffs' agents and thus knowledge of the test results were imputed to plaintiffs immediately upon completion of the tests, is unpersuasive. The court therefore finds that a genuine dispute exists as to the date on which plaintiffs should have reasonably ascertained they suffered substantial injury caused by defendants. As such, it is a material issue of fact which should be resolved by the jury. See Gilger v. Lee Construction, 820 P.2d at 401.
IT IS THEREFORE BY THE COURT ORDERED that the motion of defendant Shell Oil Company (Doc. 239) and the motion of Feed Specialties Co., Inc. (Doc. 245) for summary judgment are granted in part and denied in part. Defendants' motions are denied with respect to all claims and all parties except Charles Koch's claim for damages arising from harm to his cattle.
ORDER VACATING OPINION IN PART ON RECONSIDERATION
This matter is before the court on plaintiffs' Motion for Reconsideration (Doc. 307) and defendant Shell Oil Company's Motion for Reconsideration (Doc. 308). For the reasons set forth below, plaintiffs' motion is granted and defendant's motion is denied.
I. BACKGROUND
From April 1979 through October 1981, plaintiff Charles Koch fed his dairy cows a feed additive known as Rabon Oral Larvicide Premix ("R.O.L.Premix"). R.O.L. Premix contains Rabon Oral Larvicide, a product made from Rabon. Rabon is manufactured and sold by Shell Oil Company ("Shell") and Occidental Chemical Corp. ("Occidental"). R.O.L. Premix is distributed by Feed Specialties, Inc. ("Feed Specialties").
Beginning in May 1979 and continuing until July 1986, a significant number of Mr. Koch's cattle died. He purchased his last batch of R.O.L. Premix in September 1981, and ceased using the product at the end of October 1981 because he suspected that the product was involved in the death of his cattle. Mr. Koch himself has experienced health problems since the 1980's, which he attributes to his exposure to Rabon.
*1263 In March 1991, laboratory experts developed a test which could detect residual Rabon deposits in fat tissue. In April 1991, these experts confirmed the presence of Rabon in tissue taken both from Mr. Koch and from one of Mr. Koch's bulls that had died in 1981. On November 25, 1991, Mr. Koch filed suit against Shell and Feed Specialties, alleging that Rabon caused the death of a substantial portion of his dairy herd, as well as physical injuries to himself, his wife and children, and his grandchildren.
Plaintiffs and defendant Shell now move for reconsideration of the court's May 15, 1998, Memorandum and Order dismissing Charles Koch's claim for damages arising from harm to his cattle.
II. DISCUSSION
A motion for reconsideration provides the court with an opportunity to correct "manifest errors of law or fact and to review newly discovered evidence." Dees v. Wilson, 796 F. Supp. 474, 475 (D.Kan.1992), aff'd, 13 F.3d 405 (1993). A court has discretion whether to grant or deny a motion for reconsideration. Hancock v. City of Oklahoma City, 857 F.2d 1394, 1395 (10th Cir.1988). There are three circumstances in which a court may appropriately grant a motion for reconsideration: (1) where the court made a manifest error of fact or law; (2) where there is newly discovered evidence; and (3) where there has been a change in the law. Renfro v. City of Emporia, Kan., 732 F. Supp. 1116, 1117 (D.Kan.), aff'd, 948 F.2d 1529 (1991).
A motion for reconsideration is not to be used as a vehicle for the losing party to rehash arguments previously considered and rejected. Voelkel v. GMC, 846 F. Supp. 1482, 1483 (D.Kan.), aff'd, 43 F.3d 1484, 1994 WL 708220 (10th Cir.1994). Indeed, "[a] party's failure to present his strongest case in the first instance does not entitle him to a second chance in the form of a motion to amend." Paramount Pictures Corp. v. Video Broadcasting Sys., Inc., No. 89-1412-C, 1989 WL 159369, at *1 (D.Kan. Dec.15, 1989) (citing United States v. Carolina Eastern Chem. Co., Inc., 639 F. Supp. 1420, 1423 (D.S.C. 1986)). Such motions are therefore not appropriate if the movant intends only that the court hear new arguments or supporting facts. Van Skiver v. United States, 952 F.2d 1241, 1243 (10th Cir.1991), cert. denied, 506 U.S. 828, 113 S. Ct. 89, 121 L. Ed. 2d 51 (1992).
"The party moving for reconsideration has the `burden to show that there has been a change of law, that new evidence is available, or that reconsideration is necessary to correct clear error or prevent manifest injustice.'" Mackey v. IBP, Inc., No. 95-2288-GTV, 1996 WL 417513 at *2 (D.Kan. July 22, 1996)(quoting International Bhd. of Teamsters, Local 955 v. Sambol Meat Packing Co., No. 92-2338-JWL, 1993 WL 393010, unpublished op. at 2 (D.Kan. Sept. 30, 1993)). Here, neither party alleges a change in law or the availability of new evidence. Accordingly, their arguments require the court to decide whether reconsideration is necessary to correct any clear error or prevent manifest injustice.
Shell contends that Charles Koch's claims for damages to his cattle and to his person arose out of the same operative facts. Therefore, Shell concludes, if Mr. Koch could have found in 1981 that Rabon was the cause of the injuries to his cattle, he could also have found in 1981 that Rabon was the cause of his personal injuries. The court disagrees. The causal link between the presence of Rabon in the R.O.L. Premix and Mr. Koch's personal injuries is, considering the evidence, significantly more tenuous than the causal link between the presence of Rabon in the R.O.L. Premix and the death of Mr. Koch's cattle. There is no need, however, for the court to base its decision on resolution of this issue. Indeed, the court has no need even to reach this issue since the question of whether Mr. Koch could reasonably have ascertained that the presence of Rabon in the R.O.L. Premix was the cause of his personal and property damage before 1991 is a question properly reserved for the jury.
Relying on plaintiffs' somewhat cursory argument and imprecise references to the record, the court concluded in its May 15, 1998, Memorandum and Order that Mr. Koch's 1996 deposition statement regarding Dr. Atteberry's opinion that Rabon caused the problems with the cattle was new evidence requiring partial summary judgment in defendants' favor. The court stated:
Defendants contend that Charles Koch should reasonably have been aware of the *1264 cause of the injury in October 1981. This court rejected a similar argument by Feed Specialties in a Memorandum and Order issued March 18, 1993. Defendants, however, contend that facts revealed in Charles Koch's April 10, 1996, deposition compel a different conclusion. Specifically, defendants refer to Charles Koch's testimony that his veterinarian, Dr. Atterbury, commented to him in October 1981 "I didn't know you was feeding Rabon, there is your liver problems." Since Charles Koch was specifically told that the Rabon was the cause of the fatal liver problems, defendants contend his cause of action accrued in October 1981 and was barred by the limitations period in October of 1993.
The court then noted that plaintiffs responded by "refer[ing] the court to their previously filed briefs." The court concluded that "after careful examination of these documents, however, the court could find no argument or evidence addressing defendants' use of Charles Koch's April 1996 deposition testimony."
A more thorough review of the record reveals that conclusion to have been erroneous. Mr. Koch's 1996 deposition testimony regarding Dr. Atteberry's opinion that Rabon caused the problems with the cattle was not, as defendant implied in its summary judgment motion, newly discovered evidence requiring reversal of the court's March 1993 decision on summary judgment. It is instead repetitive, and provides no information not already considered by the court in its March 1993 summary judgment decision. Indeed, Mr. Koch clearly revealed in his 1992 deposition that Dr. Atteberry strongly suspected that the presence of Rabon in the R.O.L. Premix was the cause of the problems with Mr. Koch's cattle.
Shell attempts to distinguish Mr. Koch's 1992 testimony from his 1996 testimony. In his latter testimony, Shell emphasizes, Mr. Koch stated that Dr. Atteberry did more than merely suggest the possibility that Rabon was causing the liver problems in the cattle, and actually "told" him that Rabon was the cause of the liver problems. The court is not convinced that this distinction is significant. However, even if Mr. Koch's 1996 testimony constitutes new information, it does not dilute the effect of the evidence in the record tending to extenuate the causal link between the ingestion of Rabon and the death of Mr. Koch's cattle. Notwithstanding Mr. Koch's 1996 deposition testimony, the court believes that a reasonable jury could determine that Mr. Koch had insufficient evidence to support a claim that Rabon was the cause of his damages until April or May 1991. Accordingly, the court concludes that reconsideration of its May 15, 1998, Memorandum and Order is necessary to correct clear error.
IT IS THEREFORE BY THE COURT ORDERED that plaintiffs' Motion for Reconsideration (Doc. 307) is granted and defendant Shell Oil's Motion for Reconsideration (Doc. 308) is denied.
IT IS FURTHER ORDERED that the portion of the court's May 15, 1998, Memorandum and Order granting summary judgment against plaintiffs is hereby vacated and is revised and superseded to the extent that it is inconsistent with this opinion. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2411872/ | 686 F. Supp. 2d 55 (2010)
AUBURN REGIONAL MEDICAL CENTER, et al., Plaintiffs,
v.
Kathleen SEBELIUS, Secretary, United States Department of Health and Human Services, Defendant.
Civil Action No. 07-2075(JDB).
United States District Court, District of Columbia.
February 26, 2010.
As Amended March 11, 2010.
*56 Robert L. Roth, Crowell & Moring LLP, Washington, DC, for Plaintiffs.
Brian G. Kennedy, Lisa Ann Olson, U.S. Department of Justice, Washington, DC, for Defendant.
MEMORANDUM OPINION
JOHN D. BATES, District Judge.
The Secretary of the Department of Health and Human Services, through the Centers for Medicare and Medicaid Services ("CMS"), is responsible for providing payments known as "disproportionate share hospital" ("DSH") adjustments to hospitals that serve a significantly disproportionate share of low income patients, as set forth under the Medicare statute, Title XVIII of the Social Security Act, 42 U.S.C. § 1395 et seq. Hundreds of Medicare providers have, collectively, filed twelve law-suits *57 in this district to obtain recalculation of their DSH payments as a result of findings made by the Provider Reimbursement Review Board on March 17, 2006, concerning systemic flaws in the data used by CMS and in the process used to assess the data. See Baystate Med. Ctr. v. Mutual of Omaha Ins. Co., Case Nos. 96-1822; 97-1579; 98-1827; 99-2061, Decision No. 2006-D20 (Mar. 17, 2006) (Pl.'s Mem., Ex. A) ("Baystate Board Decision"). Those findings were reviewed by this Court, and sustained in part, as set forth in an opinion issued on March 31, 2008. Baystate Med. Ctr. v. Leavitt, 545 F. Supp. 2d 20, amended in part, 587 F. Supp. 2d 37 (D.D.C.2008).
In this first of the post-Baystate lawsuits, seventeen Medicare providers seek judicial relief from allegedly erroneous DSH payment determinations for fiscal years 1987-1994. Plaintiffs filed administrative appeals of those DSH determinations with the Board on September 12, 2006. See Compl. ¶ 52. They requested "equitable tolling" of the 180-day limitations period for filing such appeals, recognizing that, absent such tolling, their appeals would be barred by the 180-day deadline set forth in 42 U.S.C. § 1395oo (a). The Board dismissed their appeals as untimely, holding, inter alia, that it lacked authority to grant a request for equitable tolling. See In re Crowell & Moring 87-93 DSH Equitable Tolling Group, Case No. 06-2357G (Sept. 18, 2007) (Compl., Ex. B) ("In re Equitable Tolling Group, Board Decision"). Plaintiffs contend that the Board's decision was contrary to law and ask this Court to hold their administrative appeals timely. Compl. ¶¶ 59-60. In the alternative, they seek an order from this Court directing the Secretary to order the Medicare fiscal intermediaries "to make new DSH determinations for the FYs at issue ... using correct ... percentages" through a grant of mandamus or similar order under the Mandamus Act, 28 U.S.C. § 1361, the All Writs Act, 28 U.S.C. § 1651, or the federal question statute, 28 U.S.C. § 1331. Id. ¶¶ 61-64.
In response, defendants have moved to dismiss the complaint on the ground that plaintiffs' administrative appeals were untimely and hence, judicial review is not available under § 1395oo(f). Defendants further contend that plaintiffs are not entitled to mandamus relief under § 1361 or any other statute because they have failed to identify a nondiscretionary duty owed to plaintiffs or otherwise satisfied the extraordinary requirements for mandamus relief. A hearing on defendant's motion was held on January 21, 2010. For the reasons explained below, the Court will grant defendant's motion to dismiss.[1]
BACKGROUND
I. Statutory and Regulatory Background
Through a complex statutory and regulatory regime, the Medicare program reimburses qualifying hospitals for the services they provide to eligible elderly and disabled patients. See generally County of Los Angeles v. Shalala, 192 F.3d 1005, 1008 (D.C.Cir.1999). The "operating costs of inpatient hospital services" are reimbursed under a prospective payment system ("PPS")that is, based on prospectively determined standardized ratesbut subject to hospital-specific adjustments. 42 U.S.C. § 1395ww(d); see generally In re Medicare Reimbursement Litig., 309 F. Supp. 2d 89, 92 (D.D.C.2004), aff'd, 414 F.3d 7, 8-9 (D.C.Cir.2005). One such adjustment *58 is the "disproportionate share hospital" ("DSH") adjustment which requires the Secretary to provide an additional payment to each hospital that "serves a significantly disproportionate number of low-income patients." 42 U.S.C. § 1395ww(d)(5)(F)(i)(I). Whether a hospital qualifies for the DSH adjustment, and the amount of the adjustment it receives, depends on the "disproportionate patient percentage" determined by the Secretary under a statutory formula. 42 U.S.C. § 1395ww(d)(5)(F)(v)-(vii). This percentage is a "proxy measure for low income." See H.R.Rep. No. 99-241, at 16-17 (1985), reprinted in 1986 U.S.C.C.A.N. 579, 594-95.
The disproportionate patient percentage is the sum of two fractions, commonly referred to as the Medicaid fraction (often called the Medicaid Low Income Proxy) and the Medicare fraction (the Medicare Low Income Proxy). 42 U.S.C. § 1395ww(d)(5)(F)(vi); Jewish Hospital, Inc. v. Secretary of Health and Human Servs., 19 F.3d 270, 272 (6th Cir.1994). The Medicare fractionthe focus of this litigationreflects the number of hospital inpatient days attributable to Medicare Part A patients who are also entitled to Supplemental Security Income ("SSI") benefits at the time of their hospital stays, and, hence, is often referred to as the SSI fraction or SSI percentage. See Baystate, 545 F.Supp.2d at 22-23. A detailed description of the data underlying the SSI fraction and the methodology used by CMS is set forth in this Court's Baystate decision.[2]See 545 F.Supp.2d at 23-24. It is sufficient to state here that calculation of the numerator of the SSI fraction requires use of voluminous SSI data from the Social Security Administration, and that CMS has taken on sole responsibility for computation of the SSI fraction. Id. (citing 51 Fed. Reg. 31454, 31459 (Sept. 3, 1986) (DSH final rule)).
Medicare payments are initially determined by a "fiscal intermediary"typically an insurance company that acts as the Secretary's agent for purposes of reimbursing health care providers. See 42 C.F.R. §§ 421.1, 421.3, 421.100-.128.[3] A fiscal intermediary is required by regulation to apply the SSI fraction computed by CMS. See id. § 412.106(b)(2) and (b)(5). The intermediary sets forth the total paymentincluding any DSH paymentdue to a provider for a particular fiscal year in a Notice of Program Reimbursement ("NPR"). Id. § 405.1803.
A provider dissatisfied with the amount of the award may request a hearing before the Provider Reimbursement Review Board ("PRRB" or "Board"), an administrative body composed of five members appointed by the Secretary. 42 U.S.C. § 1395oo(a), (h). Section 1395oo (a)(3) provides that such appeals must be filed "within 180 days after notice of the intermediary's final determination." The PRRB has the authority to affirm, modify, or reverse the final determination of the intermediary, and the Secretary may then reverse, affirm, or modify the Board's decision *59 within 60 days thereafter. Id. § 1395oo (d) and (f). Providers may obtain judicial review of "any final decision of the Board" or the Secretary's reversal, affirmance, or modification thereof, by commencing a civil action within 60 days of receipt of any final decision. Id. § 1395oo (f).
The Secretary has, by regulation, authorized the Board to grant an extension of the 180-day administrative appeal period "for good cause shown," if a request for extension is filed not "more than 3 years after the date the notice of the intermediary's determination is mailed to the provider." 42 C.F.R. § 405.1841(b). The regulation prohibits the Board from extending the 180-day deadline for administrative appeals if the request is submitted after that three-year period. Id.
Apart from the administrative appeal process, a provider also may obtain administrative relief from an intermediary's determination by requesting a "reopening." In most instances, a request for reopening must be submitted within three years of the date of the intermediary determination or Board decision at issue, but in cases of "fraud or similar fault of any party to the determination," the three-year deadline does not apply. See 42 C.F.R. § 405.1885(a), (d); see generally Monmouth Med. Ctr. v. Thompson, 257 F.3d 807, 809 (D.C.Cir.2001). The regulations provide that reopening is discretionary in some circumstances and mandatory in others. 42 C.F.R. § 405.1885(a)-(b), (d). Hospitals may not seek judicial review of an intermediary's denial of a motion to reopen because a refusal to reopen is not a "final determination ... as to the amount" reviewable by the Board under § 1395oo (a)(1), but rather is a refusal to make a new determination. Your Home Visiting Nurse Servs., Inc. v. Shalala, 525 U.S. 449, 453, 119 S. Ct. 930, 142 L. Ed. 2d 919 (1999); accord, Monmouth, 257 F.3d at 811.
II. Factual Background
Plaintiffs are various hospitals who participated in the Medicare program at various times between fiscal years 1987 through 1994. Compl. ¶¶ 4-11. Each hospital received a Notice of Program Reimbursement setting forth its DSH payment determination, which typically occurs within two to three years of the end of a fiscal year. Id. ¶¶ 50-51, 53; see Baystate Med. Ctr., 545 F.Supp.2d at 42.[4] None of the plaintiffs filed an administrative appeal within 180 days of receipt of the NPRs. Compl. ¶ 53.
On March 17, 2006, over ten years after the fiscal years at issue, the PRRB addressed whether there were systemic flaws in the data underlying the DSH payment determinations in the context of resolving the claims of Baystate Medical Centera nonparty to this casewhich had lodged a timely appeal of its DSH payments for fiscal years 1993 through 1996. 545 F. Supp. 2d at 26-30. Baystate had alleged that certain categories of SSI eligibility records were omitted from the data tapes used by CMS to calculate the SSI fraction of the DSH percentage and that the patient identifiers used by CMS resulted in undercalculation of the SSI fraction. Id. The Board found, inter alia, that several categories of SSI eligibility data had been omitted from the CMS calculations, that the "match process" used *60 by CMS to determine the number of SSI eligible Medicare beneficiaries was flawed, and that these omissions and flaws tended to deflate the overall DSH payment. Id. The Board thus remanded the case to the intermediary for recalculation of Baystate's DSH payment. Id. at 30. The Board's findings subsequently underwent additional administrative and judicial review, resulting in this Court's decision in the Baystate litigation, which left the Board's findings concerning the omissions in data and flaws in the match process largely intact. See 545 F.Supp.2d at 40-55.[5]
On September 12, 2006, about three months after the Board's Baystate decision, plaintiffs appealed their DSH payment determinations to the Board on the ground that the determinations were made using an understated SSI fraction. Compl. ¶ 52. They acknowledged that each of their appeals was filed more than three years after the NPRs had been issued. Id. ¶ 53. However, plaintiffs asked the Board to find the appeals timely under the principle of equitable tolling. Id. ¶ 54. They contended that equitable tolling applied because the hospitals' failure to file an appeal within 180 days of issuance of the NPRs was the result of CMS's refusal to inform the hospitals that their SSI percentages were incorrectly understated for the fiscal years at issue, citing the Board's Baystate decision. Id. ¶ 55. In their view, then, the appeals were timely because they were filed within 180 days of the Board's Baystate decision. Id. ¶¶ 54-56.
On September 18, 2007, the Board held that it lacked jurisdiction over the hospitals' appeals because they were not timely filed. See In re Equitable Tolling Group, Board Decision at 3. The Board reasoned that it had only the powers granted to it by statute and regulation, which limited its authority to hear an administrative appeal to requests filed within 180 days of the date of the final determination (42 U.S.C. § 1395oo (a)) or requests demonstrating "good cause" for a late appeal within three years after the intermediary's determination was mailed to the provider (42 C.F.R. § 405.1841(b)). Id. The Board determined that "[g]ood cause for late filing cannot be considered in these cases because the cases [were] filed more than three years after the issuance of the NPRs...." Id. at 2. The Board further concluded that it did not have "general equitable powers," but instead was limited to the equitable powers granted by § 405.1841(b), as well as the reopening regulation, § 405.1885. Id. Therefore, the Board held the appeals untimely. Id. at 3. The Secretary declined to review the Board's decision. See Compl., Ex. B. Plaintiffs then brought this action seeking judicial review pursuant to § 1395oo (f) or, in the alternative, a judicial order directing the Secretary to order the Medicare fiscal intermediaries "to make new DSH determinations for the FYs at issue ... using correct SSI percentages" through a grant of mandamus. Plaintiffs also contend that their challenges may be reviewed directly under the federal question statute if judicial review is not available elsewhere.
*61 STANDARD OF REVIEW
"[I]n passing on a motion to dismiss, whether on the ground of lack of jurisdiction over the subject matter or for failure to state a cause of action, the allegations of the complaint should be construed favorably to the pleader." Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S. Ct. 1683, 40 L. Ed. 2d 90 (1974); see Leatherman v. Tarrant Cty. Narcotics and Coordination Unit, 507 U.S. 163, 164, 113 S. Ct. 1160, 122 L. Ed. 2d 517 (1993); Phillips v. Bureau of Prisons, 591 F.2d 966, 968 (D.C.Cir.1979). Therefore, the factual allegations must be presumed true, and plaintiff must be given every favorable inference that may be drawn from the allegations of fact. Scheuer, 416 U.S. at 236, 94 S. Ct. 1683; Sparrow v. United Air Lines, Inc., 216 F.3d 1111, 1113 (D.C.Cir.2000). However, the Court need not accept as true "a legal conclusion couched as a factual allegation," nor inferences that are unsupported by the facts set out in the complaint. Trudeau v. Federal Trade Comm'n, 456 F.3d 178, 193 (D.C.Cir.2006) (quoting Papasan v. Allain, 478 U.S. 265, 286, 106 S. Ct. 2932, 92 L. Ed. 2d 209 (1986)).
Under Rule 12(b)(1), the party seeking to invoke the jurisdiction of a federal courtplaintiffs herebears the burden of establishing that the court has jurisdiction. See U.S. Ecology, Inc. v. U.S. Dep't of Interior, 231 F.3d 20, 24 (D.C.Cir.2000); see also Grand Lodge of Fraternal Order of Police v. Ashcroft, 185 F. Supp. 2d 9, 13 (D.D.C.2001) (a court has an "affirmative obligation to ensure that it is acting within the scope of its jurisdictional authority."); Pitney Bowes, Inc. v. United States Postal Serv., 27 F. Supp. 2d 15, 19 (D.D.C.1998). "`[P]laintiff's factual allegations in the complaint ... will bear closer scrutiny in resolving a 12(b)(1) motion' than in resolving a 12(b)(6) motion for failure to state a claim." Grand Lodge, 185 F.Supp.2d at 13-14 (quoting 5A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1350 (2d ed. 1987)). Additionally, a court may consider material other than the allegations of the complaint in determining whether it has jurisdiction to hear the case, as long as it still accepts the factual allegations in the complaint as true. See Jerome Stevens Pharm., Inc. v. FDA, 402 F.3d 1249, 1253-54 (D.C.Cir.2005); EEOC v. St. Francis Xavier Parochial Sch., 117 F.3d 621, 624-25 n. 3 (D.C.Cir. 1997); Herbert v. Nat'l Acad. of Scis., 974 F.2d 192, 197 (D.C.Cir.1992).
In reviewing a motion to dismiss pursuant to Rule 12(b)(6), the Court is mindful that all that the Federal Rules of Civil Procedure require of a complaint is that it contain "`a short and plain statement of the claim showing that the pleader is entitled to relief,' in order to `give the defendant fair notice of what the ... claim is and the grounds upon which it rests.'" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957)); accord Erickson v. Pardus, 551 U.S. 89, 93, 127 S. Ct. 2197, 167 L. Ed. 2d 1081 (2007) (per curiam). Although "detailed factual allegations" are not necessary to withstand a Rule 12(b)(6) motion to dismiss, to provide the "grounds" of "entitle[ment] to relief," a plaintiff must furnish "more than labels and conclusions" or "a formulaic recitation of the elements of a cause of action." Twombly, 550 U.S. at 555-56, 127 S. Ct. 1955; see also Papasan v. Allain, 478 U.S. 265, 286, 106 S. Ct. 2932, 92 L. Ed. 2d 209 (1986). "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.'" Ashcroft v. Iqbal, 556 U.S. ___, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009) (quoting Twombly, 550 U.S. at 570, 127 S. Ct. 1955); Atherton v. District of Columbia *62 Office of the Mayor, 567 F.3d 672, 681 (D.C.Cir.2009). A complaint is plausible on its face "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S.Ct. at 1949.
In resolving a motion to dismiss an action for relief in the nature of mandamus, courts have characterized the issue as involving both a jurisdictional and a merits inquiry because, in determining whether the court has jurisdiction to compel an agency or official to act, the court must consider the merits question of whether a legal duty is owed to the plaintiff under the relevant statute. See In re Cheney, 406 F.3d 723, 729 (D.C.Cir.2005) (en banc) (noting that to the extent a court considers whether a statute creates a duty, "mandamus jurisdiction under [28 U.S.C.] § 1361 merges with the merits"). Whether a motion to dismiss a mandamus action should be considered pursuant to Rule 12(b)(1) or Rule 12(b)(6) is a matter on which there are "conflicting signals,"[6] but In re Cheney indicates that the better course is to consider the matter a merits issue, both in the court's characterization of the jurisdictional and merits inquiries as "merged" and in the purposeful manner in which it limited its review of the record to the sufficiency of the complaint and the documents attached thereto. Id. at 729-30. Therefore, with respect to the mandamus claim, defendant's motion to dismiss will be considered pursuant to Rule 12(b)(6).
DISCUSSION
I. Availability of Judicial Review Under 42 U.S.C. § 1395oo(f)
Defendant raises the threshold issue of whether the Court has jurisdiction under the Medicare Act, 42 U.S.C. § 1395oo (f), to review the Board's decision. Defendant contends that § 1395oo (f) limits judicial review to a "final decision of the Board," and that under Athens Comm. Hosp. v. Schweiker, 686 F.2d 989 (D.C.Cir.1982),[7] a Board decision dismissing an appeal based on expiration of the 180-day statutory deadline is not a "final decision" within the meaning of the statute. See Def.'s Mem. at 9-11; Def.'s Reply at 3-7. Plaintiffs respond that the 180-day limitations period is not a jurisdictional hurdle subject to Rule 12(b)(1) scrutiny, but is instead properly construed as a statute of limitations that, like other limitations periods, is subject to equitable tolling. Pls.' Mem. at 13-16. Plaintiffs further counter that Athens confirms that judicial review of the Board's dismissal decision is available under § 1395oo(f), and posit that defendant has misconstrued Athens. Id. at 16-19. Resolution of defendant's motion requires a close examination of the language of both § 1395oo and Athens.
The relevant statutory language is as follows:
(a) Any provider of services which has filed a required cost report within the *63 time specified in regulations may obtain a hearing with respect to such cost report by a [PRRB] ... and any hospital which receives payments in amounts computed under subsection (b) or (d) of section 1395ww ... may obtain a hearing with respect to such payment by the Board, if
(3) such provider files a request for hearing within 180 days after notice of the intermediary's final determination...
...
(f) ... Providers shall have the right to obtain judicial review of any final decision of the Board ... by a civil action commenced within 60 days of the date on which notice of any final decision by the Board ... is received.....
42 U.S.C. § 1395oo (emphasis added). At the outset, it is important to note that the 180-day limitations period cannot plausibly be characterized as jurisdictional. First and foremost, there is no language in § 1395oo (a) or (f) indicating that the limitations period is jurisdictional. The Supreme Court has cautioned that, "when Congress does not rank a statutory limitation... as jurisdictional, courts should treat the restriction as nonjurisdictional in character." Arbaugh v. Y & H Corp., 546 U.S. 500, 515-16, 126 S. Ct. 1235, 163 L. Ed. 2d 1097 (2006); see also Union Pacific R. Co. v. Bhd. of Locomotive Eng'rs and Trainmen Gen. Comm. of Adjustment, ___ U.S. ___, 130 S. Ct. 584, 596, ___ L.Ed.2d ___ (2009) ("Recognizing that the word `jurisdiction' has been used by courts, including this Court, to convey `many, too many, meanings,' we have cautioned, in recent decisions, against profligate use of the term. Not all mandatory `prescriptions, however emphatic, are ... properly typed jurisdictional.'") (quoting Arbaugh, 546 U.S. at 510, 126 S. Ct. 1235); Oryszak v. Sullivan, 576 F.3d 522, 525 & n. 2 (D.C.Cir.2009) (describing Arbaugh as holding that a "limitation on [a] cause of action that `does not speak in jurisdictional terms or refer in any way to the jurisdiction of the district courts' is not jurisdictional"). Second, the agency has promulgated regulations authorizing extension of the 180-day period for good cause, if such a request is filed within three years of issuance of the NPR. See 42 C.F.R. § 405.1841(b). If the statutory 180-day period were jurisdictional, the Board could not enlarge it by rule.
Ultimately, however, defendant's argument against judicial review under § 1395oo (f) does not depend on whether the 180-day limitations period is characterized as "jurisdictional" or as a nonjurisdictional prerequisite to obtaining relief. Even in the latter case, the Court still must consider whether a Board decision dismissing an appeal based on expiration of the 180-day limitations period is a "final decision" subject to judicial review. Resolution of what constitutes a "final decision" subject to judicial review requires close examination of Athens.
In Athens, the provider had filed a timely administrative appeal challenging several cost adjustments in its Notice of Program Reimbursement, and later sought to amend its appeal to include additional categories of costs that it had not originally sought from the intermediary. 686 F.2d at 992-93. The Board held that it lacked jurisdiction to consider the new claims. Id. The court considered in that context "whether a decision by the PRRB not to exercise jurisdiction is a `final decision' sufficient to establish [the court's] jurisdiction" under § 1395oo (f). Id. at 993. The court held "if the threshold requirements of 42 U.S.C. § 1395oo(f)(1) are met, a court has jurisdiction to review a decision by the PRRB that it lacks jurisdiction to review a *64 determination of the fiscal intermediary." Id. at 994 (emphasis added). Hence, the court held that it had jurisdiction to review the PRRB decision before it, because an appeal had been filed with the Board within the 180-day limitations period and the other threshold statutory requirements had been satisfied.
Athens left no doubt that it considered one of the essential "threshold requirements" giving rise to a "final decision" to be the filing of an administrative appeal within the 180-day limitations period. This is made clear from the court's approval of the district court's dismissal of an untimely challenge to a PRRB decision in John Muir Mem. Hosp. v. Califano, 457 F. Supp. 848 (N.D.Cal.1978). The court in Athens explained that "in John Muir ... the question was whether the Board had jurisdiction to hear an appeal from an intermediary's decision" where an appeal had not been filed with the Board within the 180-day limitations period. 686 F.2d at 993. It found John Muir was "easily distinguished" from the outcome in Athens because "42 U.S.C. § 1395oo (f)(1) jurisdiction was not available to the court." Id. at 993-94 (discussing John Muir, 457 F.Supp. at 853). The court elaborated in a footnote that "[§ 1395oo (f)] jurisdiction was not available to the court in John Muir because the provider failed to timely file its appeal. Under the statute, a decision by the PRRB not to hear a case on this basis is, by definition, not a `final decision.'" Id. at 994 n. 4 (emphasis added).
In light of Athens' express reference to satisfaction of "the threshold requirements of 42 U.S.C. § 1395oo (f)(1)," and its statement in footnote 4 that, with respect to a "provider [who] failed to timely file its appeal ... a decision by the PRRB not to hear a case on this basis is, by definition, not a `final decision,'" Athens is properly understood as holding that a plaintiff may obtain judicial review of a PRRB refusal to exercise jurisdiction only if an administrative appeal has been filed within the 180-day limitations period.
Admittedly, this reading does not lead to the most intuitive result. The PRRB decision at issue has the hallmarks of decisions that are commonly considered "final" in other areas of the law. For example, it marks the consummation of the agency's decisionmaking process and is an action that results in rights having been determined. See Bennett v. Spear, 520 U.S. 154, 177-78, 117 S. Ct. 1154, 137 L. Ed. 2d 281 (1997) (discussing requirements of "final agency action" within the meaning of the Administrative Procedure Act). Indeed, both the Board and the Secretary presumed that the Board decision would be subject to judicial review. See In re Equitable Tolling Group, Board Decision at 3 ("Review of this determination is available under the provisions of 42 U.S.C. § 1395oo (f)(1)"); Letter from CMS to Robert Roth, dated Nov. 1, 2007 (referring to availability of judicial review within 60 days of Board decision) (Compl., Ex. B). Moreover, as Athens observed, "[judicial] dismissals for lack of jurisdiction consistently have been understood as `final decisions,'" and by analogy, Board dismissals also may be considered final decisions. 686 F.2d at 993 (discussing Cleveland Mem. Hosp. v. Califano, 444 F. Supp. 125 (E.D.N.C.1978), aff'd, 594 F.2d 993 (4th Cir.1979)).
Indeed, Athens approved of the determination in Cleveland that a PRRB dismissal order based on failure to satisfy the § 1395oo (a) amount-in-controversy provisionanother threshold statutory requirementwas a "final decision" within the meaning of that statute. Hence, there is some tension in the conclusion that the PRRB decision in Cleveland was a "final *65 decision," but the PRRB decision in John Muir was not. One can reconcile that tension in perhaps two ways: first, as defendant suggested at the motions hearing here, the 180-day limitations period stands in a different stead than the amount-in-controversy requirement because of the government's recognized interest in imposing finality on the Medicare reimbursement process;[8] and second, where there is a "real dispute" over whether a threshold requirement of § 1395oo(f) is satisfied, such as with the amount-in-controversy in Cleveland (in contrast to the parties' agreement in Muir that 180 calendar days from the final NPR had run), then the Board's resolution of that issue will constitute a judicially reviewable "final decision." See St. Joseph's Hosp. of Kansas City v. Heckler, 786 F.2d 848, 852 (8th Cir.1986). Neither explanation is entirely satisfactory, but the Court need not choose between those explanations, nor identify another, in light of the clear decision in Athens.
This Court must follow Athens' instruction that, with respect to a "provider [who] failed to timely file its appeal ... a decision by the PRRB not to hear a case on this basis is, by definition, not a `final decision.'" Athens, 686 F.2d at 994 & n. 4. Plaintiffs concede that they filed their appeals to the Board "more than three years after the Medicare NPRs had been issued for each of the FYs at issue." Compl. ¶ 53. Hence, under Athens, the Board decision dismissing their appeals as untimely is not a "final decision" within the meaning of § 1395oo (f), and is accordingly not subject to judicial review.[9]
II. Equitable Tolling
Even if the PRRB decision is a "final decision" subject to judicial review under § 1395oo (f), plaintiffs may not obtain *66 relief thereunder unless the statute authorizes "equitable tolling." Defendant contends that the explicit language of the statute shows that Congress intended to achieve finality by imposing a firm limitation on the time period within which payment determinations may be challenged. See Def.'s Mem. at 19-20. Defendant urges that equitable tolling therefore must be rejected here, just as it was rejected by the Supreme Court in the tax collection context in United States v. Brockamp, 519 U.S. 347, 117 S. Ct. 849, 136 L. Ed. 2d 818 (1997). Defendant acknowledges that the Secretary has created an exception to the statutory time limitthe three-year "good cause" extension authorized by 42 C.F.R. § 405.1841(b)but contends that this exception is within the broad grant of rulemaking authority at 42 U.S.C. §§ 1302 and 1395hh and does not undercut defendant's position that no equitable tolling is otherwise allowed since it still imposes an outer limit of three years for administrative appeals, consistent with Congress's intent to achieve finality for payment calculations. Id. at 20. In defendant's view, plaintiffs' equitable tolling theory would effectively "extinguish" the time limitations on the handling of administrative claims. Id.
In response, plaintiffs contend that, under Supreme Court precedent, there is a presumption in favor of equitable tolling, relying primarily on Irwin v. Dep't of Veterans Affairs, 498 U.S. 89, 95-96, 111 S. Ct. 453, 112 L. Ed. 2d 435 (1990), Bowen v. City of New York, 476 U.S. 467, 106 S. Ct. 2022, 90 L. Ed. 2d 462 (1986), and Bradford Hosp. v. Shalala, 108 F. Supp. 2d 473 (W.D.Pa. 2000). Plaintiffs view Brockamp as an outlier that was based on specific statutory language and the uniqueness of the IRS taxpayer refund context at issue.
The starting point in determining whether equitable tolling is available under § 1395oo (f) is Congressional intent, rather than the applicability of one presumption or another. This is clear from the cases cited by both plaintiffs and defendant. See Brockamp, 519 U.S. at 350, 117 S. Ct. 849 (resolving the equitable tolling issue based on the standard: "Is there good reason to believe that Congress did not want the equitable tolling doctrine to apply?"); City of New York, 476 U.S. at 480, 106 S. Ct. 2022 (examining whether application of equitable tolling to 60-day judicial review period is "consistent with the overall Congressional purpose" and is "nowhere eschewed by Congress"); Irwin, 498 U.S. at 95, 111 S. Ct. 453 (emphasizing importance of "greater fidelity to the intent of Congress" and application of a principle that is "a realistic assessment of legislative intent").
Irwin, however, offers little instruction on whether Congress intended equitable tolling to apply under a regime such as the Medicare program. Irwin was a Title VII case that considered whether the limitations period for filing a Title VII suit against the federal government was subject to equitable tolling, as it was for "private" employers. See 498 U.S. at 95, 111 S. Ct. 453. The Supreme Court held "that the same rebuttable presumption of equitable tolling applicable to suits against private defendants should also apply to suits against the United States." Id. at 95-96, 111 S. Ct. 453. Since then, Irwin has been interpreted as "announcing a `general rule' establishing a presumption in favor of equitable tolling," but only where there is a "sufficiently similar" private suit that warrants application of such a presumption. See Chung v. Dep't of Justice, 333 F.3d 273, 277 (D.C.Cir.2003) (citing Brockamp, 519 U.S. at 350, 117 S. Ct. 849). Although the "similarity" inquiry is to be conducted "at a fairly high level of generality," id., without the existence of equitable tolling in a "similar" suit against a private defendantand none has been identified here, *67 where the programmatic reimbursement at issue is not familiar to private litigationthere would be no presumption of equitable tolling.[10]
Nor does City of New York advance the analysis in any significant measure. There, the Supreme Court considered whether equitable tolling applied to the 60-day judicial review period for agency determinations as to Social Security "disability" status, and held that equitable tolling was available. But the language of the relevant statute, 42 U.S.C. § 405(g), was materially different. See 476 U.S. at 471-75, 106 S. Ct. 2022. Section 405(g) provided for judicial review of an agency decision "within sixty days after the mailing to him of notice of such decision or within such further time as the Secretary may allow." 476 U.S. at 472 n. 3, 106 S. Ct. 2022 (emphasis added). That open-ended discretionary language"within such further time as the Secretary may allow"is altogether absent from the 180-day limitations period set forth in § 1395oo (a)(3).
Brockamp offers the most insightful guidance on discerning Congressional intent with respect to equitable tolling, indicating that in a complex regulatory regime, courts should focus on the language of the statute and the "nature of the underlying subject matter." 519 U.S. at 350-53, 117 S. Ct. 849. In Brockamp, the Supreme Court considered whether the limitations period for filing tax refund claims, 26 U.S.C. § 6511, was subject to equitable tolling, and held that "Congress did not intend the `equitable tolling' doctrine to apply." Id. at 348, 354, 117 S. Ct. 849. The Court found significant that the statute expressed its time limitations in "unusually emphatic form," and "in a highly detailed technical manner, that, linguistically speaking, cannot easily be read as containing implicit exceptions."[11]Id. at 350-51, 117 S. Ct. 849. The Court also emphasized that the statute set forth "explicit exceptions to its basic time limits, and those very specific exceptions do not include `equitable tolling.'" Id. at 351, 117 S. Ct. 849. The Court considered secondarily whether the "nature of the underlying subject matter"tax collectionsupported its conclusion that Congress did not intend for equitable tolling to apply. Id. at 352-53, 117 S. Ct. 849 ("The nature of the underlying subject matter ... underscores the linguistic point."). Considering the sheer number of tax returns and tax refunds processed each year200 million tax returns, and 90 million refundsthe Court found it reasonable to infer that Congress did not intend equitable tolling to apply. Id. ("The nature and potential magnitude of the administrative problem suggest that Congress decided to pay the price of occasional unfairness in individual cases ... in order to maintain a more workable tax enforcement system.")
*68 Applying these considerations here, the Court's assessment is that § 1395oo sets forth in "emphatic" language that the 180-day limitations period shall apply, albeit to a slightly lesser degree than does 26 U.S.C. § 6511. Section 1395oo (a)(3) states that a provider may obtain a Board hearing in enumerated scenarios "if"
(3) such provider files a request for a hearing within 180 days after notice of the intermediary's final determination under paragraph 1(A)(i), or with respect to appeals under paragraph (1)(A)(ii), 180 days after notice of the Secretary's final determination, or with respect to appeals pursuant to paragraph (1)(B) or (C), within 180 days after notice of such determination would have been received if such determination had been made on a timely basis.
Section 1395oo also contains a provision concerning accumulation of interest that is tied to the 180-day limitations period:
(f)(2) Where a provider seeks judicial review pursuant to paragraph (1), the amount in controversy shall be subject to annual interest beginning on the first day of the first month beginning after the 180-day period as determined pursuant to subsection (a)(3) of this section....
42 U.S.C. § 1395oo(f)(2). As in the tax refund setting, moreover, the limitations provisions appear "in a highly detailed technical manner."
To be sure, the statutory language addressing the limitations period here is not as complex as that reviewed in Brockamp. Nonetheless, the language on its face bears no indicia that equitable tolling is intended, and the D.C. Circuit, in HCA Health Servs. of Oklahoma, Inc. v. Shalala, 27 F.3d 614, 620 (D.C.Cir.1994), described the statutory language as demonstrating that, "[i]f a provider permits that deadline to lapse, the Statute envisions no further appeal of the intermediary's decision." That court further observed that allowing a provider to bypass the 180-day limitations period (in that case, by obtaining reopening more broadly than authorized by the reopening regulations) "`would frustrate the congressional purpose, plainly evidenced in [the statute], to impose a [time] limitation upon ... review.'" Id. at 620 (quoting Califano v. Sanders, 430 U.S. 99, 108, 97 S. Ct. 980, 51 L. Ed. 2d 192 (1977)) (alterations in original, emphasis added). Hence, under HCA, and this Court's own reading of § 1395oo (a)(3), the plain language of the statute indicates that Congress did not intend to authorize equitable tolling.
And there is more. As noted earlier, the Secretary has longstanding and comprehensive regulations governing extension of the administrative appeal period and also reopening of payment determinations by an intermediary or, in an appropriate case, the Board or Secretary. 42 C.F.R. §§ 405.1841(b), 405.1885. Brockamp did not have occasion to consider whether an agency's promulgation of rules that effectively extend or toll the time for seeking administrative relief would have affected its analysis. But because those regulations were promulgated pursuant to the Secretary's statutory authority, and have been validated by the D.C. Circuit and the Supreme Court, they must weigh in this calculus.
The regulations governing extension of the administrative appeal period and reopening of old decisions are very detailedcomparable to the detailed timing provisions at issue in Brockamp. They generally establish three years as the outer limit for reopening where one of the showings enumerated in the regulation has been made, and like the provision reviewed in Brockamp, the time limitations are set forth in "unusually emphatic form," and *69 "in a highly detailed technical manner, that, linguistically speaking, cannot easily be read as containing implicit exceptions." See 519 U.S. at 350-51, 117 S. Ct. 849. In particular, they provide, inter alia, that: "Any such request to reopen must be made within 3 years of the date of the notice of the intermediary or Board hearing decision.... No such determination or decision may be reopened after such 3-year period except as provided in paragraphs (d) and (e) of this section." 42 C.F.R. § 405.1885(a). The regulations also delineate the standard for determining when reopening will be mandatory, providing that a determination "must be reopened and revised by the intermediary if, within the three year period specified in paragraph (a) of this section, CMS ... provides notice to the intermediary that the intermediary determination ... is inconsistent with the applicable law, regulations, CMS ruling, or CMS general instructions in effect...." Id. § 405.1885(b). One circumstance where the three-year period shall not apply is identifiedwhere "it is established that such determination or decision was procured by fraud or similar fault of any party to the determination or decision." Id. § 405.1885(d) (emphasis added).
HCA Health Servs. held that the Secretary's reopening regulations fell "comfortably" within her rulemaking authority under 42 U.S.C. §§ 1302 and 1395hh. 27 F.3d at 618. More significantly, in rejecting a provider's argument that the reopening provisions should be read broadly, the court observed that "[p]erhaps the most convincing argument in favor of choosing the Secretary's reading over that urged by [the provider] is the preservation of the Medicare Statute's 180-day limitation on reviewing an intermediary's determination of total program reimbursement" as set forth in § 1395oo (a)(3). Id. at 620. Hence, the court rejected the provider's argument that all matters covered by an NPR can be reopened whenever any single issue in the NPR is reopened by the intermediary. Id. Here, the "preservation of the Medicare Statute's 180-day limitation period" would be entirely undercut by plaintiffs' broad proposition that equitable tolling is authorized by § 1395oo (a)(3). Indeed, the reopening regulations would be rendered virtually superfluous.
In Your Home Visiting Nurse Servs., Inc. v. Shalala, 525 U.S. 449, 453, 119 S. Ct. 930, 142 L. Ed. 2d 919 (1999), the Supreme Court indicated that the plain language of the 180-day limitations period in § 1395oo (a)(3) demonstrated that judicial review of stale determinations was not allowed there, under the mantel of an attempt to obtain judicial review of a reopening decision. The Court in Your Home considered whether the PRRB had jurisdiction to review a fiscal intermediary's refusal to reopen a reimbursement determination, and ultimately concluded that the Boardand hence the district courtdid not have jurisdiction to review a refusal to reopen. Id. at 453-55, 119 S. Ct. 930. In reaching this conclusion, the Court effectively upheld the reopening regulations in language strongly suggesting that the 180-day limitations period cannot be circumvented based on general fairness considerations:
The right of a provider to seek reopening exists only by grace of the Secretary, and the statutory purpose of imposing a 180-day limit on the right to seek Board review of NPRs, see 42 U.S.C. § 1395oo(a)(3), would be frustrated by permitting requests to reopen to be reviewed indefinitely.
...
Title 42 CFR § 405.1885 (1997) generously gives them [providers] a second chance to get the decision changed this time at the hands of the intermediary *70 itself, but without the benefit of administrative review. That is a "suitable" procedure, especially in light of the traditional rule of administrative law that an agency's refusal to reopen a closed case is generally "`committed to agency discretion by law'" and therefore exempt from judicial review.... As for the alleged "double standard," given the administrative realities we would not be shocked by a system in which underpayments could never be the basis for reopening.... [E]ach of the tens of thousands of sophisticated Medicare-provider recipients of these NPRs is generally capable of identifying an underpayment in its own NPR within the 180-day time period specified in 42 U.S.C. § 1395oo(a)(3).
525 U.S. at 454-56, 119 S. Ct. 930 (emphasis in original, citations omitted). The Supreme Court's assessment of § 405.1885 strongly indicates that the 180-day limitations period is not subject to equitable tolling. Based on the statutory language, the regulations granting only limited exceptions to the 180-day limitations period, and the Supreme Court's determination in Your Home that the 180-day limit may not be circumvented by expanding Board (and hence, district court) jurisdiction to review requests to reopen, the Court concludes that equitable tolling of the 180-day limitations period is not available under 42 U.S.C. § 1395oo.
Brockamp suggests that the Court may consider, albeit secondarily, whether "the nature of the underlying subject matter" supports the Court's assessment of the statutory language. See 519 U.S. at 352, 117 S. Ct. 849 ("The nature of the underlying subject mattertax collectionunderscores the linguistic point."). Hence, defendant submits an array of statistics to demonstrate that the complexity of the Medicare program and the administrative burden of allowing equitable tolling under § 1395oo (a) confirm the unreasonableness of construing the statute to authorize equitable tolling.[12]See Def.'s Mem. at 21-22. The Court declines to rely specifically on that extra-pleading information here because the viability of most of plaintiffs' claims is being challenged on a motion to dismiss under Rule 12(b)(6), rather than on summary judgment. However, the Court notes the Supreme Court's observation in Your Home that "tens of thousands of sophisticated Medicare-providers" are recipients of NPRs, and its corresponding assessment that, hence, "administrative realities" may result in underpayments that are never reopened. 525 U.S. at 456, 119 S. Ct. 930. The volume and complexity of the provider reimbursement program at issue here is, quite plainly, comparable to the tax refund program in Brockamp, as to which the Supreme Court observed that the "magnitude of the administrative problem" cut against the availability of equitable tolling. To this extent, then, the complexity and nature of the Medicare Part A program supports the Court's conclusion that Congress did not intend to authorize equitable tolling in § 1395oo (a). In any event, plaintiffs have proffered nothing suggesting that the nature of the Medicare program implies that Congress intended to authorize equitable tolling for provider claims, notwithstanding the express language *71 of § 1395oo (a) and the longstanding regulations granting only limited relief from the 180-day limitations period. Hence, although not central to this Court's analysis, the Court's determination that equitable tolling is not authorized by § 1395oo (a) is buttressed by the scope and complexity of the Medicare program.
III. Mandamus
Plaintiffs contend that, in the event they are precluded from obtaining relief under § 1395oo (f), they are entitled to a writ of mandamus requiring new DSH determinations under 28 U.S.C. § 1361 because defendant has a "non-discretionary duty to use correct SSI percentages" when determining DSH payments. See Pls.' Mem. at 20-22. Plaintiffs further assert that defendant has a nondiscretionary duty to reopen intermediary determinations "if it is established that such determination... was procured by fraud or similar fault of any party to the determination or decision"a point they consider established by the Baystate decisions issued by the Board and this Court. Pls.' Mem. at 12, 21 (quoting 42 C.F.R. § 405.1885(d)). Defendant counters that the Court lacks mandamus jurisdiction because plaintiffs fail to satisfy the prerequisites for mandamus relief. See Def.'s Mem. at 12-18; Def.'s Reply at 8-9. The relevant duty for the mandamus inquiry, in defendant's view, is whether the Secretary had a nondiscretionary duty to extend the 180-day limitations period or to reopen the NPR. Under the regulations, both of those matters are plainly discretionary, which would preclude mandamus relief. Defendant further contends that plaintiffs' failure to exhaust administrative remedies precludes them from obtaining mandamus relief.
Mandamus is a drastic remedy to be invoked only in extraordinary situations and to be granted only when essential to the interests of justice. See Oglala Sioux Tribe of Pine Ridge Indian Reservation v. U.S. Army Corps of Eng'rs, 570 F.3d 327, 333 (D.C.Cir.2009). Under 28 U.S.C. § 1361,[13] a court has jurisdiction to grant mandamus relief only if "(1) the plaintiff has a clear right to relief; (2) the defendant has a clear duty to act; and (3) there is no other adequate remedy available to plaintiff." In re Medicare Reimbursement Litig., 414 F.3d at 10 (quoting Power v. Barnhart, 292 F.3d 781, 784 (D.C.Cir. 2002)); Fornaro v. James, 416 F.3d 63, 69 (D.C.Cir.2005). To maintain a mandamus action in the Medicare context, a plaintiff also must exhaust his administrative remedies unless exhaustion would be futile. Heckler v. Ringer, 466 U.S. 602, 616-18, 104 S. Ct. 2013, 80 L. Ed. 2d 622 (1984); Monmouth Med. Ctr., 257 F.3d at 813. "[I]f there is no clear and compelling duty under the statute as interpreted, the district court must dismiss the action." In re Cheney, 406 F.3d at 729. The party seeking mandamus has the "burden of showing that [his] right to issuance of the writ is clear and indisputable." Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 289, 108 S. Ct. 1133, 99 L. Ed. 2d 296 (1988) (internal quotation marks and citation omitted).
The parties focus primarily on whether defendant owes plaintiffs a nondiscretionary duty, but identification of the relevant duty has shifted as the litigation has developed. Plaintiffs' complaint alleges that the nondiscretionary duty owed to providers is a "non-discretionary duty to use correct *72 SSI percentages" when determining DSH payments. Compl. ¶¶ 62, 64; see Pls.' Mem. at 20. In their merits brief and at the motions hearing, however, plaintiffs rely almost exclusively on defendant's duty to reopen and revise a determination whenever "fraud or similar fault of any party" is established. See Pl.'s Mem. at 21-22 (quoting 42 C.F.R. § 405.1885(d)).
Plaintiffs fail to establish a nondiscretionary duty to act in either formulation. With respect to the so-called "duty to use correct SSI percentages" in determining DSH payments, plaintiffs misconstrue the case law. This Court has previously held that the "best available data" standard, long-recognized in the case law as governing other Medicare reimbursement determinations, governs the validity of SSI percentages, not some abstract standard of "correctness" or perfection. See Baystate, 545 F.Supp.2d at 49 ("The case law amply supports the proposition that the best available data standard leaves room for error, so long as more reliable data did not exist at the time of the agency decision.") (citing Methodist Hosp. of Sacramento v. Shalala, 38 F.3d 1225, 1228-30 (D.C.Cir. 1994), and Mt. Diablo Hosp. v. Shalala, 3 F.3d 1226, 1233 (9th Cir.1993)).
Even recasting plaintiff's "duty" argument as a duty to determine the SSI percentages based on the "best available data," plaintiffs would not succeed. The failure to use the "best available data" or to use "correct" SSI percentages for that matteris, in essence, an allegation that the intermediary's determination was "inconsistent with the applicable law." The regulations require reopening of an NPR in this circumstance only where "CMS ... [p]rovides notice to the intermediary that the intermediary determination... is inconsistent with the applicable law, regulations, CMS rulings, or CMS general instructions in effect, and as CMS understood those legal provisions at the time the determination or decision was rendered by the intermediary." 42 C.F.R. § 405.1885(b)(1)(i). As defendant points out, "CMS has never explicitly (or implicitly) notified plaintiffs' intermediaries that their determinations were inconsistent with applicable law," and, indeed, defendant's position is that those determinations involve, at worst, a "flawed data" problem, not any inconsistency with the law.[14]See Def.'s Mem. at 14-15. In the absence of CMS issuing a notice to the intermediary stating that the determination is inconsistent with applicable law, there is no mandatory duty to reopen a payment determination.
Plaintiffs' main contention, in any event, is that they are entitled to mandamus relief based on defendant's duty to reopen payment determinations procured by fraud. See Pl.'s Mem. at 21-22 (discussing 42 C.F.R. § 405.1885(d)). In their view, the Baystate decisions issued by the Board in 2006 and this Court in 2008 establish that the data flaws underlying their NPRs were "deliberately concealed" by CMS, which requires reopening under the fraud provision "at any time." Id. at 22. There are two problems with this argument. *73 First, nothing in either of the Baystate decisions reflects a finding that CMS "deliberately concealed" the data flaws at issue or otherwise engaged in fraud. Rather, the Board simply found that "`that CMS knew or should have known at least by 1993 that there was a problem with the SSI data received from SSA,'" and thus rejected the contention that CMS had used the "best available data." Baystate, 545 F.Supp.2d at 27 (quoting Baystate Board Decision at 34-35). The Board made no finding regarding fraud or deliberate concealment. This Court, reviewing the Board's decision, similarly concluded that CMS had not used the "best available data," but likewise made no finding regarding fraud or deliberate concealment. Id.
Second, and equally significant, plaintiffs have failed to exhaust their administrative remedies. As noted earlier, exhaustion of administrative remedies is a prerequisite to the extraordinary remedy of mandamus, unless exhaustion would be futile. See Monmouth, 257 F.3d at 810 ("we must first examine all other possible avenues of relief to ensure that the hospitals have fully exhausted those which were available"); In re Medicare Reimbursement Litig., 414 F.3d at 11 (finding that futility was demonstrated where, inter alia, the reopening period had expired and CMS had issued a ruling "barr[ing] intermediaries from reopening closed NPRs to recalculate DSH entitlement"). Indeed, where providers seek mandamus based on the reopening provisions, they must show that "they have done all they can to vindicate their right to reopening." Monmouth, 257 F.3d at 815.
There is no allegation in the complaint that plaintiffs ever sought to reopen their NPRs based on fraud, and they admitted as much at the motions hearing. Their only excuse is that they anticipate difficulties in obtaining information from the agency to support their claim of fraud. But by plaintiffs' own account, they believe evidence in the Board's Baystate administrative record supports their allegations of fraud, and that record was long-ago filed with this Court in the Baystate civil action. See Baystate Med. Ctr. v. Leavitt, Civil Action No. 06-1263, Notice of Filing of Administrative Record (D.D.C. filed Nov. 22, 2006). Moreover, plaintiffs have other means for obtaining information in support of their claim, such as the Freedom of Information Act. Plaintiffs suggested at the motions hearing that, even if they obtain evidence demonstrating fraud, a request for reopening is likely to be unsuccessful, and defendant's litigation counsel suggested the same.[15] But as was observed recently in Bradley Mem. Hosp. v. Leavitt, 599 F. Supp. 2d 6, 17 (D.D.C.2009), "[t]he point of pursuing administrative relief is to exhaust avenues by which [p]laintiffs might have convinced the agency to change its position without resorting to the type of extraordinary relief that [p]laintiffs now request." In short, there is no basis here for excusing plaintiffs from the requirement to exhaust administrative remedies as a prerequisite to mandamus relief.
*74 Should plaintiffs exhaust their administrative remedies, and then return to court with evidence that establishes fraud or concealment with respect to the calculation of the SSI percentages, a court may consider their request for mandamus relief anew. But at this time, plaintiffs have fallen far short of alleging facts that would establish their entitlement to the extraordinary remedy of mandamus.[16]
IV. Availability of Relief under 28 U.S.C. § 1331
As a last resort, plaintiffs invoke the federal question statute, 28 U.S.C. § 1331, as a basis for bringing their claims for relief. Plaintiffs contend that if judicial review of their challenges is not available under § 1395oo (f) or the mandamus statute, they are entitled to bring their claims for relief directly under § 1331. Defendant responds that Congress has disallowed judicial review of Medicare claims under § 1331, as set forth in 42 U.S.C. § 405(h) and § 1395ii, instead choosing to channel judicial review under § 1395oo. The Court agrees.
As the D.C. Circuit explained in Monmouth, § 1395oo sets forth "detailed instructions on the means for seeking review of payment determinations," and in tandem with that provision, "[§] 1395ii generally forecloses other avenues of review by incorporating the review-limiting provisions of the Social Security Act, 42 U.S.C. § 405(h)." 257 F.3d at 809. Section 405(h), with the substitutions required by § 1395ii, provides that:
The findings and decision of [the Secretary of HHS] after a hearing shall be binding upon all individuals who were parties to such hearing. No findings of fact or decision of [the Secretary of HHS] shall be reviewed by any person, tribunal, or governmental agency except as herein provided. No action against the United States, the [Secretary of HHS], or any officer or employee thereof shall be brought under section 1331 or 1346 of title 28 to recover on any claim arising under this subchapter.
Monmouth, 257 F.3d at 809 (quoting 42 U.S.C. § 405(h), alterations in original).[17] Hence, § 1331 "review [of Medicare payment determinations] could not be more plainly off limits under 42 U.S.C. § 405(h), which explicitly withholds § 1331 jurisdiction for `any claim arising under this title.'" Id. at 812. A provider's claim "arise[s] under" the Medicare Act within the meaning of § 405(h) when "`both the standing and the substantive basis for the presentation of the claim are the Medicare Act.'" Your Home, 525 U.S. at 456, 119 S. Ct. 930 (quoting Ringer, 466 U.S. at 615, *75 104 S. Ct. 2013). Here, plaintiffs' claims clearly arise under the Medicare Actand hence are covered by § 405(h)because they arise from the calculation of payments under the Medicare DSH provision and have as their ultimate goal the recovery of additional sums under the Medicare Act. See Monmouth, 257 F.3d at 812.
To be sure, the Supreme Court has recognized a narrow exception to § 405(h) where its application "would not simply channel review through the agency, but would mean no review at all." See Shalala v. Illinois Council on Long Term Care, 529 U.S. 1, 19, 120 S. Ct. 1084, 146 L. Ed. 2d 1 (2000). Plaintiffs contend that they fall within this exception because, without judicial review of their DSH payments under § 1331, the Secretary's actions would be immunized from judicial scrutiny. See Pls.' Mem. at 22. The flaw in plaintiffs' position, however, is that judicial review of plaintiffs' DSH payments was, in fact, available under § 1395oo (f), but plaintiffs missed their opportunity to obtain judicial review by failing to seek Board review within 180 days of receiving the intermediary's final determination. Hence, it is only by virtue of plaintiffs' untimeliness that judicial review on their current claims may be foreclosed. The Secretary's actions in implementing the DSH program have not generally been immunized from judicial review, then, as demonstrated by cases before this Court in which providers did, in fact, file timely administrative appeals raising the same issues as plaintiffs, as well as cases under § 1395oo. See, e.g., Baystate, 545 F. Supp. 2d 20; Northeast Hosp. Corp. v. Sebelius, Civil Action No. 09-0180 (D.D.C. filed Jan. 30, 2009).[18] Moreover, to the extent that plaintiffs can identify a nondiscretionary duty owed to them under the Medicare Act, they may obtain judicial review and relief under the mandamus statutean avenue left open by this Court's resolution of the mandamus claim. As with any claim for relief, the failure of plaintiff to seek judicial review in a timely manner, or to prevail on a claim, does not mean that there is, under Illinois Council, "no review at all." Accordingly, pursuant to § 1395ii and § 405(h), the Court concludes that it lacks jurisdiction to review plaintiffs' claims for relief directly under § 1331.
CONCLUSION
For the foregoing reasons, the Court will grant defendant's motion to dismiss. Plaintiffs' claims for relief under 42 U.S.C. § 1395oo and in the nature of mandamus will be dismissed for failure to state a claim upon which relief can be granted. Plaintiffs' claims for relief directly under 28 U.S.C. § 1331 will be dismissed for lack of subject matter jurisdiction. A separate order has been issued on this date.
NOTES
[1] For ease of reference, the memorandum in support of defendant's motion to dismiss and reply brief will be cited as "Def.s' Mem.," and "Def.s' Reply," respectively. Plaintiffs' opposition brief will be cited as "Pls.' Mem."
[2] CMS was known as the Health Care Financing Administration during the fiscal years at issue. Hence, the references to CMS throughout this opinion encompass HCFA as well.
[3] The citations to the Code of Federal Regulations are to the 2007 version in effect at the time the Board issued the decision under review. Defendant notes that the Secretary has amended the regulations since then, but the applicability of the amendments is limited to "`appeals pending as of, or filed on or after, August 21, 2008,'" with exceptions not applicable here. See Def.'s Mem. at 6 n. 3 (quoting 73 Fed. Reg. 30,190 (May 23, 2008)). Plaintiffs agree that the 2007 version applies. Pls.' Mem. at 21.
[4] The complaint is silent on the exact date the NPRs were issued. Defendant represents that the NPRs were issued during the 1989-1996 time frame, consistent with the two-to-three year cost settlement process described in Baystate, and plaintiffs have not disputed this. See Def.'s Mem. at 7. The exact dates are not, in any event, material to the resolution of defendant's motion.
[5] The CMS Administrator, acting for the Secretary, reversed the Board's decision granting relief to Baystate, reasoning that CMS had relied on the "best available data" and that the omissions were not significant. Baystate, 545 F.Supp.2d at 31-34. Baystate then sought judicial review in this Court. On cross-motions for summary judgment, the Court held, in relevant part, that the Administrator acted arbitrarily and capriciously in finding that CMS had relied on the "best available data" to calculate the SSI fraction because several categories of SSI eligibility data available to CMS had been excluded from the calculations. Id. at 40-50.
[6] See Ahmed v. Dep't of Homeland Security, 328 F.3d 383, 386-87 (7th Cir.2003); Swan v. Clinton, 100 F.3d 973, 976-77 n. 1 (D.C.Cir. 1996).
[7] Athens Comm. Hosp. was modified on rehearing with respect to an issue unrelated to this "final decision" question. See 743 F.2d 1 (D.C.Cir. 1984). The modified opinion was later overruled by the Supreme Court in Bethesda Hosp. Ass'n v. Bowen, 485 U.S. 399, 108 S. Ct. 1255, 99 L. Ed. 2d 460 (1988). The parties presume that the original Athens opinion remains the governing law of this circuit on what constitutes a "final decision" subject to judicial review, and the Court agrees. A careful review of those subsequent decisions shows that the "final decision" analysis set forth in the original Athens opinion was not subsequently called into question.
[8] As defendant noted at the motions hearing, this interest was recognized in Califano v. Sanders, 430 U.S. 99, 108, 97 S. Ct. 980, 51 L. Ed. 2d 192 (1977), and Your Home Visiting Nurse Servs., 525 U.S. at 453, 119 S. Ct. 930.
[9] This understanding of Athens is in accord with the decisions of other courts that have considered the consequences of a provider's failure to comply with the 180-day limitations period, notwithstanding a provider's proffer of equitable reasons in support of an extension or reopening. See St. Joseph's Hosp. of Kansas City, 786 F.2d at 852 (observing that, in Athens, "the District of Columbia Circuit, while not specifically faced with the issue of whether the Board's refusal to hear an untimely appeal is a final decision, ... endorsed the decision in John Muir," and agreeing that "section 1395oo(a) defines the limits of the Board's jurisdiction to render a final decision"); Miami Gen. Hosp. v. Bowen, 652 F. Supp. 812, 814 (S.D.Fla.1986) ("42 U.S.C. § 1395oo provides for judicial review of [fiscal intermediary] determinations only where all of its procedural requisites have been met, among which is the requirement that a provider... file a request for hearing before the... [PRRB] within 180 days after ... [the NPR] has been received"); Arcadia Valley Hosp. v. Bowen, 641 F. Supp. 190, 192 (E.D.Mo.1986) ("Without meeting the 180 day time period of the statute, the Board ... cannot issue a judicially reviewable final decision"); Univ. of Chicago Hosp. & Clinics v. Heckler, 605 F. Supp. 585, 586 (N.D.Ill.1985). But cf. Ozark Mountain Regional Rehabilitation Ctr. v. HHS, 798 F. Supp. 16, 20 n. 2 (D.D.C.1992) (construing Athens as authorizing judicial review over appeals brought within the three-year period set forth at 42 C.F.R. § 405.1841(b)).
Plaintiffs contend that these cases are not applicable because they involve requests for a "good cause" extension of the 180-day limitations period in accordance with 42 C.F.R. § 405.1841, whereas plaintiffs never asked the Board for a "good cause" extension of the appeal period, instead requesting equitable tolling. See Pls.' Mem. at 19 n. 8. But plaintiffs fail to recognize that, to the extent those cases discuss the law governing what is a "final decision" within the meaning of § 1395oo (f)one of the main issues here and do so in a manner that sheds light on the correct interpretation of Athens, they are, of course, relevant.
[10] For this reason, plaintiffs' reliance on Bradford Hospital v. Shalala, 108 F. Supp. 2d 473 (W.D.Pa.2000), does little to advance their argument. In finding equitable tolling available, the district court deemed the Medicare regulation at issue (42 C.F.R. § 412.328(f)) "more analogous to the Title VII limitation provision in 42 U.S.C. § 2000e-16," and hence applied Irwin's presumption of equitable tolling, finding Brockamp inapposite. 108 F. Supp. 2d at 485. But that characterization is incorrect, for as discussed above, Irwin has little applicability to limitations periods in the Medicare context. In any event, the district court's assessment of 42 C.F.R. § 412.328(f) sheds no light on this Court's assessment of a separate statutory provision.
[11] Section 6511 states that a "[c]laim for ... refund ... of any tax ... shall be filed by the taxpayer within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed ... within 2 years from the time the tax was paid." 26 U.S.C. § 6511(a)
[12] For example, defendant asserts that "[t]he Medicare program involves nearly $212 billion in annual payments to over 38,000 providers" as well as other entities, that it processes "more than a billion claims per year," and that 25 contractors process $202 billion in claims for about 6,000 hospitals, 15,000 skilled nursing facilities, and other providers of institutional care under Medicare Part A." See Def.'s Mem. at 21-22 (citing http://www.cms.hhs.gov/CapMarketUpdates/Downloads/2007CMSstat.pdf). Although plaintiffs do not dispute these figures, they are technically beyond the scope of a Rule 12(b)(6) motion.
[13] The mandamus statute provides that "[t]he 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." 28 U.S.C. § 1361.
[14] Even if this Court's Baystate decision operated as a de facto notice of inconsistency with applicable law, § 405.1885(b)(1)(i) would not impose a duty on CMS or the intermediaries to reopen the NPRs at issue. This is because, with respect to inconsistency with applicable law, the regulation imposes a duty to reopen only if the notice of inconsistency occurs "within the three-year period" after the date of the intermediary's determination (i.e., NPR issuance), effectively excluding NPRs older than three years from the mandatory reopening. See Baptist Mem. Hosp. v. Johnson, 603 F. Supp. 2d 40, 43-44 (D.D.C.2009). Here, plaintiffs' NPRs were issued far outside of that three-year window, with the most recent having been issued in or around 1996.
[15] At the motions hearing, a Department of Justice attorney suggested for the first time during rebuttal argument that the fraud reopening provision is not applicable if the person allegedly acting fraudulently is the Secretary because the Secretary is not a "party" to the intermediary's determination within the meaning of the regulation. This contradicts defendant's earlier statement in its brief that plaintiffs should be required to exhaust their administrative remedies with respect to the allegation of fraud under § 405.1885(d). See Def.'s Reply at 9 n. 5. Because the attorney presenting rebuttal offered only a post hoc interpretation of the regulation that is inconsistent with the brief approved by the agency, the Court gives the statement no weight.
[16] In Count Three of the complaint, plaintiffs seek substantially the same mandamus relief under the All Writs Act, 28 U.S.C. § 1651(a). See Compl. ¶¶ 63-64. It is well-settled, however, that "the Act itself is not a grant of jurisdiction." In re Tennant, 359 F.3d 523, 527 (D.C.Cir.2004). The All Writs Act provides that the federal courts "may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law." 28 U.S.C. § 1651(a) (emphasis added). This statutory language makes clear that the authority to issue writs is confined to the issuance of process "in aid of" jurisdiction that is created by some other source and not otherwise enlarged by the Act. In re Tennant, 359 F.3d at 527. Because the All Writs Act does not provide a separate basis for relief, Count Three will be dismissed.
[17] Section 1395ii provides that "[t]he provisions... of section 405 of this title, shall also apply with respect to this subchapter to the same extent as they are applicable with respect to subchapter II of this chapter, except that, in applying such provisions with respect to this subchapter [Medicare], any reference therein to the Commissioner of the Social Security Administration shall be considered a reference to the Secretary or the Department of Health and Human Services, respectively."
[18] In Northeast Hosp., the Secretary has conceded that a provider who filed a timely appeal contesting its DSH payment based on the defects described in Baystate (and raised by plaintiffs in this case) was entitled to a remand for recalculation of its DSH payment. See Northeast Hosp., Def.'s Mem. in Supp. of Mot. for Summ. J. at 5-6 (filed Oct. 2, 2009). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2411902/ | 568 F. Supp. 2d 396 (2008)
UNITED STATES of America
v.
Arsenio RODRIGUEZ, et. al., Defendants.
No. 07 Cr. 1150 (VM).
United States District Court, S.D. New York.
July 25, 2008.
*397 Michael Quinn English, U.S. Attorney's Office, Telemachus Philip Kasulis, United States Attorney, Southern District New York, New York, NY, for United States of America.
DECISION AND ORDER
VICTOR MARRERO, District Judge.
Defendant Arsenio Rodriguez moved pursuant to Federal Rule of Criminal Procedure 12(b)(3)(C) to suppress all evidence seized from him on the grounds that they are the fruit of an unlawful seizure. The Court ruled on this motion on the record at a hearing conducted on July 25, 2008.
For the reasons stated on the record of the Court's proceeding on July 25, 2008, the relevant excerpts of which have been attached hereto and are incorporated herein, it is hereby
ORDERED that the motion of defendant Arsenio Rodriguez to suppress evidence is DENIED.
SO ORDERED.
Statement by the Court Regarding Defendant's Motion to Suppress
Defendant Arsenio Rodriguez ("Rodriguez") moves to suppress physical evidence seized from him by police in the course of his arrest for the underlying offense in this case. Rodriguez asserts that the police lacked probable cause to arrest him and search his vehicle. Rodriguez also seeks to suppress his subsequent statement to the police on the ground that it was the product of an unlawful arrest.
*398 According to the Complaint, on or about April 28, 2004, an individual (the "Victim") was robbed by two men at gunpoint as he exited his automobile near his home in Queens, New York. Following the robbery, the two perpetrators entered a green minivan (the "Green Minivan"), and the Victim observed a third male waiting inside the vehicle. The Victim returned to his own car and pursued the Green Minivan, while simultaneously calling the police. The Victim described the Green Minivan and gave the police a partial identification of the license plate. The Victim then lost sight of the Green Minivan.
Officer Mosiurchak on patrol in the area of Roosevent Avenue and 85th Street, Queens received a description of the robbery and the Green Minivan, and then observed a vehicle fitting that description, which was being driven by Rodriguez, in the vicinity of the robbery. The police officer either stopped the Green Minivan, or according to Rodriguez's account, Rodriguez pulled over when he observed police officers in the area. When the police officer approached the Green Minivan, he saw a firearm in plain view in the rear seat of the vehicle. The police officer asked Rodriguez to exit the vehicle and placed him under arrest. A search of the vehicle recovered (1) a second firearm; (2) black gloves; (3) duct tape; and (4) flex-cuffs.
Rodriguez claims that at the time of his arrest, he had just been the victim of a kidnapping by two armed men, and that he intended to report what had occurred to the police when they approached him at gunpoint and placed him under arrest.
A warrantless arrest is justified if there is "probable cause when the defendant is put under arrest to believe that an offense has been or is being committed." United States v. Cruz, 834 F.2d 47, 50 (2d Cir.1987). On a motion to suppress on the grounds of an illegal arrest without a warrant, the burden is on the Government to show that there was probable cause for the arrest. See United States v. Pena, 961 F.2d 333, 338-39 (2d Cir.1992). Probable cause exists "when an officer has knowledge or reasonably trustworthy information sufficient to warrant a person of reasonable caution in the belief that an offense has been committed by the person to be arrested." Savino v. City of New York, 331 F.3d 63, 76 (2d Cir.2003). The presence or absence of probable cause is based on the totality of the circumstances. See Illinois v. Gates, 462 U.S. 213, 238, 103 S. Ct. 2317, 76 L. Ed. 2d 527 (1983).
Once police officers observe a potentially incriminating item in plain view, they have probable cause to arrest a suspect. See United States v. Cruz, 314 F. Supp. 2d 321, 330 (S.D.N.Y.2004) (citing Savino, 331 F.3d at 76). Police officers may conduct a warrantless search of an automobile under the "automobile exception" to the Fourth Amendment's warrant requirement, when they have probable cause to believe it contains contraband or evidence of a crime. See United States v. Vassiliou, 820 F.2d 28, 30 (2d Cir.1987).
Rodriguez argues that the description of three men in a green minivan does not justify the seizure of one person exiting or driving the vehicle in a normal manner. Rodriguez does not address or dispute the police officer's statement that he arrested Rodriguez after seeing a firearm in plain sight. Additionally, Rodriguez's claims regarding his kidnapping go to the merits of his defense to the charges against him; they are not relevant to determining whether the police officer had probable cause to arrest Rodriguez. Viewing the "totality of the circumstances," the police officer had probable cause to arrest Rodriguez after observing Rodriguez driving a green minivan matching the description of a vehicle used in a nearby recent robbery, including a partial license plate *399 identification, and observing a firearm in plain sight upon approaching the vehicle. Additionally, the observation of the firearm was sufficient for the officer to have probable cause to believe that the Green Minivan contained contraband or evidence of a crime justifying the officer's subsequent search of the vehicle. Finally, because the Court holds that the police had probable cause to arrest Rodriguez, his "fruit of the poisonous tree" argument urging the suppression of his inculpating statement to the police necessarily fails as well.
Accordingly, for the reasons stated above, defendant Arsenio Rodriguez's motion to suppress the physical evidence recovered from his vehicle and his subsequent statement to the police is DENIED.
The Court also notes it received a letter from the Government, dated July 23, 2008, informing the Court that the Government no longer intends to introduce or use at trial the post-arrest identification made of Rodriguez. Accordingly, the Court need not address Rodriguez's motion to suppress that evidence. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2412452/ | 239 F. Supp. 2d 1213 (2002)
Eunice Mae Veronica CHIWEWE, as Personal Representative in the Estate of Roxanne Crystal Jiron, a deceased minor, Eunice Mae Veronica Chiwewe, as Personal Representative in the Estate of Ivan B. Chiwewe, deceased, Eunice Mae Veronica Chiwewe, individually, Juan Crescencio Jiron, Eli Chiwewe, and Calvin R. Lucero, Plaintiffs,
v.
The BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY, Amtrak, Robert H. Wilbur, David Schute, A. Nabe, Wyman L. Schenk, John Doe 1, and John Doe 2, Defendants.
No. CV.02-0397 JP/LFG-ACE.
United States District Court, D. New Mexico.
October 21, 2002.
*1214 M. Terrence Revo, Albuquerque, NM, Denise A. Chee, Chee Law Offices PC, Isleta Pueblo, NM, for Juan Crescencio Jiron, Eli Chiwewe, Calvin R. Lucero, plaintiffs.
Earl E. DeBrine Jr., Stanley N. Harris, Timothy L. Fields, Modrall, Sperling, Roehl, Harris & Sisk, Albuquerque, NM, for Burlington Northern and Santa Fe Ry. Co., Amtrak, Robert H. Wilbur, David Schute, Wyman L. Schenk, A. Nabe, defendants.
MEMORANDUM OPINION AND ORDER
PARKER, Chief Judge.
On August 15, 2002, the Court entered a Preliminary Injunction and Order to Show Cause (Doc. No. 30), which enjoined the Plaintiffs from further litigating a parallel *1215 case filed in the Isleta Tribal Court. The Court based the Preliminary Injunction and Order to Show Cause on its finding that the Tribal Court lacks jurisdiction to hear the case filed in the Tribal Court.
The Preliminary Injunction and Order to Show Cause also ordered the Plaintiffs to show cause why the preliminary injunction should not become a permanent injunction. The parties have now completed their briefing in response to the order to show cause. In addition to arguing that the preliminary injunction should not be made permanent, the Plaintiffs ask the Court to award them attorneys' fees and costs. Having reviewed the briefs and relevant law, the Court finds that the preliminary injunction should be made permanent and that the Plaintiffs' request for an award of attorneys' fees and costs should be denied.
A. Background
This lawsuit arises from the death of Roxanne Crystal Jiron. On March 14, 1999, an Amtrak train hit and killed Ms. Jiron while she was on a railroad bridge owned by Defendant Burlington Northern and Santa Fe Railway Company (BNSF). The bridge is located within BNSF's rightof-way which runs through the Isleta Pueblo. The Plaintiffs are members of the Isleta Pueblo. Defendants are not members of the Isleta Pueblo.
BNSF's predecessor received a right-ofway deed from the Isleta Pueblo on July 2, 1928 as provided by the Pueblo Lands Act of 1924, 46 Stat. 636, § 17. In accordance with the Pueblo Lands Act, the United States Secretary of the Interior and the Pueblo Lands Board approved the deed on August 17, 1928. BNSF has not leased the right-of-way to the Isleta Pueblo or to any tribal member.
B. Discussion
The standard for determining whether a permanent injunction should issue is essentially the same as the standard for a preliminary injunction, except that the Court determines the movant's actual success on the merits rather than the movant's likelihood of success on the merits. Amoco Production Co. v. Village of Gambell, AK, 480 U.S. 531, 546 n. 12, 107 S. Ct. 1396, 94 L. Ed. 2d 542 (1987) (citation omitted). In addition to showing the movant's success on the merits, the movant must establish that: (1) he or she will suffer irreparable injury unless an injunction is issued; (2) his or her threatened injury outweighs any harm the proposed injunction may cause to the opposing party; and (3) an injunction would not be adverse to the public interest. See, e.g., Chemical Weapons Working Group, Inc. (CWWG) v. U.S. Dept. of the Army, 111 F.3d 1485, 1489 (10th Cir.1997). The Plaintiffs argue that the Defendants would not be successful on the merits, because the Isleta Tribal Court has jurisdiction in the tribal case. In addition, the Plaintiffs argue that the Court should abstain from hearing this case until the Tribal Court has ruled on the issue of its jurisdiction.
1. Abstention
Initially, the Plaintiffs contend that as a matter of comity this Court should abstain from ruling on whether the Tribal Court has jurisdiction in the tribal case and should instead allow the Tribal Court to decide the jurisdiction issue. "As a general rule, a federal district court should abstain from asserting federal question jurisdiction over claims that are identical to claims pending in tribal court until the tribal court has had a full opportunity to consider the basis for its own jurisdiction." Burlington Northern R. Co. v. Red Wolf, 196 F.3d 1059, 1065 (9th Cir.1999), cert, denied, 529 U.S. 1110, 120 *1216 S.Ct. 1964, 146 L. Ed. 2d 795 (2000)(citing Strate v. A-1 Contractors, 520 U.S. 438, 449-50, 117 S. Ct. 1404, 137 L. Ed. 2d 661 (1997); Iowa Mut. Ins. Co. v. LaPlante, 480 U.S. 9, 15, 107 S. Ct. 971, 94 L. Ed. 2d 10 (1987)). There are, however, five exceptions to this general rule: (1) when "an assertion of tribal jurisdiction is motivated by a desire to harass or is conducted in bad faith," National Farmers Union Ins. Cos. v. Crow Tribe of Indians, 471 U.S. 845, 856 n. 21, 105 S. Ct. 2447, 85 L. Ed. 2d 818 (1985); (2) when "the action is patently violative of express jurisdictional prohibitions," id.; (3) when "exhaustion would be futile because of the lack of an adequate opportunity to challenge the court's jurisdiction," id.; (4) "[w]hen ... it is plain that no federal grant provides for tribal governance of nonmembers' conduct on land covered by [the main or general rule established in Montana v. United States, 450 U.S. 544, 101 S. Ct. 1245, 67 L. Ed. 2d 493 (1981) ]," Strate, 520 U.S. at 459 n. 14, 117 S. Ct. 1404; and (5) when the Tribal Court clearly lacks jurisdiction, Nevada v. Hicks, 533 U.S. 353, 369, 121 S. Ct. 2304, 150 L. Ed. 2d 398 (2001). The Isleta Tribal Court lacks jurisdiction under the Montana general rule as interpreted and applied by the United States Supreme Court in Strate and by the Ninth Circuit Court of Appeals in Red Wolf.[1] Accordingly, the fourth and fifth exceptions to the tribal exhaustion rule are applicable and abstention would be inappropriate.
2. Determining Tribal Jurisdiction Under Montana
The Supreme Court in Montana described a general rule that, absent a different congressional direction, Indian tribes lack civil authority over the conduct of nonmembers on non-Indian land within a reservation, subject to two exceptions: The first exception relates to nonmembers who enter consensual relationships with the tribe or its members; the second concerns activity that directly affects the tribe's political integrity, economic security, health, or welfare.
Strate, 520 U.S. at 446, 117 S. Ct. 1404. The Plaintiffs argue that the first exception under Montana applies to this case because the Isleta Tribe and BNSF's predecessor entered into a private consensual contract when the railroad right-of-way was originally created in 1928. The Plaintiffs attempt to distinguish Strate and Red Wolf, in which the Courts found that the first Montana exception did not apply, on the ground that the rights-of-way in those cases had been granted by Congress, unlike the railroad right-of-way in this case.
In determining that the first Montana exception did not apply, the Court of Appeals in Red Wolf held that "[a] rightof-way created by congressional grant is a transfer of a property interest that does not create a continuing consensual relationship between a tribe and the; grantee." 196 F.3d at 1064 (emphasis added). In this case, Congress did not directly grant the right-of-way to BNSF's predecessor. Congress, however, legislatively mandated a specific procedure for creating a right-ofway through Pueblo lands. That statutory procedure, like a direct Congressional grant, also authorized the unconditional transfer of Indian property interests to *1217 non-Indians. An unconditional transfer of Indian property interests, whether by a direct Congressional grant or through the procedure established in the Pueblo Lands Act, does not create a "continuing" consensual relationship between the tribe and the owner of the right-of-way. There is no relevant distinction between how the rightof-way came into existence in this case and how the rights-of-way came into existence in Strate and Red Wolf. Consequently, under Red Wolf specifically, the right-of-way deed in this case, granted in accordance with the provisions of the Pueblo Lands Act, does not result in continuing consensual relationship between BNSF and the Isleta Pueblo.[2] The first Montana exception does not apply.
3. Applying Strate
The Plaintiffs assert that Strate is inapposite to this case because the right-of-way in that case was controlled by the state and the tort that occurred within the state's right-of-way involved nonmembers of the tribe. Contrary to the Plaintiffs' interpretation, in Strate the Supreme Court did not give undue emphasis to the fact that the state owned the right-of-way. In determining whether Montana's general rule should apply, the Supreme Court in Strate had to decide if the right-of-way should be considered land alienated to non-Indians. To make that determination, the Supreme Court discussed whether the tribe retained a gatekeeping right to the land by being able to assert dominion or control over the right-of-way, including the right to occupy the right-of-way and exclude people from the right-of-way. 520 U.S. at 455-56,117 S. Ct. 1404.
The Plaintiffs correctly note that unlike this case the injured parties in Strate were not tribal members. In Strate the Supreme Court, however, did discuss the interest of tribal members in exercising tribal jurisdiction over nonmembers when it addressed the second exception to Montana's general rule. The Supreme Court stated: "Undoubtedly, those who drive carelessly on a public highway running through a reservation endanger all in the vicinity, and surely jeopardize the safety of tribal members. But if Montana's second exception requires no more, the exception would severely shrink the rule." 520 U.S. at 457-58,117 S. Ct. 1404.
Furthermore, like the Plaintiffs in this case, the plaintiffs in Red Wolf were tribal members. In applying Strate's analysis of Montana's second exception, the court in Red Wolf quoted Wilson v. Marchington, 127 F.3d 805, 815 (9th Cir. 1997) as follows: "`[i]f the possibility of injuring multiple tribal members does not satisfy the second Montana exception under Strate, then, perforce, [a plaintiffs] status as a tribal member alone cannot.'" 196 F.3d at 1065. The Court of Appeals in Red Wolf did not find that the second Montana exception applied in that case. Id. In sum, Montana, Strate, and Red Wolf direct a conclusion that the Montana general rule is applicable and that the Isleta Tribal Court does not have jurisdiction in the tribal case.[3]
*1218 4. Indian Country
The Plaintiffs argue next that the Isleta Tribal Court has jurisdiction in this case because the BNSF right-of-way is defined as being included in Indian Country under 18 U.S.C. § 1151. Section 1151 confers tribal jurisdiction over certain criminal acts occurring in Indian country. "Indian country" includes "all land within the limits of any Indian reservation under the jurisdiction of the United States Government, notwithstanding the issuance of any patent, and, including rights-of-ways running through the reservation." 18 U.S.C. § 1151 (emphasis added). This provision has been applied to questions of civil jurisdiction as well. See DeCoteau v. District County Court for Tenth Judicial Dist, 420 U.S. 425, 427 n. 2, 95 S. Ct. 1082, 43 L. Ed. 2d 300 (1975). Section 1151, however, addresses only claims of statutorily conferred tribal power, "not an Indian tribe's inherent or retained sovereignty over nonmembers on non-Indian fee land." Atkinson Trading Co., Inc. v. Shirley, 532 U.S. 645, 653-54 n. 5, 121 S. Ct. 1825, 149 L. Ed. 2d 889 (2001). Section 1151 is inapplicable to this case.
5. Federal Preemption
The Plaintiffs also argue that the Defendants' federal preemption issue should be heard in Tribal Court. The Defendants had argued in response to the Plaintiffs' motion to remand that the Plaintiffs' claims are preempted by federal law which sets the maximum allowable speed of trains. See CSX Transp., Inc. v. Easterwood, 507 U.S. 658, 676, 113 S. Ct. 1732, 123 L. Ed. 2d 387 (1993). The Plaintiffs replied to that response by indicating that they are not alleging excessive speed by the Amtrak train. Accordingly, the Plaintiffs' assertion that the federal preemption issue should be heard in tribal court is moot.[4]
6. Defendant Amtrak
The Plaintiffs apparently argue that Defendant Amtrak can be subject to suit in Tribal Court because it is not a federal agency or establishment under its authorizing statute, 45 U.S.C. § 541. Section 541 was, however, repealed in 1994, 108 Stat. 1379. Moreover, this Court has already held that there is federal question jurisdiction over the claims against Defendant Amtrak. Memorandum Opinion and Order (Doc. No. 31), filed Aug. 21, 2002.
7. State Jurisdiction
Finally, the Plaintiffs argue that this lawsuit could be tried in state court. Whether this lawsuit could be tried in state court is irrelevant to the issue of whether a permanent injunction should ensue which enjoins the Plaintiffs from pursuing their Tribal Court case. In addition, this Court denied the Plaintiffs' motion to remand and ruled that there is federal jurisdiction. Id.
C. Conclusion
The Plaintiffs have failed to show cause why the preliminary injunction should not be made permanent. It is clear that the *1219 Isleta Tribal Court does not have jurisdiction over the tribal lawsuit. The Court, therefore, is not required to abstain from hearing this lawsuit and the tribal exhaustion rule is inapplicable. Accordingly, the Defendants succeed on the merits of their tribal jurisdiction argument. Furthermore, the Plaintiffs do not contest that the Defendants will suffer irreparable injury unless a permanent injunction is issued; that the Defendants' threatened injury outweighs any harm the proposed permanent injunction may cause to the Plaintiffs; and that a permanent injunction would not be adverse to the public interest.[5] Since the four requirements necessary to obtain a permanent injunction have been met, a permanent injunction will issue. The Plaintiffs' request for an award of attorneys' fees and costs will be denied.
IT IS ORDERED that:
1. a permanent injunction enjoining the Plaintiffs from pursuing their claims in the Isleta Tribal Court will be issued; and
2. the Plaintiffs' request for an award of attorneys' fees and costs is denied.
NOTES
[1] In applying the Montana principles regarding Tribal Court jurisdiction over non-tribal members, the Supreme Court in Strate held that there was no tribal jurisdiction when an automobile accident involving non-tribal members occurred on a state highway crossing an Indian reservation and Congress had granted the state a highway right-of-way through the reservation. In applying Montana and Strate, the Court of Appeals in Red Wolf held that there was no tribal jurisdiction when a train killed two tribal members on an Indian reservation and Congress bad granted the railroad a right-of-way through the reservation.
[2] The Plaintiffs argue in their reply brief that Atkinson Trading Co., Inc. v. Shirley, 210 F.3d 1247 (10th Cir.2000) supports a finding that the first Montana exception is applicable to this case. Unfortunately for the Plaintiffs, Atkinson Trading Co., Inc. was reversed by the United States Supreme Court, 532 U.S. 645, 121 S. Ct. 1825, 149 L. Ed. 2d 889 (2001).
[3] The Plaintiffs also assert for the first time in their reply brief that the right-of-way deed in this case did not waive tribal jurisdiction. The right-of-way deed, in fact, did not reserve tribal jurisdiction. As the Plaintiffs concede, the right-of-way is alienated non-Indian land. Consequently, the Montana general rule applies and the Plaintiffs' assertion that the right-of-way deed in this case did not waive tribal jurisdiction is immaterial.
[4] The Plaintiffs cite El Paso Natural Gas Co. v. Neztsosie, 136 F.3d 610 (9th Cir.1998) for the proposition that if a federal statute like the train speed provision does not prohibit tribal jurisdiction of claims arising under it, the tribal exhaustion rule applies. The Supreme Court, however, reversed El Paso Natural Gas v. Neztsosie, 526 U.S. 473, 119 S. Ct. 1430, 143 L. Ed. 2d 635 (1999). Nonetheless, El Paso Natural Gas is readily distinguishable from this case because it involved the Price-Anderson Act. Id. at 484-85, 119 S. Ct. 1430. In fact, the Supreme Court held that "the comity rationale for tribal exhaustion normally appropriate to a tribal court's determination of its jurisdiction stops short of the Price-Anderson Act...." Id. at 487, 119 S. Ct. 1430.
[5] The Plaintiffs argue in their reply brief that although they have not addressed these three factors for establishing a permanent injunction, they have not conceded the establishment of those factors. D.N.M. LR-Cv 7.1(b) states that a failure to respond to a motion constitutes consent to grant the motion. D.N.M. LR-Cv 7.1(b), therefore, dictates that the Plaintiffs have consented to the establishment of those three permanent injunction factors. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2412275/ | 686 F. Supp. 2d 1318 (2010)
NATIONAL AUTO LENDERS, INC., Plaintiff,
v.
SYSLOCATE, INC., et al., Defendants.
Case No. 09-21765-CIV.
United States District Court, S.D. Florida, Miami Division.
February 10, 2010.
*1319 Elizabeth M. Bohn, Jorden Burt, LLP., Miami, FL., for Plaintiff.
*1320 Steven Wayne Cornman, Jr., Kubicki Draper, Miami, FL., for Defendant.
ORDER DENYING DEFENDANTS' MOTION TO DISMISS AND/OR TRANSFER VENUE AND STAY PROCEEDINGS TO COMPEL MEDIATION AND ARBITRATION
MARCIA G. COOKE, District Judge.
This matter is before me on Defendants' Motion to Dismiss and/or Transfer Venue and Stay Proceedings to Compel Mediation and Arbitration [D.E. 24], Plaintiff's Response in Opposition [D.E. 34] and Defendant's Reply thereto [D.E. 43]. I am denying Defendants' Motion.
I. BACKGROUND
Plaintiff, National Auto Lenders, Inc. ("NAL"), provides indirect lending for car buyers by purchasing installment contracts from retail car dealers in Florida. (Compl. at ¶ 15). NAL has a lien on each vehicle under contract to secure the debt. (Compl. at ¶ 16). In the event of default, NAL has the right to repossess the vehicles. Id. NAL uses Global Positioning System ("GPS") units to track the vehicles so that it can locate and recover them on default. (Compl. at ¶ 19). Between March 2007 and April 2008, NAL purchased 2,450 GPS units from Defendants DriveOK, Inc. ("DriveOK") and SysLOCATE, Inc. ("SysLOCATE" or, collectively with DriveOK, "DOS"). (Ramos Aff. at ¶ 28). NAL used SysLOCATE's website to track the vehicles with DOS units. Id. at ¶ 29. Many of the DOS units are defective and, as a result, NAL has been unable to locate and repossess the vehicles on default, resulting in approximately $2,500,000.00 in damages. (Compl. at ¶ 65).
In August 2008, NAL and DOS began negotiating a settlement for NAL's losses. (Perez Aff. ¶¶ 6, 7). During the negotiations, SysLOCATE posted a "click-to-accept" end user license agreement ("EULA") on its website. (Perez Aff. at ¶ 10). NAL could not access the website or track its vehicles unless it accepted the EULA. Id. The EULA contained language that would have limited NAL's ability to recover losses for the defective DOS units. Id. The EULA also contained forum and arbitration clauses. (Ramos Aff. at ¶ 49). NAL's Chief Marketing Officer, Asbel Perez, instructed the entire NAL staff to refrain from logging onto the SysLOCATE website to prevent involuntary acceptance of the EULA. (Perez Aff. at ¶ 11). NAL executives Asbel Perez, Ozzie Ramos and Knox North also informed Defendants that they were NAL's decision makers and solely authorized to enter into agreements on NAL's behalf. (Perez Aff. at ¶ 16).
DOS merged with Defendant Procon, Inc. ("Procon") in November 2008 and Procon became the surviving corporation. (Compl. at ¶¶ 12, 13). Procon sold and continues to sell GPS units to Plaintiff. (Ramos Aff. at ¶ 34). These units are different from the DOS units and not the subject of Plaintiff's claims. Id. Plaintiff must access Procon's website to track over 1,900 vehicles with Procon units. (Ramos Aff. at ¶¶ 35, 41). After the DOS-Procon merger, NAL discussed the defective DOS units with Procon executives and former DOS executives now working for Procon. (Perez Aff. at ¶ 14). The parties failed to reach a settlement agreement and NAL sent a letter to Procon on April 14, 2009 that described the extent of DOS unit failures and demanded payment. (Ramos Aff. at Ex. C). In the demand letter, NAL's counsel stated, "[a]ll communications regarding this matter should be addressed to me, not NAL." Id.
On April 17, 2009, Procon posted the Goldstar Agreement on its website. The *1321 Goldstar Agreement, inter alia, limited Procon's liability for defective units and contained a venue clause and a mediation/arbitration clause. (Ramos Aff. at Ex. D). NAL was unable to track vehicles with Procon units unless it accepted the Goldstar Agreement. (Ramos Aff. at ¶ 56). NAL did not accept the agreement and its counsel sent another letter to Procon on April 20, 2009 confirming NAL's unwillingness to enter into the agreement. Id. Procon's counsel sent a letter to NAL's counsel on May 1, 2009, assuring her that Procon would not assert the Goldstar Agreement to NAL's claims related to the DOS units. (Ramos Aff. at Ex. E).
Procon amended the Goldstar Agreement and introduced the Subscription Service Agreement and the Master Marketing Agreement (collectively "May Agreements") on its website in May 2009. (Wells Aff. at ¶¶ 8, 12). NAL could not track vehicles with Procon units unless it accepted the Subscription Service Agreement. Id. at ¶ 8. Procon also required customers to accept the Master Marketing Agreement prior to placing orders. Id. at ¶ 12. The May Agreements provide that the parties will settle all disputes through a combination of mediation and arbitration. (Defendant's Motion at Ex. 2, 3). If the mediation/arbitration clause is not enforceable, the May Agreements designate Tennessee as the proper venue for any dispute. Id. The terms of the May Agreements apply retroactively and supercede any prior or contemporaneous agreements between the parties. Id.
There are fifteen NAL employees and five NAL subcontractors that have access to Procon's website. (Ramos Aff. at ¶¶ 42, 43). An NAL employee or subcontractor named Ralph Long accepted the Subscription Service Agreement on May 29, 2009. (Wells Aff. at ¶ 10). Another unidentified NAL employee accessed Procon's website and accepted the Master Marketing Agreement on June 1, 2009. (Wells Aff. at ¶ 13).
NAL argues that the May Agreements were accepted by individuals without legal authority to do so. (Ramos Aff. at ¶ 63). According to NAL, these individuals accepted the May Agreements without authorization while accessing Procon's website to track vehicles. Id. The May Agreements did not appear on Procon's website once they were accepted and the executive officers at NAL did not know they existed until Defendants filed the instant motion. Id.
Defendants argue that whoever clicked on the Agreement had apparent authority to accept the Agreement on behalf of NAL. In the alternative, Defendants argue that NAL ratified the Agreement once it was accepted, even if the Agreement was initially accepted by an unauthorized agent of Plaintiff.
II. LEGAL STANDARD
A motion to dismiss based on a forum selection clause is properly brought pursuant to 12(b)(3) of the Federal Rules of Civil Procedure. Lipcon v. Underwriters at Lloyd's, London, 148 F.3d 1285, 1290 (11th Cir.1998), cert. denied, 525 U.S. 1093, 119 S. Ct. 851, 142 L. Ed. 2d 704. Therefore, this court will consider Defendants' forum selection clause arguments under a 12(b)(3) improper venue analysis. In considering a motion to dismiss for improper venue, "the court may consider matters outside the pleadings such as affidavit testimony, `particularly when the motion is predicated on key issues of fact.'" Wai v. Rainbow Holdings, 315 F. Supp. 2d 1261, 1268 (S.D.Fla.2004) (quoting Webster v. Royal Caribbean Cruises, Ltd., 124 F. Supp. 2d 1317, 1320 (S.D.Fla.2000)). The court must accept all allegations of the complaint as true and draw all reasonable *1322 inferences in favor of the plaintiff. Wai, 315 F.Supp.2d at 1268.
It is well settled that parties may contract in advance to select the forum in which their disputes will be adjudicated. M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 12-14, 92 S. Ct. 1907, 32 L. Ed. 2d 513 (1972). In federal diversity cases, "28 U.S.C. 1404(a), governs the District Court's decision whether to give effect to the parties' forum-selection clause." Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 32, 108 S. Ct. 2239, 101 L. Ed. 2d 22 (1988). The usual rules governing the enforcement of contracts apply to forum selection clauses. P & S Business Machines, Inc. v. Canon USA, Inc., 331 F.3d 804, 807 (11th Cir.2003). A forum selection clause should be enforced unless a strong showing is made that enforcement would be unreasonable and unjust or that the clause was invalid for such reasons as fraud or overreaching. Id.
In reviewing a motion to compel mediation and/or arbitration, a district court considers three factors: (1) whether a valid agreement to arbitrate exists, (2) whether an arbitrable issue exists, and (3) whether the right to arbitrate was waived. Integrated Sec. Services v. Skidata, Inc., 609 F. Supp. 2d 1323, 1324 (S.D.Fla.2009). The court must grant a motion to compel arbitration if it is satisfied that the parties agreed to arbitrate the claims at issue. Id.; see also 9 U.S.C. § 3. However, "arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80 S. Ct. 1347, 4 L. Ed. 2d 1409 (1960).
III. ANALYSIS
Defendants argue that Plaintiff is contractually bound by the venue and mediation/arbitration clauses in the May Agreements. I disagree. The individuals that accepted the May Agreements did not have legal authority to bind Plaintiff. Defendants argue that these individuals had apparent authority to accept the May Agreements on behalf of Plaintiff.
Under the doctrine of apparent authority, an agency will arise when the principal allows or causes others to believe that an individual has authority to conduct the act in question, inducing their detrimental reliance. Borg-Warner Leasing, a Div. of Borg-Warner Acceptance Corp. v. Doyle Elec. Co., Inc., 733 F.2d 833, 836 (11th Cir.1984). There are three elements "needed to establish apparent agency: (1) a representation by the purported principal; (2) reliance on that representation by a third party; and (3) a change in position by a third party in reliance on upon such relationship." Blunt v. Tripp Scott, P.A., 962 So. 2d 987, 989 (Fla. 4th DCA 2007). "The reliance of a third party on the apparent authority of the principal's agent must be reasonable and rest in the actions of or appearances created by the principal... and not by agents who often ingeniously create an appearance of authority by their own acts." Id. (internal citations omitted).
I find that the elements needed to establish an apparent agency relationship were not established in this case. Plaintiff's actions did not create the appearance that two non-executives at NAL were authorized to contractually bind Plaintiff to the May Agreements. Plaintiff's executives Asbel Perez, Ozzie Ramos and Knox North specifically told Defendants that they were NAL's decision makers and solely authorized to enter into agreements on NAL's behalf. Plaintiff then authorized Counsel to communicate directly with Defendants regarding the claims asserted in the instant *1323 case. Counsel never indicated to Defendants that Plaintiff's employees or subcontractors were authorized to enter into electronic agreements posted on Defendants' website. In fact, Plaintiff's Counsel indicated in writing that Plaintiff was not willing to accept the Goldstar Agreement, which was substantially similar to the later May Agreements. Therefore, it was unreasonable for Defendants to believe that the individuals who accepted the May Agreements were authorized to do so. Defendants' reliance is especially unreasonable in this case because Defendants were aware that: (1) individuals unauthorized to accept the May Agreements had access to Procon's website; and (2) these individuals needed to accept the May Agreements in order to track vehicles.
Defendants also argue that Plaintiffs ratified the May Agreements even if they were initially accepted by two unauthorized employees. Again, I disagree. "A ratification occurs when the benefits of the purportedly unauthorized acts are accepted with full knowledge of the facts under circumstances demonstrating the intent to adopt the unauthorized arrangement." In re Securities Group, 926 F.2d 1051, 1054 (11th Cir.1991). "Before one may infer that a principal ratified the unauthorized act of his agent, the evidence must demonstrate that the principal was fully informed and that he approved of the act." United Parcel Serv., Inc. v. Buchwald Jewelers, 476 So. 2d 772, 773 (Fla. 3d DCA 1985). The May Agreements disappeared from Defendants' website after Plaintiff's agents clicked through to accept them. Those authorized to accept the May Agreements were not aware that they existed until Defendants filed the instant motion. Therefore, Plaintiff did not have knowledge of the May Agreements or demonstrate an intent to adopt its terms. Accordingly, I find that Plaintiff did not ratify the unauthorized acceptance of the May Agreements.
IV. CONCLUSION
Accordingly, Defendants' Motion to Dismiss and/or Transfer Venue and Stay Proceedings to Compel Mediation and Arbitration [D.E. 24] is DENIED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2412977/ | 36 F. Supp. 2d 279 (1999)
Ahmad SADIGHI, et al., Plaintiffs,
v.
Ali DAGHIGHFEKR, et al., Defendants.
No. 2:98-2648-18.
United States District Court, D. South Carolina, Charleston Division.
January 22, 1999.
*280 *281 *282 *283 *284 Mark Mason, Charleston, SC, for plaintiffs.
John Massalon, Charleston, SC, C. Allen Gibson, Jr., Charleston, SC, for defendants.
ORDER
NORTON, District Judge.
This action is before the court on Defendants' Motion to Strike and Motion to Dismiss *285 for Failure to State a Claim Upon Which Relief May be Granted.[1]
I. PROCEDURAL HISTORY
On September 11, 1998, Plaintiffs filed their Complaint against twenty-three Defendants for twenty-two causes of action: RICO, breach of contract, breach of contract with fraudulent intent, misappropriation of corporate opportunity, statutory wage act violations, tortious interference with contract, quantum meruit, unjust enrichment, rescission of alleged release, breach of fiduciary duty, fraud, civil conspiracy, Title VII violations, intentional infliction of emotional distress, and unfair trade practices.
On September 18, 1998, the Feker Defendants moved to dismiss and strike items from the Complaint.
II. BACKGROUND
Because this is a Rule 12(b)(6) motion, the facts are set forth as alleged by Plaintiffs. Ali Daghighfekr (Allan Feker) is a real estate developer who owns a large number of residential golf communities. Plaintiffs essentially allege that Feker fraudulently hires law abiding professionals to work for his fraud-ridden business enterprises, all the while secretly intending to use them as "front men" and "window dressing" to carry out his fraudulent schemes and shield him from criminal culpability. Plaintiffs' allegations of Feker's wrongdoing principally encompass transactions relating to the Golden Ocala residential project in Florida and the Dunes West project in South Carolina. Plaintiffs allege that Feker has (1) attempted to bribe employees at Georgia-Pacific to obtain the Dunes West development at a reduced sales price; (2) bribed and obtained funds under false pretenses from employees of General American Life Insurance Company (GALIC); (3) misrepresented the value of infrastructure improvements to be sold to Golden Ocala Community Development District (GOCDD); (4) sexually harassed Plaintiff NeSmith (including unwanted sexual advances and sexual intercourse leading to a constructive discharge); and (5) wrongfully or constructively discharged the remaining Plaintiffs.
III. LAW/ANALYSIS
Defendants moved to dismiss Plaintiffs' claims for violations of RICO, Title VII, and the South Carolina Unfair Trade Practices Act. Defendants also moved to dismiss the claims for breach of contract, tortious interference with contractual relations, and the "alter ego" allegations based on an insufficient pleading of that doctrine. Finally, Defendants moved to strike a number of the allegations in the Complaint. Each claim will be analyzed separately below.
A. Standard of Review
Pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, Defendants filed this Motion to Dismiss for failure to state a claim upon which relief may be granted. A Rule 12(b)(6) motion should be granted "only in very limited circumstances." Rogers v. Jefferson-Pilot Life Ins. Co., 883 F.2d 324, 325 (4th Cir.1989). When ruling on such a motion, the court should "accept as true all well-pleaded allegations and should view the complaint in the light most favorable to the plaintiff." Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir.1993); see also Colleton Regional Hosp. v. MRS Med. Review Sys., Inc., 866 F. Supp. 896, 899 (D.S.C.1994). Indeed, a Rule 12(b)(6) motion should not be granted unless the court is certain that the plaintiff could not prove any facts in support of the plaintiff's claim. See Martin Marietta Corp. v. International Telecommunications Satellite Org., 991 F.2d 94, 97 (4th Cir.1992).
B. Motion to Dismiss RICO Cause of Action
1. Overview of RICO Standing and Causation
Plaintiffs have alleged that Defendants are liable to Plaintiffs for a substantive violation of RICO. Although RICO is a criminal statute, the legislation provides for a civil remedy for private plaintiffs. See 18 U.S.C. *286 § 1964(c) (1994). Section 1964(c) provides that "[a]ny person injured in his business or property by reason of a violation of section 1962 ... may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney's fee." Id. (emphasis added). The Supreme Court has framed this causation requirement as one of standing. See Brandenburg v. Seidel, 859 F.2d 1179, 1187 (4th Cir.1988), overruled on other grounds by Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 116 S. Ct. 1712, 135 L. Ed. 2d 1 (1996).
Plaintiffs must allege that Defendants' violations were a proximate cause of their injuries. See Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 268, 112 S. Ct. 1311, 117 L. Ed. 2d 532 (1992); Chisolm v. TranSouth Fin. Corp., 95 F.3d 331, 336 (4th Cir.1996). In Holmes, the Supreme Court cautioned lower courts against an overly expansive view of the common law doctrine of proximate cause by noting that "a plaintiff who complained of harm flowing from the misfortunes visited upon a third person by the defendant's acts [is] generally said to stand at too remote a distance to recover." Holmes, 503 U.S. at 268-69, 112 S. Ct. 1311. Instead, proximate cause requires a nexus between the proscribed acts and the injuries. See Mid Atl. Telecom, Inc. v. Long Distance Servs., Inc., 18 F.3d 260, 263 (4th Cir.1994). However, this nexus does not mean that only injuries "suffered by the immediate victim of a predicate act" satisfies the "by reason of" requirement of § 1964(c). Id. The court should instead focus its inquiry on deciding "`whether the conduct has been so significant and important a cause that the defendant should be held responsible.'" Chisolm, 95 F.3d at 336 (quoting Brandenburg v. Seidel, 859 F.2d 1179, 1189 (4th Cir. 1988)). The court should be guided in this inquiry by such factors as "the foreseeability of the particular injury, the intervention of other independent causes, and the factual directness of the causal connection." Brandenburg v. Seidel, 859 F.2d 1179, 1189 (4th Cir.1988), overruled on other grounds by Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 116 S. Ct. 1712, 135 L. Ed. 2d 1 (1996).
Plaintiffs allege that Defendants engaged in conduct in violation of 18 U.S.C. §§ 1962(a), (b), (c), and (d). To have standing to assert private causes of action for these RICO violations, Plaintiffs must allege (1) violations of § 1962; and (2) injuries to their business or property that were proximately caused by these RICO violations.
2. 18 U.S.C. § 1962(a)
a. Alleging a Violation
To state a claim under § 1962(a), Plaintiffs must allege that (1) a defendant person[2] (2) received income derived from (3) a pattern of racketeering activity[3] (4) and invested the racketeering income or its proceeds (5) in the acquisition of an interest in or the establishment or operation of (6) any enterprise[4] (7) engaged in, or the activities of which affect, interstate or foreign commerce. See 18 U.S.C. § 1962(a) (1994). In short, section 1962(a) prohibits a person from receiving income from a pattern of racketeering activity and then using that income in the operation of an enterprise engaged in commerce. See New Beckley Mining Corp. v. *287 International Union, UMW of America, 18 F.3d 1161, 1165 (4th Cir.1994).
Were this court relying merely on Plaintiffs' Complaint, the RICO cause of action might have been dismissed for failure to state a claim. However, this court will consider both the Complaint and the Second Amended RICO Case Statement (RCS) filed on November 6, 1998. See Cardwell v. Sears Roebuck & Co., 821 F. Supp. 406, 407 & n. 3 (D.S.C.1993) (similarly considering both the Complaint and the RICO Case Statement in response to a Rule 12(b)(6) motion).[5] Plaintiffs' allegations in their RICO Case Statement sufficiently state a claim under § 1962(a). The following quotation is the verbatim answer to the court's pertinent interrogatory regarding § 1962(a):[6]
Beginning in 1995, Defendant Allan Feker, and Defendant, Golden Ocala Golf Course Partners, fraudulently obtained funds from the Resolution Trust Corporation ["RTC"], acting as Receiver of First State Savings Bank, F.S.B., Mountain Home, Arkansas, by the creation of fake documents misrepresenting that the Feker Defendants had expended monies to remove asbestos and contaminated soil from the Golden Ocala project. These fake documents were prepared for the purpose of obtaining monies belonging to and held in escrow by the RTC. These fake documents were transmitted to the RTC and others by acts of wire and mail fraud. The racketeering funds so obtained were thereafter invested in the acquisition and operation of Golden Ocala Golf Course Partners [and numerous other companies owned by Feker] and the Feker Defendants' parent company, U.S. Golf & Leisure, Inc. From U.S. Golf & Leisure, Inc.[,] these funds were invested into the Feker Defendants' various real estate projects.
Funds obtained by the Feker Defendants through use of fake invoices, receipts and checks submitted by acts of wire and mail fraud to General American Life Insurance Company ("GALIC") for "reimbursement" of expenses relating to the Dunes West real estate project were invested into U.S. Golf & Leisure, Inc. and from U.S. Golf & Leisure into the Golden Ocala real estate project in Ocala, Florida, and Feker's other real estate projects.
Funds obtained and retained by the Feker Defendants as a result of the fraudulent inducement of the employment and business associations of and with Sadighi, Miller, Riggins, and NeSmith were invested in the acquisition and operation of the Feker Defendants' enterprises. Feker obtained these monies by making use of these employees' services and then not paying for them.
(RCS at 86-87). Feker and his companies are the defendant persons who allegedly received funds through the submission of fake invoices and receipts by wire or mail intending to obtain money by fraud. Such actions are predicate acts of wire or mail fraud and thus may constitute racketeering activity. See 18 U.S.C. §§ 1341, 1343, 1961(1)(B) (1994).[7] This court also finds that Plaintiffs' allegations are sufficient to state a claim that Feker was involved in a "pattern" of racketeering activity. Section 1961(5) defines a "pattern of racketeering activity" to require "at least two acts of racketeering activity, one of which occurred after the effective date of this chapter and the last of which occurred within ten years ... after the commission of a prior act of racketeering activity." 18 U.S.C. § 1961(5) (1994). Although "two such acts are necessary to make out a RICO pattern, they may not be sufficient." Brandenburg v. Seidel, 859 F.2d 1179, 1185 (4th Cir.1988), overruled on other grounds by Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 116 S. Ct. 1712, 135 L. Ed. 2d 1 (1996). Two elements must be present to establish a *288 pattern relationship and continuity. See Morley v. Cohen, 888 F.2d 1006, 1009 (4th Cir.1989). "A party alleging a RICO violation may demonstrate continuity over a closed period by proving a series of related predicates extending over a substantial period of time." H.J., Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 241, 109 S. Ct. 2893, 106 L. Ed. 2d 195 (1989). As to the relationship component, the Supreme Court has stated that "`[c]riminal conduct forms a pattern if it embraces criminal acts that have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events.'" Id. at 240, 109 S. Ct. 2893 (quoting 18 U.S.C. § 3575(e)). The court must consider such factors as "the number and variety of predicate acts and the length of time over which they were committed, the number of putative victims, the presence of separate schemes, and the potential for multiple distinct injuries." Brandenburg, 859 F.2d at 1185. However, the ultimate focus of the inquiry "must always be on whether the related predicate acts indicate ongoing criminal activity of sufficient scope and persistence to pose a special threat to social well-being." Id.
Plaintiffs have alleged that such is the case here. Feker allegedly obtains money by fraud and then funnels this money into whichever one of his companies is ailing at that particular time. For example, "[w]hen Feker received financing for improvements to the Dunes West property, he invested those earmarked funds into the acquisition of the Golden Ocala project, rather than pay for the improvements to the Dunes West project." (RCS at 73) Plaintiffs have alleged two specific examples, one involving an real estate project in Florida and another in South Carolina. The targeted victims of each scheme are different, but the method is similar. As Plaintiffs allege, "the same types of crimes ... [are] performed for the same purpose of illegally obtaining money from lenders." (RCS at 72) Indeed, Plaintiffs allege that such fraud continues to this day because it is Feker's method of doing business. As such, this court finds that the racketeering activities alleged reflect a sufficient continuity and relationship to each other to constitute a pattern. Because Plaintiffs allege that the income derived from these racketeering acts is diverted to operate other projects owned by Feker, and these projects affect interstate commerce,[8] Plaintiffs have stated a claim under § 1962(a).
b. Injury to Business or Property Proximately Caused by Violation
Under Fourth Circuit case law, Plaintiffs have standing to sue if they allege that their injuries were either (1) proximately caused by the predicate acts underlying the § 1962(a) violation, or (2) proximately caused by the investment and use of the illegally obtained income. See Busby v. Crown Supply, Inc., 896 F.2d 833, 837-40 (4th Cir.1990).[9] Each Plaintiff will be analyzed *289 separately for both theories of injury. First, to the extent that Plaintiff Ahmad Sadighi alleged that he was injured by the underlying predicate acts, he has shown insufficient nexus between his injury and the predicate acts. On page 42 and page 56 of the RICO Case Statement, for example, Sadighi alleges that he refused to sign documents that would have associated his name with mail or wire fraud predicate acts. The court has found no other allegation that Sadighi unknowingly participated in a predicate act to the extent that his good name could be jeopardized by such an association.
However, Sadighi can still state a claim for a violation of § 1962(a) because he has two other theories of recovery, one of which is viable. Sadighi's allegations advance the theory that he suffered injury to his business or property as a result of the investment or use of the income derived from racketeering when the money Feker obtained through predicate acts was invested into the enterprise instead of being used to pay him. (RCS at 67, 69). Although the Fourth Circuit noted that plaintiffs would have standing to state a § 1962(a) claim if they had been "injured by the investment and use of the illegally obtained income," Busby v. Crown Supply, Inc., 896 F.2d 833, 837 (4th Cir. 1990), Sadighi's claimed injury, that he was not paid, has an insufficient nexus with Feker's investment of the illegally obtained money. Sadighi stands in the same shoes as any other person owed money by Feker. To hold that all such persons were proximately injured by Feker's investment of the illegally obtained money would "open the door to `massive and complex' damages litigation[, which would] not only burde[n] the courts, but [would] also undermin[e] the effectiveness of treble-damages suits." Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 274, 112 S. Ct. 1311, 117 L. Ed. 2d 532 (1992) (alteration in original) (quoting Associated General Contractors of Cal. v. California State Council of Carpenters, 459 U.S. 519, 545, 103 S. Ct. 897, 74 L. Ed. 2d 723 (1983)). Consequently, this court finds that any injury Sadighi might have suffered based purely on his expectation of payment for services was not proximately caused by a § 1962(a) violation.
Sadighi's remaining theory of recovery under § 1962(a) is viable. Sadighi allegedly had a profit percentage agreement with Feker in that Sadighi was to receive 15% of the profits of Allied Construction & Engineering, Inc. (RCS at 106) Furthermore, Sadighi was performing services in return "for a percentage of the sales or profits on the Dunes West and Hunter's Ridge development projects." (RCS at 102) "By siphoning the Dunes West and Hunter's Ridge funds out of these projects and into the Golden Ocala project, Feker harmed [Sadighi] by preventing the improvements on which [Sadighi's] profit percentages depended from being completed and paid for." (RCS at 103) In fact, "by defrauding GALIC, Feker placed the financing of the entire project in jeopardy." (RCS at 103) Thus, when Feker allegedly diverted the income derived from his predicate racketeering acts to other projects, Sadighi and Allied suffered injury because the projects in which they had a property interest could not realize profit "unless significant funds were invested in those projects and the necessary improvements to those projects were completed and paid for." (RCS at 102-03) Unlike Sadighi's general claim that he was injured when Feker failed *290 to pay him, this profit percentage claim is specifically tied to the investment of racketeering income. Consequently, this court finds that the injury was proximately caused by such an investment in other projects so that Sadighi and Allied[10] have sufficiently stated a claim for a violation of § 1962(a).
Second, Plaintiff Charles E. Riggins has also alleged that he was injured by Defendants' violation of § 1962(a). For the same reasons that Feker's failure to pay Sadighi was not a compensable claim under this RICO subsection, Riggins' claim for an injury caused by Feker's investment of the racketeering income also fails. (RCS at 62) However, Riggins has properly alleged an injury to his professional reputation caused by Defendants' § 1962(a) violation. See Khurana v. Innovative Health Care Sys., Inc., 130 F.3d 143, 151 (5th Cir.1997) (finding that damage to plaintiff's professional reputation was a compensable injury to business or property). In the RICO Case Statement, Riggins alleges that he sent documents and a cover letter supporting legitimate loan draw requests to GALIC. (RCS at 60) At Feker's request, Joseph Korosec allegedly combined these legitimate documents with forged receipts, invoices, and checks that Feker had faxed to him in order to obtain fraudulent reimbursement of money related to Mount Pleasant Waterworks and Sewer Commission fees. (RCS at 60) The legitimate and illegitimate expenses were allegedly sent by wire and by mail under Riggins' cover memo for one loan draw request. (RCS at 60) According to the RICO Case Statement,
[t]he manner in which the loan draw request was assembled and mailed as a single package by Airborne Express by Joseph T. Korosec from his office in Norcross, Georgia to the GALIC home office in St. Louis, Missouri, made it appear as if the entire May loan draw request was one submission that had been legitimately submitted by certified public accountant Riggins in his official capacity as the Dunes West Comptroller. This mailing by Joseph T. Korosec at the direction of Feker was a predicate act of mail fraud by use of a `private or commercial interstate carrier,' namely Airborne Express.
(RCS 61) This predicate act of mail fraud proximately injured Riggins because any injury he suffered as a result of the association of his name with this act of mail fraud is both a direct and foreseeable result of such an act.[11] Consequently, Riggins has stated a claim for a violation of § 1962(a).
Third, Plaintiffs Robert E. Miller and Miller Development Group have alleged that they were injured by Defendants' violation of § 1962(a). Miller alleges that he was injured when Feker used the money that should have gone to pay him to bribe GALIC employee Joseph T. Korosec and to gain favor with Neel Keenan. (RCS at 68) For the same reasons that this theory of recovery failed for Sadighi and Riggins, this theory fails for Miller. Miller and Miller Development Group do state a cognizable claim under § 1962(a) by alleging that Feker had a joint venture agreement with them relating to the acquisition of the Dunes West project. (RCS at 108) Under this purported agreement, Miller and his company were to receive a 10% ownership interest in the limited liability company to be formed to own the Dunes West project, 10% of the profits, $120,000 salary, and 3% of gross sales over $5 million per year. (RCS at 108) When Feker obtained funds from GALIC by mail and wire fraud for the supposed purpose of making improvements at Dunes West and then diverted those funds to the Golden Ocala project in Florida, Miller and Miller Development Group were proximately injured by the investment of income derived from racketeering. The misapplication of those funds *291 harmed Miller and his company because the funds were obtained in order "to make capital improvements at Dunes West thereby increasing the value of his joint [venture] interest." (RCS at 102) Consequently, both Miller and Miller Development Group have stated a claim for a violation of § 1962(a).
Fourth, Plaintiff Cynthia Joy NeSmith has alleged that she was injured by Defendants' violation of § 1962(a). For the same reasons that Feker's failure to pay Sadighi, Riggins, and Miller was not a compensable claim under this RICO subsection, NeSmith's claim for an injury caused by Feker's investment of the racketeering income also fails. NeSmith does state a claim for an injury to her reputation that flows directly from the commission of a predicate act. Like Riggins, NeSmith's name was associated with the mail and wire fraud on GALIC when both legitimate and illegitimate loan draw requests were submitted. To keep his name out of the fraud, Feker caused GALIC to wire the funds to the attention of NeSmith. (RCS at 91) Her name was thus associated with the alleged mail and wire fraud perpetrated by Feker and Korosec as outlined above in the discussion of Riggins' § 1962(a) claims. Consequently, NeSmith has stated a claim for a violation of § 1962(a).
3. 18 U.S.C. § 1962(b)
a. Alleging a Violation
To state a claim under § 1962(b), Plaintiffs must allege that (1) a defendant person (2) acquired or maintained any interest in or control of (3) an enterprise engaged in, or the activities of which affect, interstate or foreign commerce (4) through a pattern of racketeering activity. See 18 U.S.C. § 1962(b) (1994). In short, § 1962(b) prohibits a person engaging in a pattern of racketeering for the purpose of acquiring or maintaining an interest in an enterprise.
Plaintiffs have alleged that Feker maintained his interest and control over his companies, which constitute the RICO enterprise, by
(a) the fraudulent hiring of
(b) law abiding professionals
(c) to work for his fraud-ridden and unethical business enterprises
(d) all the while secretly intending to use them
(e) unwittingly as disposable "front men" and "window dressing"
(f) to carry out his persistent pattern of outrageous criminal schemes
(g) in a way designed to shield Feker himself from personal scrutiny and criminal culpability
(h) at the expense of the business and financial livelihood of the professionals whose honest hard work allowed Feker to conduct his day to day business operations with an appearance of legitimacy; and
(i) all of whom were terminated when their termination became necessary to complete the commission of Feker's fraudulent acts.
(RCS at 2) They "were all hired by the Feker Defendants to perform one or more of the tasks necessary for the acquisition, operation and control of one or more of the real estate projects owned by the Feker Defendants." (RCS at 5) The hiring of such professionals is essential to the operation of the enterprise because Feker allegedly lacks the business experience and acumen needed to acquire and operate these residential properties. (Compl. ¶ 38(C)(1)) Plaintiffs allege that their hiring amounted to mail or wire fraud because Feker made false promises to each of them via mail or facsimile that they would be engaged in legitimate employment. (RCS at 51, 69, 70, and 90) Such fraud occurred at the time each offer of employment was extended by Feker to each of the individual Plaintiffs. (RCS at 103-04) Mail or wire fraud requires "(1) a scheme disclosing an intent to defraud, and (2) the use of the mails [or wire] in furtherance of the scheme." Chisolm v. TranSouth Fin. Corp., 95 F.3d 331, 336 (4th Cir.1996); see also 18 U.S.C. § 1341 (1994) (mail fraud); 18 U.S.C. § 1343 (1994) (wire fraud). Fraudulently inducing employment by wire or the mails is sufficient to state a claim that Feker committed the RICO predicate acts of mail or wire fraud. See Khurana v. Innovative Health Care Sys., Inc., 130 F.3d 143, 150-52 (5th Cir.1997). The hiring of Plaintiffs at different times, but in the same manner, by making false promises *292 of legitimate employment via mail or wire leads this court to find that Plaintiffs have sufficiently alleged the elements of continuity and relationship to establish a pattern of racketeering activity. Consequently, Plaintiffs have stated a claim that Defendants violated § 1962(b).
b. Injury to Business or Property Proximately Caused by Violation
To establish standing based on a § 1962(b) violation, a valid RICO injury must flow from the predicate acts that underpin the § 1962(b) violation. See, e.g., Khurana v. Innovative Health Care Sys., Inc., 130 F.3d 143, 150 (5th Cir.1997). Plaintiffs allege that they were fraudulently induced to accept what Feker represented to be legitimate employment via mail and wire fraud. (RCS at 89) Loss of business opportunities and damage to professional reputation by fraudulent hiring and harmful employment associations constitute cognizable injuries to business or property, so long as the injuries were proximately caused by predicate racketeering acts such as mail or wire fraud. See id. at 150-52. The Fourth Circuit requires that when the
predicate act giving rise to civil liability under RICO [is] alleged to have been mail [or wire] fraud, prospective plaintiffs must, in order to demonstrate their standing to sue, plausibly allege both that they detrimentally relied in some way on the fraudulent mailing [or wiring], and that the mailing [or wiring] was a proximate cause of the alleged injury to their business or property.
Chisolm v. TranSouth Fin. Corp., 95 F.3d 331, 337 (4th Cir.1996). In other words, Plaintiffs must have justifiably relied to their detriment on Feker's material misrepresentations. See id. Such "a showing of reliance on the predicate act of fraud ensures the existence of a `direct relation between the injury asserted and the injurious conduct alleged.'" Id. (quoting Caviness v. Derand Resources Corp., 983 F.2d 1295, 1305 (4th Cir.1993)). Each Plaintiff and his associated corporate entity, if any, will be considered separately to determine whether fraudulently hiring them proximately caused their injuries.
First, Plaintiff Sadighi, Pacific Poly Pro, Energy Engineering & Construction, and Allied Construction & Engineering have all alleged claims under § 1962(b). Sadighi has a claim under § 1962(b) for professional reputation damages. Sadighi is an engineer and construction professional. (RCS at 3, 104) Feker allegedly made false promises to Sadighi by wire that he would provide Sadighi with legitimate employment and pay him for five years. (RCS at 69) Like the employee in Khurana, Sadighi relied on the misrepresentations by relocating himself. He moved from California to Florida and subsequently from Florida to South Carolina, (RCS at 8, 97) "a significant financial and professional decision, allegedly as a result of [Feker's] misrepresentations as to the legitimacy of [his] operations." Khurana v. Innovative Health Care Sys., Inc., 130 F.3d 143, 151 (5th Cir.1997); see also Standardbred Owners Ass'n v. Roosevelt Raceway Assocs., L.P., 985 F.2d 102, 104-05 (2d Cir.1993) (finding that plaintiffs had standing because, in the fraudulently induced belief that racing at a particular race track would continue, they purchased, relocated and reconstructed equipment for use at the track and designed their purchases and training of horses with the intention that they would race them at the track). Also like the employee in Khurana, potential damage to Sadighi's professional reputation was a foreseeable result of his fraudulent hiring as a key player in the allegedly fraud-ridden organization and his association with Feker's allegedly fraudulent practices. See Khurana, 130 F.3d at 151. "The act of fraudulently hiring him can be a proximate cause of any damage that his professional reputation has suffered. Damage to his professional reputation is easily seen as a natural outgrowth of such an employment association." Id. Because a predicate act of wire fraud preceded Sadighi's acceptance of employment with Feker, the "pleadings presented the necessary proximate cause for [Sadighi's] standing for this claim." Id. Consequently, Sadighi has stated a claim under § 1962(b) for professional reputation damages.
*293 Plaintiffs Sadighi, Pacific Poly Pro, and Energy Engineering & Construction have standing to assert a claim under § 1962(b) for loss of business opportunities.[12] Like the employee in Khurana, these Plaintiffs each alleged a loss of legitimate employment opportunities resulting from the predicate act of fraudulent inducement via wire. When Feker allegedly induced Sadighi to work for him, Feker transmitted a promise via wire that he and Sadighi would form a company to perform all construction and construction management as to the properties owned by Feker. (RCS at 69, 96-97) As a shareholder of the newly formed Allied Construction & Engineering, Inc., Sadighi would receive "15% of the proceeds from management of the various Feker real estate ventures." (RCS at 70) In consideration for this employment opportunity, Sadighi was to "close out his two existing businesses and devote his full time efforts to Feker's interests." (RCS at 70) In reliance on these false promises, Sadighi discontinued the business of his two companies, Pacific Poly Pro and Energy Engineering & Construction, Inc. (RCS at 97-98) Plaintiffs' allegations of "reliance on [Feker's] racketeering acts as a cause of this injury indicates a valid claim that the racketeering acts proximately caused [them] to forego other legitimate business opportunities." Khurana v. Innovative Health Care Sys., Inc., 130 F.3d 143, 152 (5th Cir.1997). Plaintiffs' loss of employment opportunities was a foreseeable result, and a natural consequence, of Feker's alleged misrepresentations. Id. Consequently, Sadighi, Pacific Poly Pro, and Energy Engineering & Construction have stated a claim under § 1962(b) for loss of business opportunity damages.
Second, Charles E. Riggins has stated a claim under § 1962(b) for professional reputation damages and damages for loss of legitimate employment opportunities. Riggins is a Certified Public Accountant who has alleged that he was fraudulently induced into employment with Feker by telephone communications. (RCS at 3, 18 n. 14) This fraudulent inducement allegedly included representations that the employment would only require Riggins "to undertake lawful actions in furtherance of the legitimate purposes of [his] employer's business." (RCS at 99) Riggins' decision to terminate his employment with Georgia-Pacific and enter Feker's employ evidenced his reliance on these representations. His employment as a corporate comptroller allegedly gave Feker's ownership and operation of the Dunes West and Hunter's Ridge properties the appearance of legitimacy and continuity because Riggins had been a comptroller for Georgia-Pacific from whom Feker purchased these properties. (RCS at 87, 90-91) His position as corporate comptroller for an allegedly fraud-ridden organization could foreseeably result in damage to his professional reputation. Moreover, "loss of other employment opportunities was foreseeable by [Feker] and could certainly be anticipated as a natural consequence of [his] alleged misrepresentations." Khurana, 130 F.3d at 152. Consequently, Riggins has stated a claim under § 1962(b) for loss of business opportunity damages and professional reputation damages.[13]
Third, Robert E. Miller and Miller Development Group have stated a claim for a violation of § 1962(b). Just as Feker retained control of an enterprise through the fraudulent hiring of employees such as Sadighi and Riggins, Feker was able to gain control of the Dunes West project, and thus acquire an interest in an enterprise, based on false representations transmitted via wire to Robert E. Miller. Miller is a licensed real estate broker and a professional real estate developer. (RCS at 3, 104) Miller alleges that he "was Feker's only local contact in the Charleston real estate market during this time [and so] Feker could not have closed the deal without Miller's involvement." (RCS at 20) Miller alleges that Feker and his attorney, J. Stephen Gardner, "made false promises to Plaintiff Miller by wire that they *294 would create a joint venture with Plaintiff Miller and Miller Development if Miller would devote his efforts to the acquisition of the Dunes West project for the joint venture." (RCS at 90) "Gardner repeatedly assured Miller by wire that Gardner would prepare a joint venture agreement as soon as the Dunes West Project closed when Gardner was in fact preparing documents conveying the project to a corporation controlled entirely by Feker." (RCS at 70) Miller further alleges that
Feker continued to lure Miller into providing services related to Dunes West by sending or causing to be sent to Miller the following `lulling letters':
(a) the March 2 letter of Gardner to William L. Covington at GP [Georgia-Pacific] which stated that:
This letter is to advise you that Robert E. Miller, Jr. of Miller Development Group, LLC is working with Allan Feker in connection with the acquisition of Dunes West and Hunter's Ridge.
(b) the fax of March 9, 1998 from Feker to Tom Powers at GP which stated that:
Please let this memo serve to notify you that Bob Miller will be representing my interests in regards to the above transaction and has my full confidence and support.... Any questions from the public, the real estate or the homebuilding community should be referred directly to Bob [Miller] or Melinda McDonald.
In addition, if you would contact the engineers, the contractors Rogers & Sons, and any other appropriate party that Bob [Miller] may need to contact in order to verify information and let them know that it is okay for them to provide him with the requested information.
(RCS at 24-25) Miller alleges that he was injured as a result of these predicate acts of wire fraud. The wire fraud statute "encompasses use of ... wires after the initial ... transaction when such use is `designed to lull the victim[] into a false sense of security.'" Morley v. Cohen, 888 F.2d 1006, 1009 (4th Cir.1989) (quoting United States v. Maze, 414 U.S. 395, 403, 94 S. Ct. 645, 38 L. Ed. 2d 603 (1974)). "The key is whether the communication occurred `for the purpose of executing the scheme.'" Id. at 1010 (quoting Kann v. United States, 323 U.S. 88, 94, 65 S. Ct. 148, 89 L. Ed. 88 (1944)). The effect of these communications was to lull Miller into continuing to work on the Dunes West project with the expectation of a joint venture interest in the residential community. Thus, the wire transmissions promising to set up a joint venture and the subsequent "lulling letters" can serve as predicate acts of wire fraud. Based on all of these false representations transmitted by wire, Miller and Miller Development Group "gave up other opportunities to earn income to pursue the joint venture with Feker." (RCS at 19) Miller's reliance on these misrepresentations is evident from the fact that "Miller did nothing but work on the acquisition of Dunes West" from about mid-December 1997 until closing. (RCS at 19) Miller and Miller Development Group's "loss of other employment opportunities was foreseeable by [Feker] and could certainly be anticipated as a natural consequence of [his] alleged misrepresentations." Khurana v. Innovative Health Care Sys., Inc., 130 F.3d 143, 152 (5th Cir.1997). One of these opportunities was to pursue purchasing the Dunes West project on his own or with persons other than Feker. (RCS at 87) Also, any professional reputation damages Miller, as an award-winning real estate developer, suffered because of his association with Feker's allegedly fraud-ridden organization was a foreseeable result of the false representations transmitted by wire. Consequently, Miller has stated a claim under § 1962(b) for professional reputation damages, and Miller and Miller Development Group have stated a claim for damages due to the loss of business opportunities.
Fourth, Cynthia Joy NeSmith has stated a claim under § 1962(b) for professional reputation damages and damages for loss of legitimate employment opportunities. NeSmith is a young college graduate with a business degree working toward her CPA license. (RCS at 3) NeSmith alleges that she was fraudulently induced to work for Feker by false promises transmitted via wire. *295 (RCS at 62, 91) After authorization by Feker, Riggins faxed NeSmith an Employment Confirmation Memorandum offering NeSmith employment with Feker. (RCS at 51) NeSmith was not told that Feker was engaged in criminal activities and that she "would be used to wire ... ill gotten monies to Feker for use on his other projects." (RCS at 51) In reliance on the promise of legitimate employment, "NeSmith accepted Feker's offer of employment and agreed to move from Georgia to South Carolina to begin work." (RCS at 51-52) NeSmith's position as a project accountant for an allegedly fraud-ridden organization could foreseeably result in damage to her professional reputation.
NeSmith can also state a claim under § 1962(b) for damages due to loss of legitimate employment opportunities. NeSmith alleges that her "ability to qualify for her CPA licensure was lengthened, and possibly truncated[,] by the fraudulent inducement of her employment, which failed to provide the direct supervision of a certified public accountant." (RCS at 99) When Feker fired Riggins, NeSmith was left "without the direct supervision of a CPA which Feker had promised at the time NeSmith was employed." (RCS at 108) Because NeSmith had 3½ years of her mandatory five year continuous apprenticeship completed when she went to work for Feker, she "may have lost 3½ years of work toward her CPA" because of Feker's fraudulent inducement. (RCS at 51 n. 38) Moreover, like Sadighi, Riggins, and Miller, NeSmith lost legitimate employment opportunities when she went to work for Feker. Such a loss was foreseeable and a natural consequence of his alleged misrepresentations regarding the legitimacy of employment. Consequently, NeSmith has stated a claim under § 1962(b) for professional reputation damages and damages for the loss of legitimate employment opportunities.
This court agrees with those jurisdictions which have held that plaintiffs do not have standing to assert a civil RICO claim for termination damages when their termination flowed from their refusal to perform a predicate act or the likelihood that they would "blow the whistle" on the RICO fraud being perpetrated by the employer. See, e.g., Khurana v. Innovative Health Care Sys., Inc., 130 F.3d 143, 149 (5th Cir.1997) (termination of employee for refusal to participate in and attempting to stop the employer's RICO activities does not flow from the commission of predicate acts so that employee has no standing to assert a § 1962(b) or (c) claim); Cullom v. Hibernia Nat'l Bank, 859 F.2d 1211, 1212 (5th Cir.1988) ("[A]n employee discharged for refusing to participate in an illegal activity under RICO lacks standing to sue under section § 1964(c) [because t]he employee's injury was not `by reason of' or did not `flow from' the commission of the predicate acts on which the alleged RICO violation was based."); Nodine v. Textron, Inc., 819 F.2d 347, 347 (1st Cir. 1987) ("[A]n employee discharged for reporting a criminal violation of his employer lacked standing to sue that employer under the RICO Act [because t]he discharge was not `by reason of' the RICO violations alleged."); Donohue v. Teamsters Local 282 Welfare, Pension, Annuity, Job Training & Vacation & Sick Leave Trust Funds, 12 F. Supp. 2d 273, 278 (E.D.N.Y.1998) ("[A] retaliatory termination does not confer RICO standing."); Cardwell v. Sears Roebuck & Co., 821 F. Supp. 406, 409 (D.S.C.1993) (adopting the view of the majority of courts that discharging an employee for not participating in a RICO predicate offense does not confer RICO standing on the discharged employee because the termination was not proximately caused by the employer's commission of a predicate act). Sadighi and Riggins allege that they were fired to prevent the exposure of Feker's fraud. Even though they were fired by wire transmission, their terminations did not flow from the commission of predicate acts. As a result, these two Plaintiffs fail to state a § 1962(b) claim for termination damages. The court has not found any allegations by NeSmith or Miller that they were "terminated" by any action that constituted a predicate act. Consequently, all Plaintiffs' § 1962(b) claims for termination damages are dismissed without prejudice.
4. 18 U.S.C. § 1962(c)
a. Alleging a Violation
To state a claim under § 1962(c), Plaintiffs must allege that (1) a defendant *296 person (2) employed or associated with (3) an enterprise, engaged in, or the activities of which affect, interstate or foreign commerce, (4) conducts or participates in the conduct of the affairs of the enterprise (5) through a pattern of racketeering activity. See 18 U.S.C. § 1962(c) (1994). In short, § 1962(c) prohibits a person employed or associated with an enterprise from conducting that enterprise through a pattern of racketeering activity. See Palmetto State Med. Ctr. v. Operation Lifeline, 117 F.3d 142, 148 (4th Cir.1997). The Fourth Circuit also mandates that "[t]he enterprise must be distinct from the persons alleged to have violated § 1962(c)." Id.; see also New Beckley Mining Corp. v. International Union, UMW of America, 18 F.3d 1161, 1165 (4th Cir.1994) (finding that the district court properly dismissed a § 1962(c) claim because the defendant persons were not distinct from the alleged enterprises). In their Second Amended RICO Case Statement, Plaintiffs indicate that they view Feker and the entities he owns "as a single entity and a single defendant and as the entity comprising the RICO `enterprise' for purposes of Plaintiffs' 18 U.S.C. § 1962(c) claim." (RCS at 76) Elsewhere in the RICO Case Statement, Plaintiffs answered the following interrogatory from this court:
13b. State whether the same entity is both the liable "person" and the "enterprise" under § 1962(c).
Response: The Feker Enterprises comprising Feker and eighteen entities that are alleged to be alter egos of Feker and thereby constituting a single legal entity constitute both the "enterprise" under 18 U.S.C. § 1962(c) and the liable "person" whose assets would be sought to satisfy any judgment granted with regard to the RICO cause of action.
(RCS at 92-93) (emphasis added). Because Plaintiffs have not alleged an enterprise distinct from the liable person, this court dismisses Plaintiffs' § 1962(c) claim without prejudice.
5. 18 U.S.C. § 1962(d)
a. Alleging a Violation
To state a claim under § 1962(d), Plaintiffs must allege that (1) a defendant person (2) conspired to violate one of the substantive provisions of §§ 1962(a), (b), or (c). See 18 U.S.C. § 1962(d) (1994); Palmetto State Med. Ctr. v. Operation Lifeline, 117 F.3d 142, 148 (4th Cir.1997). Based on the dismissal of Plaintiffs' § 1962(c) claims, Plaintiffs can only allege a conspiracy to violate § 1962(a) or (b). To state a claim under § 1962(d) for a conspiracy to violate § 1962(a), Plaintiffs must allege that Feker either conspired with another to invest income, derived from a pattern of racketeering, into the enterprise or conspired with another to commit predicate acts to obtain that income. See 18 U.S.C. §§ 1962(a), (d) (1994); Busby v. Crown Supply, Inc., 896 F.2d 833, 837 (4th Cir.1990) (holding that a defendant may violate § 1962(a) by committing predicate acts or by investing the income derived from the predicate acts). To state a claim under § 1962(d) for a conspiracy to violate § 1962(b), Plaintiffs must allege that Feker conspired with another to engage in a pattern of racketeering activity for the purpose of acquiring or maintaining an interest in the enterprise. See 18 U.S.C. §§ 1962(b), (d) (1994). Each Plaintiff's ability to allege a violation of § 1962(d) will be briefly set out below.
First, even if Sadighi could allege a conspiracy to violate either § 1962(a) or (b), he does not have standing to sue under § 1962(d). For this reason, the court will analyze his claim in the next sub-section.
Second, Robert E. Miller and Miller Development Group have not stated a claim for a violation of § 1962(d). Miller cannot state a § 1962(d) claim based on a conspiracy between Feker and his companies because he alleges that these Defendants are "a single entity." (RCS at 76) "A conspiracy by nature involves an agreement between two or more entities." New Beckley Mining Corp. v. International Union, UMW of America, 18 F.3d 1161, 1164 (4th Cir.1994). Instead, Miller has alleged that Feker conspired with his attorney, J. Stephen Gardner, and Feker's employee, Melinda McDonald, to obtain Miller's services for the acquisition of Dunes West (an enterprise) and then to cut Miller out of the Dunes West deal. (RCS at *297 23-23, 27) Miller alleges that Feker and Gardner committed numerous predicate acts of wire fraud to perpetrate this conspiracy. For example, Feker and Gardner made false promises via wire to obtain and retain Miller's services while the Dunes West deal was pending. (RCS at 43, 70, 90, 94) Miller was allegedly injured by these predicate acts because he continued to work on the Dunes West deal under the fraudulently induced belief that he was participating in a joint venture agreement with Feker. In reality, Feker had informed Gardner that "he intended to cut Miller out of the deal." (RCS at 43)
However, none of these allegations is sufficient to state a claim for a violation of § 1962(d) because, under the doctrine of intracorporate conspiracy, Feker cannot conspire with his corporations, his employee, Melinda McDonald, or with his attorney, Stephen Gardner. See Huntingdon Life Sciences, Inc. v. Rokke, 986 F. Supp. 982, 991 (E.D.Va.1997); Broussard v. Meineke Discount Muffler Shops, Inc., 945 F. Supp. 901, 911-12 (W.D.N.C.1996), rev'd on other grounds, 155 F.3d 331 (4th Cir.1998); cf New Beckley Mining Corp. v. International Union, UMW of America, 18 F.3d 1161, 1164-65 (4th Cir.1994) (holding that an international union could not conspire with its districts, locals, and members because "[a] conspiracy by nature involves an agreement between two or more entities"); Buschi v. Kirven, 775 F.2d 1240, 1251-53 (4th Cir.1985) (expounding on the intracorporate conspiracy doctrine and noting that it applies to employees and agents of the corporation); In re American Honda Motor Co. Dealerships Relations Litig., 958 F. Supp. 1045, 1056 (D.Md.1997) (noting that an argument that intracorporate conspiracy is insufficient to state a claim under § 1962(d) as a matter of law "might have merit"). But see Webster v. Omnitrition Int'l, Inc., 79 F.3d 776, 787 (9th Cir. 1996) (finding that intracorporate conspiracies were actionable under RICO and adopting the reasoning of the Seventh Circuit); Ashland Oil, Inc. v. Arnett, 875 F.2d 1271, 1281 (7th Cir.1989) (finding intracorporate conspiracies actionable under RICO because such conspiracies "threaten RICO's goals of preventing the infiltration of legitimate businesses by racketeers and separating racketeers from their profits").[14]
In Broussard, the Western District of North Carolina rejected the approach taken by the Seventh and Ninth Circuits in favor of an approach the court found to be more in harmony with the Fourth Circuit's prior case law regarding the intracorporate conspiracy doctrine. The court observed that the Fourth Circuit has relied on the doctrine of intracorporate conspiracy,[15] borrowed from anti-trust law, "in a myriad of areas of the law to dismiss complaints premised on an allegation that a corporation could conspire with itself." Broussard, 945 F.Supp. at 911. In fact, the court noted that such a rule "is a fundamental tenet of corporate law in the Fourth Circuit." Id. As such, the district court concluded that RICO did not "warrant[] disregarding this fundamental tenet as expressed by the Fourth Circuit." Id. Instead, the district court ruled that,
because a corporation can act only through its officers and agents, and because no entity can `conspire' with itself, a corporate entity cannot `conspire' with its own officers and employees. Thus, the better rule is that, for purposes of § 1962(d), a corporation *298 acting through its officers, even where the act is unlawful, does not constitute a `conspiracy' for purposes of § 1962(d).
Id. The Eastern District of Virginia agrees. See Huntingdon Life Sciences, Inc. v. Rokke, 986 F. Supp. 982, 991 (E.D.Va.1997). Again, a district court relied on Fourth Circuit precedent in finding that this circuit would not adopt the rationale of the Seventh and Ninth Circuits. Id. Moreover, citing to the broad language used by the Fourth Circuit in Buschi, the court found that the intracorporate conspiracy doctrine "cover[ed] not only officers and directors but also `agents' of the corporation." Id. "Given the intracorporate conspiracy rule and the likelihood that the Fourth Circuit would apply it to a RICO claim," the court dismissed plaintiff's RICO conspiracy claim for failure to state a claim. Id. at 991-92.
A Fourth Circuit opinion not cited by either the Eastern District of Virginia or the Western District of North Carolina also provides support for this court's finding that the Fourth Circuit would apply the intracorporate conspiracy doctrine to bar Miller's § 1962(d) claim. See New Beckley Mining Corp. v. International Union, UMW of America, 18 F.3d 1161, 1164-65 (4th Cir. 1994). In New Beckley Mining Corp., the Fourth Circuit addressed the issue of whether an international union could conspire with its local or district branches in violation of § 1962(d). Id. at 1164. Quoting from one of its earlier opinions, the court noted that it "`would not take seriously, in the absence, at least, of very explicit statutory language, an assertion that a defendant could conspire with his right arm, which held, aimed and fired the fatal weapon.'" Id. (quoting United States v. Computer Sciences Corp., 689 F.2d 1181, 1190 (4th Cir.1982)). Because "[a] conspiracy by nature involves an agreement between two or more entities," the court of appeals concluded that "[i]nasmuch as the complaint alleged that the International [union], `its officers, directors, employees, agents, subagents, and any other person or entity acting on the counsel, command, induction, procurement, instigation or direction of the International' conspired with the districts and locals, the [RICO] conspiracy counts cannot stand." Id. at 1164-65.
Similarly, in this case, Miller's § 1962(d) claim cannot stand. Plaintiffs have alleged that Feker, his employee, Melinda McDonald, and Feker's attorney, J. Stephen Gardner,[16] participated in the alleged conspiracy. Under the intracorporate conspiracy doctrine and the facts as alleged by Plaintiffs, Feker cannot conspire to violate RICO with himself, his corporations, his employee, or his agent. Consequently, this court will dismiss Miller and Miller Development Group's § 1962(d) claim without prejudice.
Third, even though Plaintiffs NeSmith and Riggins may have proximately suffered reputation damages as a result of their association with the predicate acts of wire fraud allegedly committed by Feker and Joseph T. Korosec when fraudulently obtaining money from GALIC, the court could find no specific allegations by these Plaintiffs that Korosec and Feker conspired together to injure them. To the extent that these Plaintiffs suffered such an injury but did not sufficiently plead a violation of § 1962(d), this court dismisses their claims without prejudice.
b. Injury to Business or Property Proximately Caused by Violation
The circuits are split on the issue of whether RICO standing for a violation of § 1962(d) must be based on an injury proximately caused by a predicate act or whether such a claim may be premised on injury proximately caused by overt acts in furtherance of the conspiracy that do not necessarily constitute predicate acts. Compare Beck v. Prupis, 162 F.3d 1090, 1097-99, 1998 WL 870253 (11th Cir.1998) (holding that in a civil RICO claim under § 1962(d), a plaintiff's injuries must be proximately caused by an act of racketeering and not merely an act in furtherance of the conspiracy), and Bowman v. Western Auto Supply Co., 985 F.2d 383, 388 (8th Cir.1993) ("We hold that standing to *299 bring a civil suit pursuant to 18 U.S.C. § 1964(c) and based on an underlying conspiracy violation of 18 U.S.C. § 1962(d) is limited to those individuals who have been harmed by a § 1961(1) RICO predicate act committed in furtherance of a conspiracy to violate RICO."), and Miranda v. Ponce Fed. Bank, 948 F.2d 41, 48 (1st Cir.1991) ("An actionable claim under section 1962(d) ... requires that the [plaintiff's] injury stem from a predicate act within the purview of 18 U.S.C. § 1961(1)."), and Reddy v. Litton Indus., Inc., 912 F.2d 291, 295 (9th Cir.1990) (adopting the rule that predicate acts are necessary), and Hecht v. Commerce Clearing House, Inc., 897 F.2d 21, 25 (2d Cir.1990) ("[S]tanding may be founded only upon injury from overt acts that are also section 1961 predicate acts, and not upon any and all overt acts furthering a RICO conspiracy."), with Khurana v. Innovative Health Care Sys., Inc., 130 F.3d 143, 152-154 (5th Cir. 1997) ("A person injured by an overt act in furtherance of a RICO conspiracy has been injured by reason of the conspiracy, and thus has § 1964(c) standing."), and Schiffels v. Kemper Fin. Servs., Inc., 978 F.2d 344, 351 (7th Cir.1992) ("[Plaintiff] ... has standing to sue under RICO if her complaint alleges an injury to her business or property proximately caused by an overt act in furtherance of a conspiracy to violate RICO, even though the overt act is not a predicate act required in a RICO pattern."), and Shearin v. E.F. Hutton Group, Inc., 885 F.2d 1162, 1169-70 (3d Cir.1989) (holding that an allegation of injury resulting from an act in furtherance of a RICO conspiracy states a cause of action). The Fourth Circuit has not yet ruled on this issue.
This court must predict which view the Fourth Circuit would adopt. In the language of the Fifth Circuit, the minority view may be stated as follows:
[s]ince § 1962(d) does not require that a predicate racketeering act actually be committed,[17] it follows that the act causing a § 1964(c) claimant's injury need not be a predicate act of racketeering. A person injured by an overt act in furtherance of a RICO conspiracy has been injured by reason of the conspiracy, and thus has § 1964(c) standing.
Khurana, 130 F.3d at 153. Conversely, the majority of circuits have held that because RICO targets only racketeering activity (and not all unlawful acts), only those injuries that are proximately caused by racketeering activities, that is, the predicate acts catalogued under § 1961(1), should be actionable under the RICO statute. See, e.g., Beck v. Prupis, 162 F.3d at 1097-99, 1998 WL 870253 (11th Cir.1998). Although the minority view appears persuasive, language in prior Fourth Circuit case law persuades this court that the Fourth Circuit would follow the view expressed by the majority of circuits. In Brandenburg v. Seidel, 859 F.2d 1179 (4th Cir.1988), the Fourth Circuit addressed the issue of RICO standing. To have standing, the court noted that a plaintiff had to show "(1) that he has suffered injury to his business or property; and (2) that this injury was caused by the predicate acts of racketeering activity that make up the violation of § 1962." Id. at 1187 (emphasis added). The court further indicated that the Supreme Court's standing requirement mandated "an adequate causal nexus between [the] injury and the predicate acts of racketeering activity alleged." Id. (emphasis added). More specifically, the court stated that "§ 1964(c) provides no cause of action to individuals injured by conduct other than predicate acts of racketeering activity." Id. at 1188 (emphasis added).
Subsequently, the Fourth Circuit addressed the issue of RICO standing and causation in the specific context of a § 1962(a) claim. See Busby v. Crown Supply, Inc., 896 F.2d 833 (4th Cir.1990). In Busby, the Fourth Circuit applied to a § 1962(a) claim the United States Supreme Court's ruling in Sedima that RICO plaintiffs had standing so long as their injuries were proximately caused by racketeering activities. Id. at 839. The Supreme Court held that "[a]ny recoverable damages occurring by reason of a violation of § 1962(c) will flow from the commission of the predicate acts." Sedima v. Imrex *300 Co., 473 U.S. 479, 497, 105 S. Ct. 3275, 87 L. Ed. 2d 346 (1985). Quoting from Sedima, the Fourth Circuit recognized that "`[i]f the defendant engages in a pattern of racketeering activity in a manner forbidden by these provisions, and the racketeering activities[18]injure the plaintiff in his business or property, the plaintiff has a claim under section 1964(c) [the civil RICO provision].'" Busby, 896 F.2d at 839 (emphasis added) (quoting Sedima, 473 U.S. at 495, 105 S. Ct. 3275). Although the court of appeals acknowledged that the complaint in Sedima was filed under § 1962(c), the Fourth Circuit noted that "it is clear that the Supreme Court was referring to § 1962 as a whole." Id. (emphasis added). Following the Fourth Circuit's logic, if Sedima was referring to § 1962 as a whole, then the Supreme Court was making no distinction between the standing and causation requirements for claims under the substantive provisions of § 1962 and the conspiracy provision of that section. Although this court finds the simplicity of the minority view persuasive, it divines from the above-quoted language that the Fourth Circuit would follow the lead of the majority of circuits and require a RICO plaintiff to allege injury caused by a predicate act in order to have standing to sue for a RICO conspiracy claim under § 1962(d).[19] Because Miller, Riggins, and NeSmith did not sufficiently allege a RICO conspiracy, only Plaintiff Sadighi's claim will be analyzed below to determine whether his injury was proximately caused by a predicate act.
Plaintiff Sadighi alleges that Feker conspired with Douglas J. Sealy, Brett Sealy, and Prager, McCarthy & Sealy, Inc. in violation of § 1962(d). Even assuming that Feker and the Sealys agreed to commit any of the predicate acts that would violate either § 1962(a) or (b), Sadighi has not alleged that he was injured by the commission of a predicate act.[20] Sadighi alleges that "Feker conspired with the Sealy Defendants to oust Sadighi from Allied and from his involvement with the Golden Ocala project. In furtherance of that conspiracy, Sadighi was transferred from Golden Ocala to Dunes West." (RCS at 14) He was ultimately "fired as a result of this scheme." (RCS at 37) Sadighi does not allege that the acts of ousting him from Allied, transferring him from Florida to South Carolina, or terminating his employment were predicate acts. As a result, Sadighi cannot rely on these acts to state a claim for a § 1962(d) violation,[21] and thus his conspiracy claim is dismissed without prejudice.[22]
C. Motion to Dismiss Breach of Contract Claims
Defendants argue[23] that the breach of contract claims must be dismissed with prejudice because Plaintiffs must be employees at will as they did not plead that they were employees for term. Sadighi alleged *301 that he had an employment contract for at least five years. (Compl.¶ 42) Miller claims a joint venture agreement with Feker that was confirmed by Miller in writing and that was awaiting final preparation by Gardner whom Miller alleges was acting as the joint venture attorney. (Comp. ¶ 51 & RCS at 43) Riggins alleges that he had a contract with Feker under which he could not be terminated, except for cause, until September 26, 1998. (Comp. ¶ 100 & Ex. 23) NeSmith alleges that she "had an employment agreement with Feker and Feker Enterprises." (Compl. ¶ 110) At the pleading stage, this is allegation is sufficient to survive a motion to dismiss because Defendants have cited no case law that requires a plaintiff to allege that the employment agreement was for a specific term. Consequently, Defendants' Motion to Dismiss the contract claims is denied.
D. Motion to Dismiss Tortious Interference With Employment Contract Claim
Defendants argue that this claim must be dismissed with prejudice because an employer is absolutely entitled to terminate his employees.[24] Like Defendants, this court will not waste much space in addressing this issue. The court refers Defendants to the previous section.
E. Motion to Dismiss Title VII Claim
Defendants argue that Cynthia Joy NeSmith's Title VII cause of action against Feker should be dismissed because NeSmith did not allege that she had filed a charge with the EEOC and received a right-to-sue letter, which is essential to the initiation of a Title VII suit in federal court. See, e.g., Booth v. North Carolina Dep't of Env't, Health & Natural Resources, 899 F. Supp. 1457 (E.D.N.C.1995).
After the Complaint was filed in this case, the EEOC issued NeSmith a right to sue letter. A plaintiff who files a Title VII cause of action without obtaining a right to sue letter from the EEOC can cure such a defect by subsequently obtaining a right to sue letter. See Henderson v. Eastern Freight Ways, Inc., 460 F.2d 258 (4th Cir. 1972); see also Edwards v. Occidental Chem. Corp., 892 F.2d 1442, 1445 n. 1 (9th Cir.1990); Gooding v. Warner-Lambert Co., 744 F.2d 354, 358 (3d Cir.1984); Williams v. Washington Metro. Area Auth., 721 F.2d 1412, 1418 (D.C.Cir.1983). Therefore, this court will not dismiss the Title VII cause of action on the grounds that no right to sue letter was issued before the Complaint was filed.
F. Motion to Dismiss South Carolina Unfair Trade Practices Claim (SCUTPA)
Defendants move to dismiss Plaintiffs' unfair trade practices cause of action for two reasons. First, Defendants argue that Plaintiffs failed to plead that Defendants' conduct had an adverse impact on the public interest. See Daisy Outdoor Adver. Co. v. Abbott, 322 S.C. 489, 473 S.E.2d 47, 49 (1996). Plaintiffs Sadighi, Riggins, Miller, and NeSmith alleged that Feker and his companies have "engaged in unfair ... methods of competition and unfair and unlawful deceptive acts or practices in the conduct of [their] business.... Said conduct ... constitute[s] a pattern or practice of unlawful conduct capable of repetition." (Compl. ¶ 113) Plaintiffs did not use the magic language "adverse impact on the public interest." However, Plaintiffs' use of the phrase "capable of repetition" is sufficient to put Defendants on notice that they are claiming an adverse impact on the public interest because "[p]rior case law makes very clear that evidence of a potential for repetition ... in and of itself establishes the required public impact." Daisy Outdoor Adver. Co., 473 S.E.2d at 51.
Second, Defendants argue that the cause of action should be dismissed because the Unfair Trade Practices Act does not apply to an employer-employee relationship. See Miller v. Fairfield Communities, Inc., 299 S.C. 23, 382 S.E.2d 16, 20 (App.1989). In Miller, the South Carolina Court of Appeals held that "an employer-employee relations matter ... is not covered by the Unfair Trade Practices Act." Id. at 20. Plaintiffs acknowledge Miller, but they argue *302 that the SCUTPA claim should not be dismissed because "Plaintiff Sadighi claims an ownership interest in Allied, a company damaged by Feker's unfair and deceptive acts and practices, and Plaintiff Miller claims an ownership interest in the Dunes West Joint venture." (Pl.Memo. in Opposition at 38) Certainly, these facts take Miller and Sadighi out of the realm of a pure employer-employee relationship so that Miller does not foreclose their assertion of a SCUTPA claim. However, Plaintiffs Riggins and NeSmith make no such an argument and the pleadings reveal only an employer-employee relationship between Feker and these two Plaintiffs. Consequently, the SCUTPA claims of Riggins and NeSmith are dismissed without prejudice.
G. Plaintiffs' "Alter Ego" Allegations
Plaintiffs allege that the corporate Defendants are Feker's alter egos, or, in the alternative, entities so under his control and influence that they engage in actions that they are used by him for his own purposes. (Compl.¶¶ 10-27) For example, Plaintiffs allege that Feker does not hesitate to use funds "owned" by one corporation to pay the debts of another or Feker's own personal expenses. (RCS at 72-73) Employees of each corporation are used interchangeably and "[t]here is no formal documentation of intercorporate transactions or dividends for the payment of personal expenses and no attempt to respect the property rights of the individual corporate entities." (RCS at 73) Plaintiffs have sufficiently plead the "alter ego" doctrine so as to place Defendants on notice that the doctrine is at issue in this case.
H. Motion to Strike Allegations of Conduct By Agents of Feker
Defendants' seek to strike many of the RICO allegations including references to the Georgia-Pacific scheme, the GALIC scheme, the Dunes West scheme, the fraudulent misuse of Miller's work-product, and the forgery and wire cover-up scheme because Plaintiffs were not injured by these actions. However, the court has already found that some Plaintiffs could allege an injury caused by these schemes. For those schemes by which Plaintiffs were not injured, the Plaintiffs may allege them to demonstrate a "pattern of racketeering activity" in light of the Fourth Circuit's decision declining to apply the RICO statute when the predicate acts involve a single scheme limited in scope to the accomplishment of a single discrete objective. See Brandenburg v. Seidel, 859 F.2d 1179, 1185 (4th Cir.1988), overruled on other grounds by Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 116 S. Ct. 1712, 135 L. Ed. 2d 1 (1996). Consequently, the motion to strike these allegations is denied.
Defendants also seek to strike all references to Feker's attorney, J. Stephen Gardner. However, Plaintiffs Complaint may refer to non-Defendants such as Gardner because they allege that, upon instructions from Feker, he committed predicate acts demonstrating a pattern of racketeering activity.
Finally, Defendants seek to strike references in the Complaint to a group of foreign investors and to Feker's former Iranian citizenship. As to the former, Plaintiffs allege that the demands of this silent group of investors may be one of the reasons that Feker feels compelled to turn to extra-legal methods for acquisition and financing of real estate properties. In contrast, Feker's former Iranian citizenship has no apparent relevance to this case. Consequently, the motion to strike the allegations regarding foreign investors is denied, whereas the motion to strike all references to Feker's former Iranian citizenship is granted.
IV. CONCLUSION
Defendants have moved to dismiss a number of Plaintiffs' twenty-two causes of action. First, Defendants moved to dismiss Plaintiffs' RICO claims. All Plaintiffs' § 1962(a) claims survive this Rule 12(b)(6) motion except those filed by Plaintiffs Pacific Poly Pro and Energy Engineering & Construction. Their claims are dismissed without prejudice.[25] All Plaintiffs' § 1962(b) claims survive *303 this Rule 12(b)(6) motion except the claim filed by Allied Construction & Engineering, Inc. Allied's claim is dismissed without prejudice. However, all Plaintiffs' § 1962(c) and § 1962(d) claims are dismissed without prejudice.
Second, Defendants moved to dismiss Plaintiffs' claims for breach of contract, tortious interference with contractual relations, and for a violation of Title VII. Defendants' motion is denied as to these claims.
Third, Defendants moved to dismiss Plaintiffs' SCUTPA claims. Defendants' motion is denied as to Plaintiffs Sadighi and Miller but granted as to Plaintiffs Riggins and NeSmith.
Fourth, Defendants moved to strike a number of allegations in Plaintiffs' Complaint. This motion is denied except as to the references to Feker's former Iranian citizenship, which is hereby stricken from the Complaint.
Finally, Defendants moved to dismiss Plaintiffs' alter ego allegations. These allegations are sufficient to place Defendants on notice that Plaintiffs' intend to pierce the corporate veil of Feker's numerous companies. Therefore, Defendants' motion is denied.
It is therefore,
ORDERED, that Defendants' Motion to Dismiss and to Strike be GRANTED in part and DENIED in part.
AND IT IS SO ORDERED.
APPENDIX I
Because of the number of Plaintiffs and claims in the RICO cause of action, this appendix is attached as a guide for the parties.
§ 1962(a) RICO Claims
Plaintiff Survives 12(b)(6) Motion Dismissed Without Prejudice
Sadighi X
Pacific Poly Pro X
Energy Engineering X
Allied Construction X
Miller X
Miller Development X
Riggins X
NeSmith X
§ 1962(b) RICO Claims
Plaintiff Survives 12(b)(6) Motion Dismissed Without Prejudice
Sadighi X
Pacific Poly Pro X
Energy Engineering X
Allied Construction X
Miller X
Miller Development X
Riggins X
NeSmith X
*304
§ 1962(c) RICO Claims
Plaintiff Survives 12(b)(6) Motion Dismissed Without Prejudice
Sadighi X
Pacific Poly Pro X
Energy Engineering X
Allied Construction X
Miller X
Miller Development X
Riggins X
NeSmith X
§ 1962(d) RICO Claims
Plaintiff Survives 12(b)(6) Motion Dismissed Without Prejudice
Sadighi X
Pacific Poly Pro X
Energy Engineering X
Allied Construction X
Miller X
Miller Development X
Riggins X
NeSmith X
NOTES
[1] At the motions hearing, the court denied Defendants' Motion to Dismiss Based on violations of Rule 8 and Rule 9(b).
[2] Section 1961(3) defines a "person" as including "any individual or entity capable of holding a legal or beneficial interest in property." 18 U.S.C. § 1961(3) (1994). This definition covers the use of "person" throughout all RICO sections.
[3] Section 1961(1) enumerates a list of state and federal crimes that constitute "racketeering activity" and so serve as "predicate acts" under the RICO statute. See 18 U.S.C. § 1961(1) (1994). Section 1961(5) indicates that a "`pattern of racketeering activity' requires at least two acts of racketeering activity, one of which occurred after the effective date of this chapter and the last of which occurred within ten years (excluding any period of imprisonment) after the commission of a prior act of racketeering activity." 18 U.S.C. § 1961(5) (1994). These definitions apply whenever the terms are used throughout the RICO statute.
[4] Section 1961(4) defines an "enterprise" to include "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4) (1994). This definition applies whenever the term "enterprise" is used in the RICO statute. In § 1962(a), the defendant may be the enterprise. See Busby v. Crown Supply, Inc., 896 F.2d 833, 841 (4th Cir.1990).
[5] Defendants relied upon the Cardwell case in their Motion to Dismiss, and this court used the same RICO Case Statement interrogatories as the district court used in the Cardwell case.
[6] The court asked the following interrogatory: "11. If the complaint alleges a violation of 18 U.S.C. § 1962(a), provide the following information ... b. Describe the use or investment of such income." (RCS at 85).
[7] "The offenses of mail and wire fraud require use of the mails or wires coupled with an intent to defraud." Morley v. Cohen, 888 F.2d 1006, 1009 (4th Cir.1989).
[8] Feker and the entities he owns, which constitute the "enterprise," are allegedly engaged in activities that affect interstate commerce. For example, the properties are promoted nationally by advertising companies in a manner designed to reach the consumer public and draw business and investment to the different property developments. (RCS at 84) Also, individuals from California, Georgia, and South Carolina have been fraudulently induced into accepting employment with the enterprise. (RCS at 85)
[9] In Busby, the court created a circuit split by disagreeing with all the other circuits that had addressed the issue of whether a § 1962(a) civil RICO claim should be dismissed when the plaintiff failed to allege an injury flowing from the defendant's investment or use of income. See Busby, 896 F.2d at 836. The other circuits based their opinions on an analysis of the language of § 1962(a) and § 1964(c). Section 1962(a) prohibits a person who has received income derived from a pattern of racketeering activity from using or investing that income in an enterprise. See 18 U.S.C. § 1962(a) (1994). Section 1964(c) provides only a civil remedy to those persons injured "by reason of a violation of section 1962." See 18 U.S.C. § 1964(c) (1994) (emphasis added). Because § 1962(a) prohibits investment of the income and not the racketeering acts themselves, the Second, Third, Fifth, Sixth, Ninth, Tenth, and D.C. Circuits have all held that a plaintiff seeking civil damages for a violation of § 1962(a) must plead facts showing that the plaintiff was injured by the use or investment of racketeering income. See Vemco, Inc. v. Camardella, 23 F.3d 129, 132 (6th Cir.1994); Nugget Hydroelectric v. Pacific Gas & Elec., 981 F.2d 429, 437-38 (9th Cir.1992); Parker & Parsley Petroleum v. Dresser Indus., 972 F.2d 580, 584 (5th Cir.1992); Danielsen v. Burnside-Ott Training Ctr., 941 F.2d 1220, 1229-30 (D.C.Cir.1991); Ouaknine v. MacFarlane, 897 F.2d 75, 82 (2d Cir.1990); Grider v. Texas Oil & Gas Corp., 868 F.2d 1147, 1149-51 (10th Cir.1989). Recognizing the contrary authority, the Fourth Circuit nevertheless "decline[d] to read an `investment use' rule into the opaquely drafted § 1964(c)." Busby, 896 F.2d at 838. Instead, the court noted that "individuals may be injured by the investment and use of the illegally obtained income, [but that] this is not the only injury that plaintiffs sustain `by reason of' a section 1962(a) violation." Id. at 837. Injury caused by predicate racketeering acts is also sufficient to state a § 1962(a) violation. Id. at 837-40. Consequently, in the Fourth Circuit, plaintiffs have standing to allege a § 1962(a) claim when their injuries were proximately caused by either the underlying predicate acts or the investment and use of the income derived from the predicate acts. Although no other circuit has adopted the Fourth Circuit's rule and, in fact, it has been widely and persuasively criticized by other circuit and district courts, the decision is binding on this court. When presented with binding Fourth Circuit precedent, district courts, like obedient children, should be seen and not heard.
[10] The court has found no cognizable § 1962(a) injury suffered by Sadighi's former companies, Pacific Poly Pro and Energy Engineering & Construction. Consequently, those companies have failed to state a claim for relief based upon a violation of § 1962(a); to the extent that they alleged such a claim, it is dismissed without prejudice.
[11] Plaintiffs allege that the inference is that Riggins, a legitimate employee, was responsible for these matters. Such an inference could cause harm to his reputation. (RCS at 96)
[12] Allied does not appear to have any damages as a result of a violation of § 1962(b). To the extent that this company has alleged such a claim, it is dismissed without prejudice.
[13] As noted earlier, Riggins has also stated a § 1962(a) claim for professional reputation damages resulting from the association of his name with the GALIC reimbursement fraud.
[14] Although two circuits have permitted § 1962(d) claims based on intracorporate conspiracies, district courts were about evenly divided on the issue when the Seventh Circuit found intracorporate conspiracies actionable under RICO. See Ashland Oil, Inc., 875 F.2d at 1281 n. 10. More recently, the Western District of North Carolina was able to observe that "[t]he majority of cases find that a corporation cannot conspire with itself and, accordingly, dismiss § 1962(d) claims founded on an intracorporate conspiracy." Broussard, 945 F.Supp. at 911.
[15] The Fourth Circuit has recognized two exceptions to this intracorporate conspiracy doctrine. See Buschi v. Kirven, 775 F.2d 1240, 1252 (4th Cir.1985). First, an exception may be justified when the officer has an independent personal stake in achieving the corporation's illegal objective. Id. No such a personal stake has been alleged by Plaintiffs. Second, a less well-recognized exception exists when the employee's acts are unauthorized. In this case, the contrary is alleged. Plaintiffs allege that Melinda McDonald and J. Stephen Gardner acted pursuant to Feker's instructions and authorization.
[16] "Generally[,] an attorney is an agent for his client." In re Brugh's Estate, 306 So. 2d 599, 600 (Fla.App.1975).
[17] Again, § 1962(d) provides that "[i]t shall be unlawful for any person to conspire to violate any of the provisions of subsection (a), (b), or (c) of this section." 18 U.S.C. § 1962(d) (1994).
[18] The Supreme Court noted in Sedima that "`racketeering activity' consists of no more and no less than commission of a predicate act." Sedima, 473 U.S. at 495, 105 S. Ct. 3275.
[19] In doing so, this court is aware of contrary authority. See Flinders v. Datasec Corp., 742 F. Supp. 929 (E.D.Va.1990). In Flinders, the district court, relying purely on the arguments made in other circuits, found the minority view persuasive. Id. at 933-34. The court failed to consider any language of Fourth Circuit precedent that may indicate how the Fourth Circuit would decide this issue.
[20] All Plaintiffs allege that Feker and the Sealys conspired together to create a Preliminary Limited Offering Memorandum containing false statements, which was subsequently disseminated by mail. (RCS at 37) However, no Plaintiff has alleged any injury proximately caused by the dissemination of false information in this preliminary bond offering memorandum.
[21] The court notes that the Fifth Circuit's analysis of § 1962(d) in Khurana is inapposite because its finding that the employee had standing to sue for a § 1962(d) violation was based on its holding that an injury caused by any act in furtherance of the conspiracy was sufficient to confer standing on the employee. See Khurana v. Innovative Health Care Sys., Inc., 130 F.3d 143, 152-54 (5th Cir.1997).
[22] To the extent that Allied, Pacific Poly Pro, or Energy Engineering & Construction alleged a conspiracy claim, their claims are also dismissed without prejudice because they too failed to allege an injury proximately caused by a predicate act.
[23] Defendants' argument on this point consisted of a single sentence.
[24] Again, Defendants' argument on this point consisted of a single sentence.
[25] The court has exercised its discretion to order that the dismissal of claims be without prejudice in order to provide Plaintiffs an opportunity to replead. See Carter v. Norfolk Community Hosp. Ass'n, Inc., 761 F.2d 970, 974 (4th Cir.1985). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2413016/ | 600 F. Supp. 2d 327 (2009)
UNITED STATES of America, Plaintiff,
v.
Giovanni TORRES-ROSARIO, Defendant.
Criminal No. 07-248 (FAB).
United States District Court, D. Puerto Rico.
March 3, 2009.
*328 Joseph C. Laws, Rafael Andrade-Ravelo, Federal Public Defender's Office, Hato Rey, PR, PHV Christopher Adams, Atlanta, GA, for Defendant.
Julie B. Mosley, United States Attorney's Office, Vernon Benet Miles, United States Attorneys Office, District of Puerto Rico, San Juan, PR, for Plaintiff.
*329 OPINION AND ORDER
BESOSA, District Judge.
Defendant Giovanni Torres-Rosario ("Mr. Torres" or "defendant") is charged with the following crimes connected to an alleged carjacking on May 12, 2007 for which the death penalty is a possible sentence: conspiracy to commit carjacking, aiding and abetting carjacking, and using a firearm in perpetuation of vehicle theft and murder.[1] At a detention hearing held pursuant to 18 U.S.C. § 3142(f) on October 3, 2007, Magistrate Judge Justo Arenas found Mr. Torres to be a flight risk and a danger to the community and ordered him incarcerated pending trial.
On November 8, 2008, Mr. Torres moved the Court to hold a de novo detention hearing "based on the fact that Giovanni Torres-Rosario is innocent." (Docket Entry Text, Docket No. 314) The Government opposed the motion (Docket No. 316).[2] At a status conference held on January 9, 2009[3] the Court heard oral arguments presented by both parties on the issue of whether to hold a hearing regarding Mr. Torres' bail status. Mr. Torres indicated that he could present the Court with new information casting doubt on the evidence linking him to the carjacking, and which would thus support modification of the Magistrate Judge's original detention order. The Court agreed to hear the new evidence and, accordingly, on February 18, 2009, a hearing was held to consider, de novo, Mr. Torres' detention status.
Mr. Torres now moves this Court to release him due to new evidence presented during the February 18, 2009 hearing (Docket No. 333). The government moves the Court to continue the hearing on Mr. Torres' motion for release so that it may present a witness "who can potentially identify" Mr. Torres in connection with the alleged carjacking incident (Docket No. 334). Mr. Torres filed a response objecting to the government's request (Docket No. 340) and reiterating his petition for release pending trial. The government responded again on March 2, 2009, once more requesting that the hearing be continued because it "has sufficient evidence that Torres Rosario was involved in the charged carjacking and related offenses," and that Mr. Torres "remains a danger to the community and a flight risk." (Docket No. 345)
For the following reasons, the Court DENIES the government's motion to continue the detention hearing and GRANTS the defendant's motion to modify the magistrate judge's detention order.
I. Legal Standards
A. The Bail Reform Act and the Rebuttable Presumption
The Bail Reform Act, 18 U.S.C. § 3142, governs the procedural and substantive rules for pretrial detention of defendants. Where there is probable cause to believe that a defendant committed certain crimes pursuant to 18 U.S.C. § 3142(e), including those carrying the death penalty as a possible sentence, a rebuttable presumption of dangerousness arises that no conditions of release "will *330 reasonably assure the appearance of the person as required and the safety of any other person and the community." 18 U.S.C. § 3142(e); See United States v. O'Brien, 895 F.2d 810, 813 (1st Cir.1990).
To rebut the presumption of dangerousness, the defendant must produce "some evidence" to the contrary. O'Brien, 895 F.2d at 815 (citing United States v. Jessup, 757 F.2d 378, 381 (1st Cir.1985) (overruled on other grounds)); United States v. Dillon, 938 F.2d 1412, 1416 (1st Cir.1991) (internal citations omitted). Nevertheless, the presumption remains in effect even when a defendant brings evidence forward in rebuttal. The evidence brought by the defendant merely serves as evidentiary weight to be considered by the court when determining the defendant's bail status; the government retains the burden throughout the inquiry to prove that no release conditions can reasonably assure the defendant's appearance. Id.; United States v. Palmer-Contreras, 835 F.2d 15, 18 (1st Cir.1987) (per curiam).[4]
B. Standard of Review for a Detention Order
When a magistrate judge's pretrial detention order is contested, a district court considers the matter de novo under the guidelines set forth by 18 U.S.C. § 3142. See United States v. Alonso, 832 F. Supp. 503, 504 (D.P.R.1993). A court may reconsider a detention order at any time prior to trial if the judicial officer finds there to be information previously unavailable and finds that the new information bears on the determination of flight risk and danger to society. 18 U.S.C. § 3142(f)(2)(B); United States v. Dillon, 938 F.2d 1412, 1415 (1st Cir.1991).
To determine whether pretrial detention is warranted, the judicial officer must consider the statutory factors set forth in 18 U.S.C. § 3142(g): (1) the nature and circumstances of the offense charged; (2) the "weight of evidence" against the defendant; (3) the history and characteristics of the defendant; and (4) "the nature and seriousness of the danger to any person or the community that would be posed by [the defendant's] release." 18 U.S.C. § 3142(g).
II. The Magistrate Judge's Detention Order
The magistrate judge's detention order consists of a template form commonly used by judicial officers in the District of Puerto Rico ("Order of Detention Pending Trial") that offers pre-scripted options to be checked or "Xed" when making the bail determination and a few open spaces for additional comments. The only explanation given by the magistrate judge for Mr. Torres' detention are the "X's" entered next to the options the magistrate judge deemed applicable to Mr. Torres and a single statement in an area of the template form left open for additional comment that "The Court adopts the recommendation in the pretrial report." Id. The order fails to include any meaningful "written statement of the reasons for the detention" as required under 18 U.S.C. § 3142(i). See United States v. Moss, 887 F.2d 333, 338 (1st Cir.1989).
Not being able to discern the magistrate judge's rationale for detention on the face of the order, this Court reviewed the transcript of the original October 3, 2007 detention hearing itself as well the pretrial report for Mr. Torres that was adopted by *331 the magistrate judge. As noted by the time notations in the hearing transcript, the entire proceeding lasted a mere two minutes (from 9:15 a.m. to 9:17 a.m.). See (Transcript of Arraignment and Bail Hearing, Docket No. 343) The only exchange during the detention hearing that actually regarded Mr. Torres' detention went as follows:
THE COURT: Have you looked at the Pretrial Report?
MR. ANDRADE-RAVELO (Mr. Torres' attorney): I have, Judge.
THE COURT: What is your position?
MR. ANDRADE-RAVELO: Only that the Court consider posting a bond, with the parent's house, if they're willing to post the bond, Judge. Perhaps with conditions of house imprisonment, or house arrest, with an electronic monitor.
THE COURT: I consider him a risk of flight and danger to the community. He will be detained pending trial. Is there anything else?
MR. ANDRADE-RAVELO: Nothing from us, Judge.
Id. See also, Minute Entry for proceedings, Docket No. 61.
The pretrial report for Mr. Torres contained basic information regarding Mr. Torres' residence and family ties, employment and financial history, health, and prior criminal record. Despite finding Mr. Torres to have "verifiable ties to this district," the Pretrial Services Division found Mr. Torres to be a risk of flight/nonappearance due to his current probationary status at the state level for cases relating to controlled substances violation, and his preliminary hearing pending for four weapons-related law violations at the state level.
Based on Mr. Torres' criminal history and the instant charge as alleged, the Pretrial Services Division also considered Mr. Torres to be a danger to the community.
III. De Novo Review of Mr. Torres' Bail Status
As noted above, the Bail Reform Act under 18 U.S.C. § 3142(g) governs this Court in making its independent decision about whether to modify the conditions of Mr. Torres' pretrial detention. In aid of its decision, the Court has reviewed all motions and briefs pertaining to Mr. Torres' bail status as well as the following materials and testimony: (1) the original criminal complaint (Docket No. 1) as well as the attached affidavit of FBI Special Agent Richard Gilbert; (2) the superseding indictment (Docket No. 51); (3) the transcript of the original October 3, 2008 detention hearing before the magistrate judge (Docket No. 343); (4) the pretrial report adopted in the magistrate judge's detention order; (5) the magistrate judge's detention order itself (Docket No. 62) and the related minute entries in the docket (Docket No. 61); and (6) the new evidence brought forth by Mr. Torres in the de novo detention hearing on February 18, 2009.
A. Factors 1 and 2: Nature and Circumstances of the Offense and Weight of Evidence
The "nature of the charge" against Mr. Torresa charge of a violent crime giving rise to a possible sentence of deathwould itself typically weigh against Mr. Torres' release. United States v. Lemoine, 450 F. Supp. 2d 99, 100 (D.Me. 2006); United States v. Samuels, 436 F. Supp. 2d 280, 286 (D.Mass.2006). The mere existence of a grand jury indictment for such a serious crime is sufficient to establish probable cause for purposes of triggering the rebuttable presumption of dangerousness in section 3242(e). United States v. Vargas, 804 F.2d 157, 163 (1st Cir.1986). Because Mr. Torres is charged in such an indictment, the magistrate judge could certainly have found probable *332 cause sufficient to trigger the rebuttal presumption of dangerousness under 18 U.S.C. § 3142(e) based on his inference from the existence of the indictment. The "weight of evidence" against Mr. Torres in the first place is weak. FBI Special Agent Richard Gilbert's affidavit attached to the initial criminal complaint against Mr. Torres merely cites that "witness interviews and source information [led] to the positive identification" of Mr. Torres. (Docket No. 1, Attachment 1) The magistrate judge's detention order contains no reference to the government's evidence, much less to the strength or weight of that evidence, as is demanded by the statutory factors in 18 U.S.C. § 3142(g). In short, prior to the de novo hearing held by this Court on February 18, the only evidence entered into the record for purposes of bail status was an allusion to a positive identification of Mr. Torres by a witness.[5]
In his first motion requesting a de novo detention hearing, Mr. Torres argued that he could present evidence rebutting the presumption of his dangerousness. He argued that he was arrested based upon the identification of a single eyewitness who was a passenger in the car at issue in the alleged carjacking.[6] (Docket No. 314, ¶ 4) Mr. Torres contended that the eyewitness is unreliable for two reasons: first, the eyewitness did not make the identification of Mr. Torres until September 19, 2007, 130 days after the incident; second, the eyewitness described the assailant alleged by the government to be Mr. Torres as standing between 6 feet, 2 inches and 6 feet, 5 inches tall, while Mr. Torres is only 5 feet, 7 inches tall. Id. Mr. Torres also pointed to a press release issued by the FBI and the U.S. Attorneys' office stating that the unnamed suspect is between 6'2" and 6'5" in height. (Id., Exhibit 1) Mr. Torres requested that he be able to present the results of a height analysis conducted by an expert in video and photographic forensics.
Opposing the de novo hearing and presentation of the expert's height analysis, the government argued that there was no indication that the eyewitness' identification was based exclusively on the assailant's height. (Docket No. 316) The government also cited case law holding that an eyewitness's inability to articulate a description of an individual "does not necessarily undermine the accuracy of a later identification." Id. (Citing Gilday v. Callahan, 59 F.3d 257 (1st Cir.1995)).[7]
Because the Court determined that the information proffered by the defendant was not available at the time of the first detention hearing and the information was relevant to the rebuttable presumption, both required for a reopening of the detention hearing by 18 U.S.C. § 3142(f), on January 15, 2009, the Court scheduled a de novo detention hearing for February 18, 2009.
At the de novo detention hearing, Mr. Torres introduced expert testimony from Mr. Gerald B. Richards, qualified as an *333 expert in forensic photography and video analysis.[8] Mr. Richards conducted an analysis comparing the heights of the suspect alleged by the government to be Mr. Torres and Mr. Torres himself. To conduct his height analysis, Mr. Richards used a video recording from the Subway Restaurant security camera that captured scenes from the incident on May 12, 2007, including footage of the suspect that the government alleges is Mr. Torres. Mr. Richards selected the frame from the Subway video showing the suspect at his tallest height, then, based on an extensive photograph and video analysis process,[9] came to the conclusion that, even accounting for error and other natural variables, the suspect in the video could not be shorter than 5 feet, 11 and 3/4 inches in height. Mr. Richards then measured Mr. Torres himself and determined, also accounting for error and other natural variables, that Mr. Torres could not stand taller than 5 feet, 7 and 1/2 inches tall. Mr. Richards thus concluded in his professional opinion and experience that it is "highly, highly unlikely" that Mr. Torres is the same person as the suspect alleged by the government to be Mr. Torres.
The government conducted a very brief cross-examination of Mr. Richards, and then introduced Mr. Juan Miranda-Montalvo ("Mr. Miranda"), the above-mentioned eyewitness who had identified Mr. Torres as one of the assailants in the alleged carjacking incident. Mr. Miranda stated that he identified Mr. Torres on September 19, 2007, more than four months following the date of the incident, when presented with a six-photo array. During the hearing, Mr. Miranda was given the photo array from which he identified Mr. Torres to look at and then confirm the array as the same one he used to make the identification. After being shown the 6-photo array, Mr. Miranda was asked to identify his assailant, if present, in the courtroom. Mr. Miranda was unable to identify Mr. Torres as the person he recalled being involved, despite Mr. Torres' presence in the courtroom, and despite the fact that Mr. Torres was the only person in the courtroom dressed in an inmate jumpsuit and that he was sitting at the defense counsel table next to his attorneys.
As noted previously, a defendant's evidence brought forth to rebut the presumption against him does not eliminate that presumption, but operates as evidentiary weight for the Court's consideration while the government must constantly maintain its burden of persuasion. See Dillon, 938 F.2d at 1416. In the wake of the de novo detention hearing, the evidentiary weight has tipped almost completely to the defendant's side of the scale: there remains little evidence supporting the government's case against Mr. Torres, and what evidence there is on the record is mainly exculpatory. Meanwhile, the government brought forward no additional evidence linking Mr. Torres to the crime for which he now faces serious charges, and the evidence it attempted to bringthe testimony of an eyewitnesssucceeded only in undermining the credibility of the only evidence it has brought in support of its case against Mr. Torres' release throughout these proceedings. The defense, however, has come forward with new information calling into question the very indictment charging Mr. Torres. The introduction of highly exculpatory evidence into the record *334 shakes the foundations of the very serious charge that created the rebuttable presumption in the first place and pushes both the "nature and circumstance of offense charged" and "weight of evidence" factors strongly in favor of release.[10]
B. Factor 3: History and Characteristics of the Defendant
The Bail Reform Act directs the Court to consider numerous elements relating to Mr. Torres' history and characteristics, such as his criminal history, employment, health, residence, and family ties. Ostensibly, these inquiries are targeted at establishing the defendant's likelihood to flee. The language introducing the list of statutory factors under 18 U.S.C. § 3142(g) to be considered by a Court when reviewing a detention order, however, refers both to reasonably assuring appearance and safety. There is therefore "an inherent ambiguity as to whether each factor listed is declared to be relevant to both appearance and safety." United States v. Shea, 749 F. Supp. 1162, 1164-65 (D.Mass.1990).
While certain statutory review factors, such as the "nature of the crime" and "weight of evidence" explored above, may naturally implicate relevance to an inquiry of safety rather than one of appearance, numerous courts have recognized that the seriousness of the charge and the weight of the evidence can create a strong incentive for a defendant's flight. See, e.g., United States v. Pierce, 107 F. Supp. 2d 126, 128 (D.Mass.2000). Facing the death penalty could surely create a motive to flee. Eliminating or reducing the possibility would therefore mitigate the risk. Because the evidence presented by Mr. Torres calls into question the very basis for the charge against him, this Court feels the risk of his flight has substantially decreased.[11]
Importantly, the only rationale given by the magistrate judge for concluding that Mr. Torres poses a flight risk appears inextricably linked with Mr. Torres' indictment for a serious charge, one in which the death penalty is a possible sentence. The pretrial report on which the magistrate judge's flight risk determination rests concluded Mr. Torres to be a flight risk because he was serving out three years of probation for a state level controlled substances violation. There is no indication from the pretrial report that Mr. Torres violated any terms of his release. Further, at the time of his arrest Mr. Torres had a preliminary hearing pending for state level weapons violations. There is no indication that Mr. Torres failed to appear at any court hearings in relation to any of these charges. Likewise, the pretrial report concluded that, based on Mr. Torres' criminal history, and the instant charge as alleged, Mr. Torres is considered a danger to the community. The logical conclusion is that Mr. Torres was deemed to be both a flight risk and a danger to the community because of the particular combination of his arrest on this instant charge and his criminal history.
Without this arrest for such a serious charge, Mr. Torres' pretrial report contains information about Mr. Torres' history and character that, because it is so lacking in detail and sparse, leans only marginally *335 in favor of his release. According to the report, Mr. Torres was born in Caguas, Puerto Rico, and he appears to maintain his residence here. His last known address was in Juncos, Puerto Rico, a fact confirmed by his parents, Mrs. Carmen Iris Rosario and Mr. Juan Torres, who themselves live in Juncos. Mr. Torres claims also to have two daughters, ages five and two, who live in Juncos as well. (Docket No. 314) Mr. Torres' parents have made themselves available to pretrial services and indicated that they are willing to assist their son in every way at their disposal. They have also offered to post their house as secured bail, worth $85,000 with about $78,000 in equity (at the time of the pretrial report (September 24, 2007)). In his motion for release, Mr. Torres states that his parents are willing to be qualified by pretrial services as third party custodians to insure his compliance with any release conditions which may be set.
In sum, despite his criminal history, Mr. Torres has verified ties to the community and to a family willing to assist in his compliance with release conditions. There is no evidence, as has been shown in other detention review cases, that Mr. Torres has access to large quantities of cash that would aid his release, that he has family or friends outside of Puerto Rico, that he has a history of violating release conditions, or that he is a drug user. See e.g. United States v. Alonso, 832 F. Supp. 503, 506 (D.P.R.1993) (citing Congressional findings that persons charged with major drug offenses often have the foreign ties and resources necessary to escape with ease to other countries) (internal citations omitted). Neither is there any evidence relating to a retributive tendency or violent reputation (see e.g. Lemoine, 450 F.Supp.2d at 103-4; United States v. Gray, 529 F. Supp. 2d 177, 182 (D.Mass. 2007)) or any other testimony from anyone who knows Mr. Torres that would provoke speculation about either his potential to flee or his potential to be a danger to his community. All of these elements therefore weigh slightly in Mr. Torres' favor.
C. Factor 4: The Nature and Seriousness of the Danger Posed by Defendant's Release
The safety of the community can be reasonably assured without being absolutely guaranteed. United States v. Tortora, 922 F.2d 880, 884 (1st Cir.1990) (internal citations omitted). Although there is a witness in this case, such that the evidence is not purely documentary, the government has produced no evidence bearing on any specific danger posed by the defendant to that witness. The government has introduced no evidence alleging that Mr. Torres would pose a particular threat to the witness or anyone else. The magistrate judge's detention order did not select the pre-scripted choice stating that "there is a serious risk that the defendant will endanger the safety of another person or the community," and contains no other indication that the defendant poses a danger to a person or the community.
On the other hand, Mr. Torres' parents have represented their willingness to act as custodians in an in-home incarceration agreement and to post their home as a surety. Mr. Torres has offered to wear a monitoring device.
It is the Court's opinion, however, that these conditions alone would not be sufficient given that the charges against Mr. Torres remain active, despite the weak evidence supporting them and the willingness of Mr. Torres' parents to help Mr. Torres comply with any condition of his release. Though the Court need not be "plumb sure" that no set of conditions will protect the public, it ought to be "pretty sure." United States v. Gray, 529 F. Supp. 2d 177, 180 (D.Mass.2007) (internal citations and quotations omitted). To be *336 pretty sure that the no harm will come from Mr. Torres's release, the Court orders highly stringent release conditions as stated at the conclusion of this opinion to which Mr. Torres must comply absolutely and completely. And deviation from the Court's order of release conditions will result in an immediate revocation of Mr. Torres's liberty.
The Court does not take lightly a situation in which liberty rights are at issue and in which the safety of the community must be addressed. Determining what constitutes adequate detention is a "factbound" inquiry in which "no two defendants are likely to have the same pedigree or to occupy the same position." United States v. Tortora, 922 F.2d 880, 888 (1st Cir.1990). "Detention determinations must be made individually and, in the final analysis, must be based on evidence which is before the court regarding the particular defendant." Id. Under 18 U.S.C. § 3145(a), a motion for review of a release order "shall be determined promptly." 18 U.S.C. § 3145(b).
Mr. Torres' case is unusual. Typically, new evidence arises in rebuttal to a presumption favoring detention that relates to a defendant's character, bearing on either risk or dangerousness. Here, the evidence presented by Mr. Torres bears on his innocence, something we do not directly consider at this stage of the proceedings. Mr. Torres is a defendant in a case, however, where he faces extremely serious chargescharges which themselves create a presumption of riskyet charges which Mr. Torres has shown are weakly substantiated. In such a case, casting doubt on the charge itself throws shadows in the direction of the entire detention order, given that the detention order was so highly grounded on that charge. In these unusual circumstances, where the defendant's rebuttal evidence in fact does cast doubt on the basis for his charge, the government's burden to maintain a level of proof that can persuade the Court of the need to detain the defendant is especially important.
Unfortunately neither party spoke directly to the statutory factors governing this Court's decision during the de novo hearing itself. Neither did the parties frame their evidence as specifically falling under the umbrella of any of those factors or as related to flight, safety or both. Nevertheless, the exculpatory evidence introduced by Mr. Torres at the de novo hearing was intended, as indicated by his prior motions, to establish both his innocence and rebut the presumption of his being dangerous and flight risk. Applying the factors to the evidence shows that the expert's testimony most clearly addresses the "weight of evidence" factor, yet, as explained above, it influenced many other factors governing detention status as well, including Mr. Torres' incentive not to appear.
Although the government addressed the statutory factors of review in its oppositions to the de novo requests, it neglected to direct specific evidence during the de novo hearing to the question of whether Mr. Torres presented a risk of flight or a danger to the community. With very little evidence to begin with, and very little in the record from the parties arguing directly to the statute governing the Court's de novo detention decision, the weight of the expert's testimony and the eyewitness' inability to identify the defendant grows heavier.
It is the view of this Court that the government's burden to show that no condition or combination of conditions will reasonably assure Mr. Torres' appearance and the safety of the community has not been met. After considering all of the statutory factors set forth by 18 U.S.C. § 3142(g) and applying them to the record, *337 the Court believes the safety of the community can be reasonably assured should Mr. Torres be released according to the conditions set forth below.
IV. Modified Conditions of Release
Taking into consideration all of the above, the Court orders the following conditions of release:
Mr. Torres shall be released into home incarceration under the custody of his parents, Juan Torres and Carmen Iris Rosario at their home, currently reported as P-5 Reparto Valenciano, Street #3, Juncos, Puerto Rico 00777. The Probation Officer shall interview and evaluate Mr. Torres' parents to insure they are qualified to act as his custodians. "Home incarceration" means that Mr. Torres will remain at his parents' house and will be at all times required to wear and abide by an electric monitoring or other location verification system, paid for as determined by the United States Pretrial Services Office. Should Mr. Torres want to attend church or other religious service, he may do so only if he obtains a letter from a pastor, priest or other certified clergy member indicating that he plans to attend services at a particular church. Should Mr. Torres obtain such a letter, he must present the letter to the U.S. Probation Officer for approval; if any visits to church are permitted, Mr. Torres must be accompanied by one or both of his parents at all times.
Mr. Torres shall report to the U.S. Probation Office as scheduled by the U.S. Probation Officer.
Mr. Torres shall post a secured bond in the amount of $100,000.
Mr. Torres shall surrender any passport to the U.S. Probation Office.
Mr. Torres shall obtain no passport. Mr. Torres shall abide by the following restrictions on personal association, place of abode, or travel: he shall reside at the address of record; he shall not leave the jurisdiction of this district without first obtaining written permission from the Court.
Mr. Torres shall avoid all contact with victims or witnesses.
Mr. Torres shall undergo medical or psychiatric treatment as deemed necessary by the U.S. Probation Officer.
Mr. Torres shall refrain from possessing firearms, destructive devices, or other dangerous weapons.
Mr. Torres shall refrain from excessive use of alcohol.
Mr. Torres shall refrain from the use or unlawful possession of any narcotic drug or other controlled substances defined in 21 U.S.C. § 802, unless prescribed by a licensed medical practitioner.
Mr. Torres shall submit to any method of drug testing required by the U.S. Probation Officer for determining whether he is using a prohibited substance.
Mr. Torres shall participate in a program of inpatient or outpatient substance abuse therapy and counseling as deemed necessary by the U.S. Probation Officer.
Mr. Torres shall refrain from obstructing or attempting to obstruct or tamper with substance testing or electronic monitoring.
Mr. Torres shall report, as soon as possible, to the U.S. Probation Office, any contact with any law enforcement personnel, including, but not limited to, any arrest, questioning, or traffic stop.
Mr. Torres shall not enter any airport or pier.
Mr. Torres shall be subject to unannounced, unscheduled visits to the location of his home incarceration by the U.S. Probation Officer.
*338 Mr. Torres shall be subject to other forms of unannounced checks as determined by the U.S. Probation Officer to verify compliance with these conditions of release.
Mr. Torres shall comply with any other conditions of release required by the U.S. Probation Officer.
V. Government's Motion to Continue Detention Hearing
Still outstanding is the government's request (Docket No. 334) to continue the detention hearing in order to present a witness who can "potentially" identify Mr. Torres. Mr. Torres objects to the government's request (Docket No. 340) both on grounds that the government should not be granted additional time to investigate the case when the bail hearing was well-noticed, and because the government's language regarding the witness it seeks to present (a witness "who can potentially identify defendant") indicates that the witness has not actually identified Mr. Torres as one of the suspects.
The Court agrees. The defendant sought a de novo hearing on grounds of new evidence on December 8, 2008, and the bail hearing was set more than one month in advance. The government has no excuse for its failure to bring any and all evidence relevant to Mr. Torres' detention to the Court's attention at the de novo hearing; both parties had ample time to prepare, and one cannot be given more time just because a witness did not perform according to expectation. In fact, the government's sudden decision to bring in a previously unmentioned witness whose connection to the case was never specified and who is only "potentially" able to link Mr. Torres to the alleged incident looks like a fishing expedition following what was clearly an unexpected turn of events. The fact that the government's only witness was unable to identify the defendant is a situation for which the government ought to have prepared by bringing in all the evidence at its disposal.
The government carries a burden of persuasion throughout the inquiry into detention status and regardless of what evidence the defendant brings forth as a rebuttal. That the government brought only one witness to the de novo detention hearing, whether due to ill preparedness, neglect, or to the fact that no other evidence was available, cannot and ought not to be fixed by the Court. The motion to continue the detention hearing is DENIED.
CONCLUSION
Therefore, for the foregoing reasons, Mr. Torres' motion to modify his detention order is GRANTED. Until Mr. Torres' parents are qualified as third party custodians by the Pretrial Services Division, and until all the conditions set by the Court are met, however, Mr. Torres will remain incarcerated. Once all the conditions of release are met, and the Court is so notified by the Probation Officer, Mr. Torres will be released and will be incarcerated in his parents' home pending trial. Because it is both untimely and vague, the government's motion to continue the detention hearing is DENIED.
IT IS SO ORDERED.
NOTES
[1] Specifically, Mr. Torres was indicted for violating 18 U.S.C. § 2119(3), 18 U.S.C. § 2119(2), and 18 U.S.C. § 924(c). See (Superseding Indictment, Docket No. 51); (United States' Response in Opposition to Motion for Review of Detention Order and De Noco Detention Hearing, Docket No. 316).
[2] On December 31, 2008, Mr. Torres filed a second motion for a de novo hearing regarding his bail status (Docket No. 323), and the government again filed a response in opposition to the hearing (Docket No. 325).
[3] Incorrectly reported as January 9, 2008 in the minute entry for proceedings in Docket Number 328.
[4] We apply a preponderance of the evidence standard to the proof pertaining to flight risk, but clear and convincing evidence must be introduced to support the conclusion that a defendant's detainment prior to trial is necessary to ensure the safety of the community. United States v. Patriarca, 948 F.2d 789, 792-93 (1st Cir.1991).
[5] In response to the government's arguments (Docket No. 316) about how this Court should weigh the reliability of identification evidence, the Court notes that it does not analyze the credibility or the sufficiency of the evidence as they relate to potential for conviction, but only analyses them as they relate to the factors, particularly the "weight of evidence" factor, enumerated by the governing statute.
[6] In its opposition to defendant's motion for a de novo detention hearing, the government seems to agree with the Mr. Torres' description of what evidence led to the arrest, stating, "The identification of defendant was apparently based on the eyewitness' testimony." (Docket No. 316.)
[7] The Court regrets having to search through the cited case for the quoted text due to the government's improper page citation in the motion.
[8] At the hearing, the government stipulated to Mr. Richards's qualifications.
[9] Mr. Richards explained to the Court in depth the methodology he used and the rationale for his conclusions. Because there is no dispute as to his qualifications as an expert in the area about which he testified, however, there is no need to recount here each detail of his lengthy explanation.
[10] The evidence against Mr. Torres has been irrevocably tarnished for the purposes of the detention decision both by the expert's testimony and the inability of the single eyewitness to identify Mr. Torres in circumstances where Mr. Torres' identity as a defendant was patently obvious.
[11] Indeed, defense counsel stated at multiple points prior to the de novo hearing that Mr. Torres will seek dismissal of the indictment against him following his presentation of the exculpatory evidence. Following the de novo hearing, in its motion to release Mr. Torres, defense counsel also declared Mr. Torres' intention to seek dismissal. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2411105/ | 321 F. Supp. 2d 588 (2004)
Patti MANOS, Plaintiff,
v.
Maurice GEISSLER, BRG Automotive Enterprises, LLC d/b/a Midas Auto Service Experts and Midas International Corporation, Defendants.
No. 02 CIV. 9760(WCC).
United States District Court, S.D. New York.
June 14, 2004.
*589 *590 Law Offices of Vincent P. DiStephan (Vincent P. Distephan, Esq., Of Counsel), Lake Success, NY, for Plaintiff.
Law Offices of Monte J. Rosenstein (Monte J. Rosenstein, Esq., Of Counsel), Middletown, NY, for Defendants.
OPINION AND ORDER
WILLIAM C. CONNER, Senior District Judge.
Plaintiff Patti Manos brought this action against defendants Maurice Geissler, BRG Automotive Enterprises, LLC d/b/a Midas Auto Service Experts ("BRG") and Midas International Corp. ("Midas") (collectively "defendants") alleging claims under Title VII of the Civil Rights Act of 1964 ("Title VII"), 42 U.S.C. § 2000 et seq., and New York Human Rights Law ("NYHRL"), N.Y. EXEC. LAW § 290 et seq. Plaintiff also asserts claims against Geissler and BRG for breach of a settlement agreement entered into between the parties. Defendants move to compel arbitration and stay this action. In the alternative, defendants move pursuant to Fed. R. Civ. P. 56 for summary judgment dismissing plaintiff's Complaint. For the reasons stated herein, defendants' motion to compel is denied. Defendants' motion for summary judgment is granted in part and denied in part.
BACKGROUND
Unless otherwise noted, the following facts are undisputed. BRG owns and operates several Midas repair shops located in Orange and Rockland counties. In May 2000, BRG hired plaintiff as a shop manager. Sometime thereafter, plaintiff informed Geissler and BRG that she was pregnant. She was fired within a few days after her announcement. On March 26, 2001, plaintiff filed a complaint with the Equal Employment Opportunity Commission ("EEOC") (the "2001 EEOC complaint") alleging that BRG discriminated against her on the basis of gender in violation of Title VII. On May 7, 2001, plaintiff, and BRG through Geissler, executed a Settlement Agreement (the "Settlement Agreement") wherein BRG agreed to rehire plaintiff as a manager and pay plaintiff's attorney's fees. (Rosenstein Aff., Ex. B.) BRG also agreed not to terminate the plaintiff in the absence of just cause as defined by the Settlement Agreement and not to discriminate against plaintiff or retaliate for the filing of her 2001 EEOC complaint. In exchange, plaintiff released the claims raised in that complaint. The Settlement Agreement included the following Arbitration Clause:
In the event BRG terminates [plaintiff within two years from the execution of the Agreement] and she claims that such termination was the result of a termination for other than "just cause" as defined [by the Settlement Agreement] ... the parties agree to resolve the issue of whether termination was for just cause by submitting it to arbitration before a single arbitrator .... If the arbitrator determines that the termination was not for just cause, BRG will pay [plaintiff] liquidated damages in the amount of $35,000.
(Rosenstein Aff., Ex. B ś 8(c).) Plaintiff returned to work in June 2001. On July 29, 2002, plaintiff filed a complaint with the EEOC (the "2002 EEOC complaint") alleging that BRG continued to discriminate against her in violation of Title VII subsequent to the execution of the Settlement Agreement. (DiStephan Aff., Ex. C-1.) *591 She contended that BRG's discriminatory conduct after June 2001 caused her to suffer severe anxiety and depression that forced her to stop reporting to work in August 2002. On September 11, 2002, the EEOC issued plaintiff a right to sue letter in connection with her 2002 EEOC complaint (the "September 2002 right to sue letter"). (Id., Ex. D.) On October 29, 2002, Geissler contacted plaintiff by letter and informed her that BRG was treating her continuing absence as a resignation.
On December 9, 2002, plaintiff filed this suit alleging claims under Title VII and NYHRL against Geissler, BRG and Midas. During an initial conference, this Court scheduled trial for January 12, 2004. During a pre-trial conference held in December 2003, the parties sought to adjourn the trial date. They requested the adjournment because: (1) plaintiff's counsel was ill for a protracted period during 2003 and was unable to conduct discovery during that period; and (2) defendants needed time to complete discovery and file a motion for summary judgment. A new trial date was set for February 23, 2004, and defendants were granted leave to file a motion for summary judgment to be served on February 5, 2004. On February 4, 2004, counsel for defendants contacted the Court to explain that defendants could not file their motion for summary judgment because discovery was not yet complete. Counsel requested an extension on consent of the discovery cut-off date set by the Court and an adjournment of the trial date. A new trial date was set for July 19, 2004. On March 9, 2004, counsel for defendants contacted the Court by letter wherein he objected to plaintiff's discovery requests on the ground that they were overbroad. The Court convened a conference to settle this discovery dispute and narrowed several of the plaintiff's requests for documents. During this conference, the Court set a briefing schedule for the defendants' motion for summary judgment.
Eleven days prior to the date that this Court set for the filing of defendants' motion for summary judgment, defendants filed a motion to stay this action and compel arbitration and a motion for summary judgment.[1] Although defendants lump their arguments for dismissal in their Memorandum of Law together with their arguments supporting their motion to compel, we cannot reach the merits of this action if the dispute is referable to arbitration as defendants contend. See Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84, 123 S. Ct. 588, 154 L. Ed. 2d 491 (2002); Sherrill v. Grayco Builders, Inc., 64 N.Y.2d 261, 272, 475 N.E.2d 772, 776, 486 N.Y.S.2d 159, 163 (1985). Accordingly, we will first consider defendants' motion to compel because if that motion is granted, defendants' motion for summary judgment would be moot.
DISCUSSION
I. Defendants' Motion to Compel Arbitration
The parties appear to agree that the Settlement Agreement is not a contract affecting interstate commerce and that the Federal Arbitration Act ("FAA") is therefore inapplicable. See Oldroyd v. Elmira Sav. Bank, 134 F.3d 72, 75 (2d Cir.1998). However, the result is the same *592 in the present case whether New York law or the FAA is applied.[2]Cf. In re A/S J. Ludwig Mowinckels Rederi, 25 N.Y.2d 576, 581, 255 N.E.2d 774, 307 N.Y.S.2d 660 (1970) (noting that the CPLR allows a party to avoid arbitration but the FAA does not). In both jurisdictions, agreements to arbitrate are routinely enforced. See, e.g., 9 U.S.C. § 2; Egol v. Egol, 68 N.Y.2d 893, 895-96, 501 N.E.2d 584, 585, 508 N.Y.S.2d 935, 936 (1986). A court determining whether a dispute is arbitrable must answer two questions: (1) whether the parties agreed to arbitrate; and (2) whether the particular dispute falls within the scope of that agreement. See Hartford Accident & Indem. Co. v. Swiss Reinsurance America Corp., 246 F.3d 219, 226 (2d Cir.2001); see also Egol, 68 N.Y.2d at 895-96, 501 N.E.2d at 585, 508 N.Y.S.2d at 936.
The existence of a valid agreement to arbitrate is not contested in the present case. Instead, plaintiff argues that the scope of the Arbitration Clause in the Settlement Agreement does not encompass her claims for discrimination and that, even if it did, defendants waived any right they might have to arbitration. We conclude that plaintiff's claims for discrimination in Counts I, II and IV of the Complaint are not within the scope of the Arbitration Clause in the Settlement Agreement. Plaintiff's claim in Count III for breach of the Settlement Agreement is within the scope of the arbitration clause. However, defendants have waived their right to compel arbitration of Count III of the Complaint.
A. The Scope of the Agreement to Arbitrate
A party cannot be compelled to arbitrate a dispute that she did not agree to submit to arbitration. See Volt Info. Sciences, Inc. v. Bd. of Trs. of Leland Stanford Jr. Univ., 489 U.S. 468, 478, 109 S. Ct. 1248, 103 L. Ed. 2d 488 (1989) ("The FAA does not require parties to arbitrate when they have not agreed to do so."); Sherrill, 64 N.Y.2d at 272, 475 N.E.2d at 776, 486 N.Y.S.2d at 163. The Second Circuit has articulated the following approach for determining whether a particular dispute is within the scope of an agreement to arbitrate: (1) the district court must first determine whether the arbitration clause at issue is broad or narrow; (2) if the clause is narrow, the court must determine whether the particular dispute involves a matter that "is on its face within the purview of the clause" or a "collateral matter"; and (3) if the court determines that the arbitration clause is narrow and the particular dispute involves a "collateral matter," the court should not compel arbitration of that dispute. See Louis Dreyfus Negoce S.A. v. Blystad Shipping & Trading Inc., 252 F.3d 218, 224 (2d Cir.2001); see also In re Belding Heminway Co., 295 *593 N.Y. 541, 543, 68 N.E.2d 681 (1946). If the arbitration clause at issue is broad, the court should compel arbitration of the entire dispute, including collateral matters. See Louis Dreyfus Negoce, 252 F.3d at 224.
"`Broad' clauses purport to refer all disputes to arbitration; `narrow clauses' limit arbitration to specific types of disputes." Camferdam v. Ernst & Young Int'l, Inc., No. 02 Civ 10100, 2004 WL 1124649, at *1, 2004 U.S. Dist. LEXIS 9092, at *5 (S.D.N.Y. May 19, 2004). The Arbitration Clause in the present case provides:
In the event BRG terminates [plaintiff within two years from the execution of the Agreement] and she claims that such termination was the result of a termination for other than "just cause" as defined [by the Settlement Agreement] ... the parties agree to resolve the issue of whether termination was for just cause by submitting it to arbitration before a single arbitrator.
(Rosenstein Aff., Ex. B ś 8(c).) This Arbitration Clause is narrow because the parties agreed only to submit to arbitration "the issue of whether termination was for just cause." (Id.) Indeed, the Arbitration Clause does not purport to encompass all disputes that arise under the Settlement Agreement. It applies only to a single issue-whether plaintiff was terminated for just cause.[3] Count I, Count II and Count IV of the Complaint allege claims for gender discrimination in violation of Title VII and NYHRL. Although evidence that plaintiff was terminated in violation of the Settlement Agreement, if it exists, may be relevant to those claims, it does not form the basis for those claims. Thus, it is a "collateral matter" and not on its face "within the purview of the clause." Louis Dreyfus Negoce, 252 F.3d at 224. Because the Arbitration Clause in the present case is a narrow one, we will not compel arbitration of plaintiff's claims in Count I, Count II and Count IV of the Complaint.
In Count III of the Complaint, plaintiff alleges that Geissler and BRG breached the Settlement Agreement by terminating plaintiff for other than just cause as defined by the Settlement Agreement. (Complt.ś 78.) This wrongful termination claim is "on its face within the purview" of the Arbitration Clause. Accordingly, we must consider whether defendants waived their right to arbitrate whether plaintiff was terminated for just cause.
B. Waiver
A party that engages in "protracted litigation" waives his right to arbitrate when an order compelling arbitration would result in prejudice to the party opposing arbitration. S & R Co. of Kingston v. Latona Trucking Inc., 159 F.3d 80, 83 (2d Cir.1998) (hereinafter "Kingston"); Kramer v. Hammond, 943 F.2d 176, 179 (2d Cir.1991); Sherrill, 64 N.Y.2d at 272, 475 N.E.2d at 775, 486 N.Y.S.2d at 162. "Factors to consider include (1) the time elapsed from the commencement of litigation to the request for arbitration; (2) the amount of litigation (including exchanges of pleadings, any substantive motions, and discovery); (3) proof of prejudice, including taking advantage of pre-trial discovery not available in arbitration, delay and expense." Kingston, 159 F.3d at 83. "An inquiry into whether an arbitration right has been waived is factually specific and not susceptible to bright line rules." Cotton *594 v. Slone, 4 F.3d 176, 179 (2d Cir.1993). "Generally, waiver is more likely to be found the longer the litigation goes on, the more a party avails itself of the opportunity to litigate, and the more that party's litigation results in prejudice to the opposing party." Thyssen, Inc. v. Calypso Shipping Corp., S.A., A.M., 310 F.3d 102, 105 (2d Cir.2002).
1. Delay
This lawsuit was filed in December 2002, and has been proceeding for approximately eighteen months. Defendants' request for arbitration was filed in this Court on April 21, 2004, approximately seventeen months after the suit was commenced and twelve weeks before trial which is set for July 19, 2004. This trial date was scheduled after two previous adjournments that were requested by the parties. Defendants never informed the Court prior to April 21, 2004, that they intended to file a motion to compel. Although we granted defendants leave to file a motion for summary judgment, we never granted defendants leave to file a motion to compel arbitration because they did not seek such leave at a pre-motion conference, as required by this Court's individual rules. The fact that defendants let seventeen months elapse before filing their motion shortly before trial supports a finding of waiver. See Kingston, 159 F.3d at 83.
Defendants argue that the illness suffered by plaintiff's counsel in 2003 somehow prevented them from filing a motion to compel arbitration. (Defs. Reply Mem. Supp. Summ. J. at 5.) The fact that plaintiff's counsel was ill for a prolonged period may explain why discovery was not completed in a timely manner and why the Court was required to adjourn the trial date on two occasions. However, it does not explain why defendants' counsel, who was presumably in good health during the relevant period, did not file a motion to compel for seventeen months and instead pursued discovery and engaged this Court in numerous conferences. The motion to compel that is before this Court required no discovery whatsoever. It could have been filed immediately upon service of the Complaint because defendants have always known of the Settlement Agreement.
2. The Amount of Litigation
Defendants have actively participated in the litigation throughout the eighteen months during which this case has been pending. They have participated in three conferences before the Court. At one of these conferences, which was requested by counsel for defendants, defendants requested that the Court limit certain discovery requests made by plaintiff. The Court granted defendants' motion in part and narrowed some of plaintiff's interrogatories. Defendants also have requested numerous extensions from the Court so that they could conduct discovery that counsel for defendants represented was necessary to allow them to file a motion for summary judgment.[4] Therefore, the fact that defendants conducted extensive pre-trial discovery, including the taking of plaintiff's deposition, sought the aid of this Court to resolve a discovery dispute and participated in three conferences is sufficient to show that they actively engaged in protracted litigation. See Kingston, 159 F.3d at 84; De Sapio v. Kohlmeyer, 35 N.Y.2d 402, 406, 321 N.E.2d 770, 362 N.Y.S.2d 843 (1974) ("[T]he defendant's procurement of a pretrial deposition of plaintiff in the judicial action constitutes an election between the forums available for resolving the dispute, *595 and therefore a waiver of any right to stay the action.").
3. Prejudice
Defendants do not deny that they obtained pre-trial discovery in this action that would not have been available in the arbitral forum. (DiStephan Aff. ś 19; Defs. Reply Mem. Supp. Summ. J. at 6.) This is sufficient when considered in light of the delay caused by defendants to demonstrate that plaintiff would be prejudiced if this Court granted defendants' motion to compel. See Zwitserse Maatschappij Van Levensverzekering En Lijfrente v. ABN Int'l Capital Mkts. Corp., 996 F.2d 1478, 1480 (2d Cir.1993) (holding that prejudice is established where a party took advantage of discovery that would have been unavailable in the arbitral forum); Sherrill, 64 N.Y.2d at 273-74, 475 N.E.2d at 777, 486 N.Y.S.2d at 164 ("Parties electing the benefits of arbitration, including freedom from disclosure in accordance with the CPLR ... cannot also draw on the judicial process for a particular advantage such as pretrial disclosure not generally available in arbitration."); see also Kingston, 159 F.3d at 83 (noting that proof that the party seeking arbitration took "advantage of pre-trial discovery not available in arbitration" is sufficient to establish prejudice). Contrary to defendants' suggestion, Doctor's Assocs., Inc. v. Distajo does not dictate a finding that plaintiff was not prejudiced. 107 F.3d 126, 134 (2d Cir.1997). In Distajo the Second Circuit explicitly stated that prejudice is shown where a party seeking discovery obtained "information through discovery procedures not available in arbitration." Id. at 131. In the present case, in addition to receiving document discovery, defendants have taken plaintiff's deposition and have demanded and received access to plaintiff's medical records. Defendants do not dispute that this discovery would not have been available in the arbitral forum. Accordingly, we deny defendants' motion to compel because defendants have waived any right they might have had to arbitrate Count III of plaintiff's Complaint.
The mere fact that defendants included the existence of the Arbitration Clause as an affirmative defense in their Answer does not require a different result. When a complaint has been filed in a judicial forum, the proper way for a defendant to assert an entitlement to arbitration is by way of motion, not by pleading it as an affirmative defense or a counterclaim in his answer. See 9 U.S.C. § 3; CPLR 7503(a); see also De Sapio, 35 N.Y.2d at 404, 321 N.E.2d 770, 362 N.Y.S.2d 843 (holding that a defendant who had pled arbitration as an affirmative defense had nevertheless waived arbitration by engaging in protracted litigation and noting that "the existence of an arbitration agreement is not a defense"). Moreover, the Second Circuit has instructed that a district court should consider the amount of time that has elapsed between commencement of the suit and the motion to compel arbitration, "the amount of litigation" and whether plaintiff would be prejudiced by an order compelling arbitration. See Kingston, 159 F.3d at 83. This analysis does not place any special emphasis upon whether the defendant mentioned the existence of an agreement to arbitrate in his answer. Cf. id. at 84. "The key to a waiver analysis is prejudice." Thyssen, 310 F.3d at 104. Thus, the fact that defendants mentioned the Arbitration Clause in their Answer does not defeat plaintiff's showing that defendants engaged in protracted litigation and that an order compelling arbitration would result in prejudice to plaintiff.
II. Defendants' Motion for Summary Judgment
A. Governing Standard
Summary judgment may be granted where there are no genuine issues of material *596 fact and the movant is entitled to judgment as a matter of law. See FED. R. CIV. P. 56(c); Anderson v. Liberty Lobby, 477 U.S. 242, 247-50, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). The burden rests on the movant to demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). A genuine factual issue exists if there is sufficient evidence favoring the nonmovant for a reasonable jury to return a verdict in its favor. Anderson, 477 U.S. at 248, 106 S. Ct. 2505. In deciding whether summary judgment is appropriate, the court resolves all ambiguities and draws all permissible factual inferences against the movant. See id. at 255, 106 S. Ct. 2505. To defeat summary judgment, the nonmovant must go beyond the pleadings and "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986). The court's role at this stage of the litigation is not to decide issues of material fact, but to discern whether any exist. See Gallo v. Prudential Residential Services, L.P., 22 F.3d 1219, 1224 (2d Cir.1994).
B. Plaintiff's Right to Sue Letter
Defendants argue that this entire action must be dismissed because plaintiff has failed to exhaust her administrative remedies. On July 29, 2002, plaintiff filed her 2002 EEOC complaint against BRG for alleged gender discrimination and breach of the Settlement Agreement and the EEOC issued the September 2002 right to sue letter in connection with that complaint. On October 29, 2002, Geissler contacted plaintiff by letter informing her that BRG was treating her absence as a resignation. Defendants argue that plaintiff's Complaint must be dismissed because plaintiff failed to obtain another right to sue letter from the EEOC after she was terminated in October 2002. We disagree. Plaintiff's claims for discrimination and breach of the Settlement Agreement are premised upon acts that occurred prior to the filing of her 2002 EEOC complaint and the issuance of the September 2002 right to sue letter. Although the Complaint includes factual allegations that arose after the filing of the 2002 EEOC complaint and the issuance of the September 2002 right to sue letter, plaintiff is not required to obtain another right to sue letter merely because defendants allegedly continued the pattern of discrimination forming the basis of the 2002 EEOC complaint. See Butts v. City of N.Y. Dep't Hous., 990 F.2d 1397, 1402-03 (2d Cir.1993) (a plaintiff is not required to obtain a second right to sue letter when the employer allegedly continued the discriminatory acts that formed the basis of the first right to sue letter); see also Dargento v. Bally's Holiday Fitness Ctrs., 990 F. Supp. 186, 194 (W.D.N.Y.1997).
However, plaintiff's 2002 EEOC complaint and the September 2002 right to sue letter issued in connection with that complaint did not name Geissler or Midas as respondents. Accordingly, Count IV of the Complaint, which alleges Title VII and NYHRL claims against Midas must be dismissed in its entirety for failure to exhaust administrative remedies. See, e.g., Johnson v. Palma, 931 F.2d 203, 209 (2d Cir.1991) ("A prerequisite to commencing a Title VII action against a defendant is the filing with the EEOC or authorized state agency of a complaint naming the defendant.") (citing 42 U.S.C. § 2000e-5); Marshall v. Nat'l Ass'n of Letter Carriers, No. 03 Civ. 1361, 2003 WL 22519869, at *11, 2003 U.S. Dist. LEXIS 19918, at *35 (S.D.N.Y. Nov. 7, 2003) (holding that plaintiff could not bring Title VII claims against an entity not named in the plaintiff's right *597 to sue letter). Similarly, Count I and Count II of the Complaint must be dismissed with respect to Geissler because no EEOC complaint was filed against him and he was not named as a respondent in the September 2002 right to sue letter.
Plaintiff's claim against Geissler in Count III of the Complaint for breach of the Settlement Agreement presents a different issue because it is unclear whether plaintiff was required to exhaust her administrative remedies before attempting to enforce the Settlement Agreement in a district court. First, there is a split of authority as to whether a party to a settlement agreement entered into under the supervision of the EEOC is required to obtain a right to sue letter before suing in a federal court when the agreement is silent on that point. Compare Blank v. Donovan, 780 F.2d 808, 809 (9th Cir.1986) (holding that a plaintiff must exhaust administrative remedies before bringing a breach of contract suit in a district court to enforce a settlement agreement entered into under the supervision of the EEOC), and Parsons v. Yellow Freight System, Inc., 741 F.2d 871, 873 (6th Cir.1984) (same), with Cisneros v. ABC Rail Corp., 217 F.3d 1299, 1305 (10th Cir.2000) (holding that where the plaintiff's suit to enforce an EEOC settlement agreement is for breach of contract rather than discrimination, the plaintiff is not required to exhaust administrative remedies) and Eatmon v. Bristol Steel & Iron Works, Inc., 769 F.2d 1503, 1510 n. 8 (11th Cir.1985) ("[T]here is no need for the filing of timely charges with regard to a breach of a Title VII conciliation agreement" prior to commencement of a suit for breach of the agreement in a federal court.).
Second, the Settlement Agreement in the present case is ambiguous on the issue of enforcement. Paragraph 5 provides that "the EEOC is authorized to investigate compliance with this agreement, and to bring legal action to enforce the settlement." Paragraph 6 provides: "The parties agree that this agreement shall be kept confidential except that it may be specifically enforced in court ...." Finally, the Arbitration Clause effectively provides that plaintiff need not file an EEOC complaint to resolve the issue of whether BRG terminated her without just cause.
We conclude that although Geissler was a signatory to the Settlement Agreement, he signed the Settlement Agreement as an agent for BRG and not as a party to the Settlement Agreement. Therefore, we need not determine whether plaintiff's breach of contract claim against Geissler in Count III of the Complaint should be dismissed because plaintiff failed to obtain a right to sue letter naming Geissler â this claim fails because Geissler was not a party to the Settlement Agreement. This conclusion is supported by the plain language of the Settlement Agreement. The Settlement Agreement names as respondent only BRG and each term of the Settlement Agreement refers to BRG or plaintiff and not to Geissler. At the bottom of the Settlement Agreement "BRG Automotive Enterprises, LLC" appears in typeface. Geissler's signature appears below the company's name followed by the following legend: "By: Maurice V. Geissler, Manager Respondent." Thus, it is clear that he signed the Settlement Agreement as an agent of BRG and not a party to the Settlement Agreement. Plaintiff has not alleged in her Complaint or offered any evidence tending to show that BRG is the alter ego of Geissler or that we should otherwise disregard the corporate form and pierce the corporate veil. Therefore, we dismiss the claims in Count III of the Complaint against Geissler with prejudice.
CONCLUSION
The motion of defendants Maurice Geissler, BRG Automotive Enterprises, LLC *598 d/b/a Midas Auto Service Experts and Midas International Corp. to compel arbitration is denied. Defendants' motion for summary judgment dismissing the claims asserted in the Complaint against BRG is also denied in its entirety.
Defendants' motion for summary judgment dismissing plaintiff's claims against Geissler is granted. Accordingly, plaintiff's claim against Geissler in Count III of the Complaint for breach of the Settlement Agreement is dismissed with prejudice. The claims against Geissler in Count I and Count II of the Complaint are dismissed without prejudice. Finally, plaintiff's claims against Midas International Corp. are dismissed in their entirety without prejudice.
Plaintiff and BRG are directed to appear at a pre-trial conference to be held on July 2, 2004, at 11:15 a.m. The parties should be prepared to discuss settlement at that conference.
SO ORDERED.
NOTES
[1] Defendants did not file a Local Rule 56.1 Statement with their motion for summary judgment. This alone is sufficient reason for denial of defendants' motion for summary judgment. See Local Rule 56.1 ("Failure to submit such a statement may constitute grounds for denial of the motion."). Moreover, defendants never obtained leave from the Court to file a motion to compel arbitration and stay this action. See Individual Practices of Judge William C. Conner § 2(A).
[2] Section 3 of the FAA provides:
If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.
9 U.S.C. § 3. Section 7503(a) of the New York Civil Practice Law and Rules ("CPLR") Provides:
If an issue claimed to be arbitrable is involved in an action pending in a court having jurisdiction to hear a motion to compel arbitration, the application shall be made by motion in that action. If the application is granted, the order shall operate to stay a pending or subsequent action, or so much of it as is referable to arbitration.
[3] Paragraph 6 of the Settlement Agreement provides that the Settlement Agreement "may be specifically enforced in court." (DiStephan Aff., Ex. B.) This language further supports the conclusion that the Arbitration Clause is a narrow provision and was not meant to require the parties to arbitrate all disputes that arose between them.
[4] However, defendants offered almost no evidence in support of the motion that was ultimately filed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2412739/ | 470 F. Supp. 2d 1357 (2006)
Morris Ronald GOULD a/k/a Ronald Gould, Plaintiff,
v.
John F. HARKNESS, Jr. Executive Director, Florida Bar
Jacquelyn Plasner Needleman Florida Bar. Counsel, Defendants.
No. 04-23178-CIV.
United States District Court, S.D. Florida, Miami Division.
August 8, 2006.
*1358 Morris R. Gould, Miami.
ORDER ON MOTIONS FOR SUMMARY JUDGMENT
MORENO, District Judge.
I. Factual. Background
Plaintiff Gould, an attorney licensed in New York but not in Florida, filed suit against Defendant Florida Bar based on his "genuine and credible fear" that he will be charged with unauthorized practice of law (UPL) if he advertises his legal services in Florida. Only two counts remain in Plaintiff's complaint following the motion to dismiss stage: Counts XI and XIV. Both Counts XI and XIV allege violations of the First Amendment right to freedom of speech stemming from the Florida Bar's potential restrictions on Plaintiffs proposed advertisements for his legal services.[1] In Count XI, Plaintiff alleges that he will be charged with UPL if his advertisement states "New York Legal Matters Only," but includes an address for a Florida-based law office.[2] In Count XIV, Plaintiff alleges he will be charged with UPL if his advertisement states "Federal Administrative Practice" and includes an address for a Florida-based law office.
*1359 Both Plaintiff and Defendant have filed Motions for Summary Judgment and concede that this case can be disposed of at the summary judgment stage. See Def. Mot. Sum. J. at 2; Plaint. Resp. at 1. After reviewing both Motions for Summary Judgment, the Court must reiterate the fact that the only counts remaining in Plaintiffs complaint concern violations of the First Amendment. Therefore, the Court will only discuss and rule on the First Amendment issues. Defendant's Motion for Summary Judgment focuses on First Amendment law; however, Plaintiffs Motion presents a variety of arguments and claims, which are not under the consideration of this Court. Plaintiffs Motion for Summary Judgment fails to address the First Amendment claims as they are alleged in the complaint, and instead alleges claims based on the Fifth Amendment and Fourteenth Amendment. The Court will not consider the merits of these Fifth and Fourteenth Amendment claims and Plaintiffs Motion for Summary Judgment is DENIED.
II. Standard of LawSummary Judgment
Summary judgment is authorized when 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). A court's focus in reviewing a motion for summary judgment is "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." Allen v. Tyson Foods, Inc., 121 F.3d 642, 646 (11th Cir.1997). The party seeking summary judgment bears the initial burden of demonstrating the absence of a genuine issue of material fact. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S. Ct. 1598, 26 L. Ed. 2d 142 (1970). The burden then shifts to the party opposing the motion, who must set forth specific facts and establish the essential elements of his case on which he will bear the burden of proof at trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986).
III. Analysis
The Florida Supreme Court has held that solicitation and advertising within Florida by a lawyer admitted in another jurisdiction constitutes an unlicensed practice of law. See Chandris S.A. v. Yanakakis, 668 So. 2d 180, 184 (Fla.1995). Plaintiff alleges that this pronouncement prohibits him from advertising his New York legal practice and his administrative law practice within the state of Florida. Plaintiff further alleges that the prohibition restricts Plaintiffs freedom of commercial speech in violation of the First Amendment. In moving for summary judgment, Defendants argue that under the Central Hudson test for government regulations on commercial speech, the Florida Bar's restrictions do not violate the First Amendment and Plaintiffs complaint should be dismissed.
Commercial speech is defined as an "expression related solely to the economic interests of the speaker and its audience." Central Hudson Gas & Electric Corp. v. Public Service Commission of New York, 447 U.S. 557, 561, 100 S. Ct. 2343, 65 L. Ed. 2d 341 (1980). The Supreme Court has held that lawyer advertising is considered commercial speech. See Fla. Bar v. Went For It, Inc., 515 U.S. 618, 623, 115 S. Ct. 2371, 132 L. Ed. 2d 541 (1995). Commercial speech is protected speech under the First Amendment; however, the protection is not absolute. See Ohralik v. Ohio State Bar Assn., 436 U.S. 447, 456, 98 S. Ct. 1912, 56 L. Ed. 2d 444 (1978) (holding that commercial speech enjoys a "limited, measure of protection" due *1360 to its "subordinate" position in First Amendment jurisprudence).
In Central Hudson, the Supreme Court outlined an intermediate-scrutiny test for determining whether a government restriction on commercial speech violates the First Amendment. First, a court must determine if the commercial speech in question concerns unlawful activity or is misleading. Central Hudson, 447 U.S. at 563, 100 S. Ct. 2343. If so, then the government may freely regulate that speech. Id. If not, the speech may still be regulated if (1) the government asserts a substantial interest in support of its regulation, (2) the government demonstrates that "the restriction on commercial speech directly and materially advances that interest," and (3) the regulation is narrowly tailored. Id. at 564-565, 100 S. Ct. 2343.
As to the first inquiry, Defendant argues that Plaintiffs proposed advertisements both concern unlawful activity and are misleading. The rules and laws regulating attorneys and UPL in Florida are promulgated by the Florida Supreme Court. See Fla. Const. art. V, § 15; see also Amendments to Rules Regulating the Florida Bar-Advertising Rules, 762 So. 2d 392 (Fla.1999). Rules 4-5.5 and 10-2.1 are most relevant to the lawfulness of Plaintiffs proposed advertisements. Rule 4-5.5(b) provides:
A lawyer who is not admitted to practice in Florida shall not:
(1) except as authorized by other law, establish an office or other regular presence in Florida, for the practice of law; or
(2) hold out to the public or otherwise represent that the lawyer is admitted to practice law in Florida.
Further, Rule 10-2.1 states that "[i]t shall constitute the unlicensed practice of law for a lawyer admitted in a state other than Florida to advertise to provide legal services in Florida for which the lawyer is not authorized to provide."[3]See also Amendments, 762 So.2d at 394.
A. Lawfulness of Count XI under the Central Hudson Test
Based on these rules, as to Count XI, Defendant argues that Gould is not lawfully authorized to provide legal advice or advertise services to provide legal advice regarding matters of New York law from his office in Florida and that the [proposed] advertisement is misleading as it portrays the conduct as lawful. See Def. Mot. Sum. J. at 11. The Court finds this argument persuasive as it is consistent with the rulings of the Florida Supreme Court. For instance, in Florida. Bar v. Kaiser, 397 So. 2d 1132, 1133 (Fla.1981), the defendant, who was a member of the New York bar but not of the Florida bar, advertised his availability as an attorney in Miami telephone books, newspapers, and television, with the implication being, that he was authorized to practice in Florida. The Kaiser Court held that because the advertisements had no, distinguishing limitations as to the defendant's membership in the New York bar or his limited area of practice (immigration), the defendant had knowingly created the impression that he was authorized to practice in Florida on his own, and therefore had committed UPL. See id.
Similarly, in Florida Bar v. Tate, 552 So. 2d 1106 (Fla.1989), the Court held that the defendant, a member of the Pennsylvania bar but not Florida, had committed UPL by handing out business cards which did not otherwise represent him to a be foreign attorney. The Tate Court ordered *1361 that the defendant was enjoined from "utilizing any cards, letterhead, or other written material identifying him as attorney at law without otherwise specifying that he was only admitted to practice in the State of Pennsylvania." See id. In this case, Plaintiff's proposed advertisements and letterhead amount to UPL in the same way as the advertisements in Kaiser and the letterhead in Tate. Plaintiff seeks to advertise his availability as an attorney in Florida even though he is only licensed in New York. Although he seems to limit his practice to New York legal matters, he does not state that he is not a member of the Florida Bar or that he is not authorized to practice in Florida. In other words, like the defendant in Tate, Plaintiff fails to state that he is only licensed to practice in New York. By stating "Free Phone Consultation" and listing a Miami phone number along with a Miami address for his office, Plaintiff creates the impression that he is authorized to practice law in Florida.
Furthermore, it is problematic and UPL for Plaintiff to attempt to practice from a Florida office even though Plaintiffs advertisement specifies "New York Legal Matters Only" and "M. Ronald Gould Licensed New York" (emphasis added). See Florida Bar v. Savitt, 363 So. 2d 559, 560 (Fla.1978). In Savitt, the Court held that it was UPL for a New York firm to operate a Florida office unless the partner responsible for the office's operations was a member of the Florida bar. See id. In looking at the Savitt holding along with Rule 4-5.5(b), which states, "a lawyer who is not admitted to practice in Florida shall not . . . except as authorized by other law, establish an office or other regular presence in Florida for the practice of law," it is clear that Plaintiffs establishment of a Florida office is UPL. In this case, there is no evidence that anyone other than Plaintiff would be responsible for his office's operations and because Plaintiff is not a member of the Florida bar, his establishment of a Florida law office constitutes UPL.
B. Lawfulness of Count XIV under the Central Hudson Test
Defendant argues that including the phrase "Federal Administrative Practice" in Plaintiff's Florida letterheads, business cards, advertisements, and phone book listings is unlawful and misleading under the first, part of the Central Hudson test. Specifically, Defendant argues that Plaintiff is not lawfully authorized to engage in a general federal administrative practice in Florida and the advertisement is misleading as it portrays the conduct as lawful. See Def. Mot. Sum. J. at 11. Defendant concedes that a person not admitted to practice law in Florida may be authorized by law or by order of an administrative agency to appear before it; however, Defendant argues that there is no state or federal law, rule, or regulation that allows a non-licensed attorney to engage in a general federal administrative practice while in Florida. See Chandris v. Yanakakis, 668 So. 2d 180 (Fla.1995); see also Sperry v. Florida, 373 U.S. 379, 83 S. Ct. 1322, 10 L. Ed. 2d 428 (1963).
In Chandris, the defendant, who was licensed in Massachusetts but not Florida, argued that Florida could not charge him with UPL for advising clients on federal legislation (the Jones Act). Chandris, 668 So.2d at 183. The Florida Supreme Court disagreed and held that there is no federal law exception to Florida's bar admission requirement or unauthorized practice of law. Id. at 184. In so holding, the Chandris Court analyzed the United States Supreme Court's ruling in Sperry, which determined that Florida could not enjoin a nonlawyer registered to practice before the U.S. Patent Office from preparing and prosecuting patent applications in Florida. See id. at 183 (citing Sperry, 373 U.S. at *1362 384, 83 S. Ct. 1322). The Sperry Court, referring to the Supremacy Clause, held that the federal statute and patent office regulation that specifically authorized practice before the patent office by nonlawyer agents, "confers a right to practice before the Office without regard to whether the State within which the practice is conducted would otherwise prohibit such conduct." Sperry, 373 U.S. at 388, 83 S. Ct. 1322. The Chandris Court was able to distinguish its case from Sperry because the Jones Act, although federal legislation, does not specifically authorize practice by nonlawyers (or out-of-state lawyers) and gives state and federal courts concurrent jurisdiction over such claims. Chandris, 668 So.2d at 183.
Here, Plaintiffs claim is similar to that of the defendant in Chandris. Plaintiff cannot point to federal legislation or regulations that specifically authorize him to engage in general federal administrative practice. Although Plaintiff cites to the Administrative Procedure Act, 5 U.S.C. § 500(b), which states, "an individual who is a member in good standing of the bar of the highest court of a state may represent a person before, an agency," the Court finds this reference to be inapposite. The legislative intent behind this provision was "merely [to] prohibit agencies from erecting their own supplemental admission requirements for duly admitted members of a state bar." Polydoroff v. Interstate Commerce Comm'n, 773 F.2d 372, 374 (D.C.Cir.1985). The intent was not to generally overrule the requirement that a person be a member of a state bar before practicing administrative law in that state. Therefore, Plaintiffs proposed advertisement, which includes the words "Federal Administrative Practice" along with a Florida office location can be considered unauthorized practice or law, and can be regulated as unlawful under the Central Hudson test.
C. Effect of Multijurisdictional Practice Rules
Despite the above court holdings based on both Florida and federal law, Plaintiff argues that his proposed advertisements are lawful because they are authorized by Florida's rules on multijurisdictional practice (MJP). See In re Amendments to the Rules Regulating the Florida Bar and the Florida Rules of Judicial Administration, 907 So. 2d 1138 (Fla.2005). The Florida Supreme Court amended Rule 4-5.5(c) in 2005 to included a provision regarding MJP. The relevant provision is as follows:
(c) Authorized Temporary Practice by Lawyer Admitted in Another United States Jurisdiction.
A lawyer admitted and authorized to practice law in another United States jurisdiction . . . may provide legal services ion a temporary basis in Florida that:
(1) are undertaken in association with a lawyer who is admitted to practice law in Florida and who actively participated in the matter;
(2) are in or reasonably related to pending or potential proceeding before a tribunal in this or another jurisdiction, if the lawyer or the person the lawyer is assisting is authorized by law or order to appear in such proceeding or reasonably expects to be so authorized;
(3) are in or reasonably related to a pending or potential arbitration, mediation, or other alternative dispute resolution proceeding in this or another jurisdiction and the services are not services for which the forum requires pro hac vice admission;
(A) if the services are performed for a client who resides in or has an office in the lawyer's home state, or
(B) where the services arise out of or are reasonably related to the lawyer's *1363 practice in a jurisdiction in which the lawyer is admitted to practice, or
(4) are not within subdivisions (c)(2) or (c)(3), and
(A) are performed for a client who resides in or has an office in the jurisdiction in which the lawyer is authorized to practice, or
(B) arise out of or are reasonably related to the lawyer's practice in a jurisdiction in which the lawyer is admitted to practice.
Rule 4-5.5(c); 907 So. 2d at 1156-57. Additionally, to be clear, " the multijurisdictional practice of law includes legal services in any areas of law, which could occur at any stage of representation," though, "the activity usually takes place on a temporary or occasional basis". 907 So. 2d at 1140.
Under the MJP rules, Plaintiff argues that his practice can be considered "temporary" in Florida because he travels 90 days out of the year to and from his New York office and would be traveling out of Florida for a longer period of time if he was permitted to advertise his services in Florida. See Plaint. Resp. at 5, Plaintiffs argument is unpersuasive, though, as it is undisputed that Plaintiff is a Florida resident and has lived in Florida for over 29 years. See Chandris, 668 So.2d at 184-85 (holding that the defendant "was not in Florida on a transitory basis" because "he had resided in Florida since 1980 (15 years) but apparently chose not to seek admission to The Florida Bar").[4] Furthermore, the Court will not consider Plaintiffs practice as temporary because Plaintiff has established an office in Miami, Florida. The comments to Rule 4-5.4(c) state that the rule "does not authorize a lawyer to establish an office or other regular presence in Florida without being admitted to practice generally here." 907 So. 2d at 1158.
In addition to the fact that Plaintiffs practice in Florida is not temporary, Plaintiff also fails to meet the other requirements of Rule 4-5.5(c). Plaintiff does not allege that he is associated with a lawyer admitted in Florida nor does he allege that his services would be related to his New York practice or performed for a client who resides in New York. See 4.5-5(c)(1) and (4). Furthermore, the MJP rules seem to refer to known clients with potential proceedings or actually pending proceedings. Plaintiff does not allege that his advertisements and letterheads are for certain known clients. Instead, he is attempting to attract new clients in the state of Florida. The attempt to obtain new clients does not in any way coincide with Plaintiffs argument that he is in Florida temporarily. Therefore, Plaintiffs reliance on the MJP rules is misplaced. Plaintiffs proposed advertisements in Counts XI and XIV are unlawful and therefore can be regulated by the Florida Bar without violating the First Amendment.
*1364 D. Government's Substantial Interest under the Central Hudson Test
Although this case can be disposed of based on the unlawfulness of Plaintiff s proposed advertisements, the Court also holds that Defendant may regulate Plaintiff's proposed advertisements because the regulations meet the substantial interest part of the Central Hudson test. See Central Hudson, 447 U.S. at 564-65, 100 S. Ct. 2343. First, Defendant has sufficiently asserted a substantial interest in support of its regulation. Defendant Florida Bar's interest in regulating the practice of law by non lawyers in order to protect the public has been recognized by both the Florida Supreme Court and the United States Supreme Court. See Chandris, 668 So.2d at 184 (holding that "prohibiting the practice of law by those who have not been examined and found qualified to practice . . . is done to protect the public from being advised and represented in legal matters by unqualified persons over whom the judicial department can exercise little, if any, control"); Went For It, 515 U.S. at 625, 115 S. Ct. 2371 (holding that "states have a compelling interest in the practice of professions within their boundaries, and . . . as part of their power to protect the public health, safety, and other valid interests they have broad power to establish standards for licencing practitioners and regulating the practice of professions").
Furthermore, Defendant's restriction on Plaintiffs commercial speech directly and materially advances the above interest. Defendant has argued that Plaintiffs proposed advertisements and letterhead would be misleading to the public and that they are unlawful since Plaintiff is not a licensed attorney in the state of Florida. By restricting Plaintiff from advertising and promoting his law practice and services, Defendant is advancing the interest in ensuring that all attorneys who are allowed to solicit in Florida are actually qualified and competent. The way for Defendant to test an attorney's competency is through the bar exam and other licensing regulations. Here, Defendant has been unable to test for Plaintiffs competency. Therefore, to protect the public, Defendant may restrict Plaintiffs proposed advertisements.
Lastly, Defendant's restriction on attorney advertising is narrowly tailored. Defendant concedes that Plaintiff may advertise legal services that he is authorized by state or federal law to perform, such as immigrations law. See MSJ at p. 8. In that way, Defendant has not restricted nor declared unlawful all advertisements. Instead, Defendant has only restricted the advertisements and letterheads that contain unlawful content, such as those listed in Counts XI and XIV of the complaint.
IV. Conclusion
Based on the foregoing Defendant's Motion for Summary Judgment (D.E. No. 53) filed on February 24, 2006, is GRANTED. Plaintiffs Motion for Summary Judgment (D.E. No. 52) filed on February 23, 2006, is DENIED. The case is DISMISSED and all pending motions are DENIED AS MOOT.
NOTES
[1] Throughout this order, the. Court refers to Plaintiff's "proposed advertisements;" however, Plaintiff's complaint asks the Court to prohibit Defendant from interfering with not only the publication of advertisements, but also with printing letterheads and business cards.
[2] Plaintiff's proposed advertisement and/or letterhead is as follows:
NEW YORK LEGAL MATTERS ONLY M. RONALD GOULD LICENSED NEW YORK ATTORNEY 1201 BRICKELL AVENUE, STE. 630
MIAMI, FLORIDA 33131
FREE PHONE CONSULTATION 305 865 2962
[3] Chapter 10 of the Rules Regulating the Florida Bar defines UPL as "the practice of law, as prohibited by statute, court rule, and case law of the state of Florida." See Amendments, 762 So.2d at 394.
[4] Plaintiff points to the following language from the comments to Rule 4-5.5 to argue that he may be a resident in Florida and still serve on a temporary basis:
There is no single test to determine whether a lawyers' service are provided on a "temporary basis" in Florida and may therefore be permissible under subdivision (c). Services may be "temporary" even though the lawyer provides services in Florida on a recurring basis or for an extended period of time, as when the lawyer is representing a client in a single lengthy negotiation or litigation.
907 So.2d at 1159. However, these comments imply that the lawyer-client relationship must already be established. The rule does not mean that an out-of-state lawyer can obtain a new client in Florida and then represent that client in a single lengthy negotiation or litigation. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2411523/ | 89 F. Supp. 2d 1370 (2000)
Mario L. YOUNG, Petitioner,
v.
Fred HEAD, Warden, Respondent.
No. CIV. A. 1:99CV597TWT.
United States District Court, N.D. Georgia, Atlanta Division.
March 22, 2000.
Mario L. Young, Sparta, GA, Pro se.
Paula K. Smith, Mary Beth Westmoreland, Thurbert E. Baker, Herman Maddox Kilgore, Office of State Attorney General, Atlanta, GA, for Respondents.
ORDER
THRASH, District Judge.
This is a pro se Petition for a Writ of Habeas Corpus. The Court previously entered an Order [Doc. 11] dismissing the petition as time barred pursuant to 28 U.S.C. § 2244(d). It is now before the Court on the Petitioner's Motion for Relief From Judgment [Doc. 13]. The motion raises two issues that warrant discussion.
According to 28 U.S.C. § 2244(d)(1)(A), a person in custody pursuant to the judgment of a state court has one year from the date the judgment became final to file an application for writ of habeas corpus pursuant to § 2254. This one-year limitation period was added to the statute by the Antiterrorism and Effective Death Penalty Act (AEDPA), which took effect on April 24, 1996. Petitioners whose convictions became final before the effective date of the AEDPA were given a grace period to file their federal habeas petitions by April 23, 1997. Petitioner contends that the Court erred by not excluding the time that his sentence review proceeding was pending in calculating the one year limitations period. The Court is unaware of any controlling caselaw on this issue. It seems clear to the Court that an application for sentence review by the Superior Court Sentence Review Panel is not a mechanism for "collateral review with respect to the pertinent judgment." See 28 U.S.C. § 2244(d)(2). An application for sentence review in Georgia does not serve as the substitute for an appeal, habeas corpus proceeding, or extraordinary motion for new trial, and cannot serve as the forum to exhaust state court remedies for purposes of federal habeas corpus review. Thus, the pendency of Petitioner's application for sentence review did not toll the one-year period of limitations under 28 U.S.C. § 2244(d)(2).
In addition, Petitioner contends that the Court erred in not excluding the 90 days that Petitioner had to apply for a writ of certiorari to the Supreme Court of the United States after the denial of a certificate of probable cause to appeal by the Supreme Court of Georgia. The Court is unaware of any case in which this issue has been addressed by the Eleventh Circuit. The weight of authority in other *1371 circuits is that the 90 period to apply for a writ of certiorari to the Supreme Court of the United States is not excluded in calculating the one limitations period. In Rhine v. Boone, 182 F.3d 1153 (10th Cir. 1999), the court held that the limitations period for filing habeas petition was not tolled during the period between final action on the petitioner's application for state postconviction relief and denial of his petition for writ of certiorari by the United States Supreme Court. This case was followed by the Fifth Circuit which held that "[w]e agree with our colleagues in the Tenth Circuit that § 2244(d)(2) does not toll the limitations period from the time of denial of state habeas relief by the state high court until the time in which a petitioner could have petitioned the United States Supreme Court for certiorari." Ott v. Johnson, 192 F.3d 510, 513 (5th Cir. 1999). "First, unlike § 2244(d)(1)(A), which takes into account the time for filing a certiorari petition in determining the finality of a conviction on direct review, § 2244(d)(2) contains no such provision." Id. "Second, we also note that judicial efficiency does not require a petitioner to begin federal habeas proceedings until the state conviction becomes final upon direct review, which occurs upon denial of certiorari by the Supreme Court or expiration of the period for seeking certiorari." Id. "For state post-conviction proceedings, however, the post-conviction application becomes final after a decision by the state's high court. Requesting relief from the Supreme Court is not necessary for prosecuting state habeas relief and is irrelevant to federal habeas jurisdiction." The Court agrees with this analysis. Therefore, the Court did not err in failing to exclude the 90 day period for applying to the United States Supreme Court for certiorari.
For the reasons set forth above, the Petitioner's Motion for Relief From Judgment [Doc. 13] is DENIED. The motion does, however, raise two issues that have not been addressed by the Eleventh Circuit. Pursuant to Rule 24(a) of the Federal Rules of Appellate Procedure and 28 U.S.C. §§ 1915(a)(3) and 2253(c), the Motion for Certificate of Appealability [Doc. 16] is GRANTED. The Court cannot certify that the appeal is not taken in good faith. The Motion for a Certificate of Appealability granted on the issues of (1) whether the pendency of Petitioner's application for sentence review tolled the one-year period of limitations under 28 U.S.C. § 2244(d)(2), and (2) whether the Court erred in not excluding the 90 days that Petitioner had to apply for a writ of certiorari to the Supreme Court of the United States after the denial of a certificate of probable cause to appeal by the Supreme Court of Georgia. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2411321/ | 186 F. Supp. 2d 787 (2002)
BROAD, VOGT & CONANT, INC., a Michigan corporation; Broad Industrial Corporation (formerly known as Broad Steel Construction, Inc.), a Michigan corporation; Broad Rack Structures, Inc., a Michigan corporation; Broad Financial Group, L.L.C., a Michigan limited liability company; and John W. Broad, an individual, Plaintiffs,
v.
ALSTHOM AUTOMATION, INC., (formerly known as Air Industry Systems, Inc.), a Michigan corporation; Sigma Systems, Inc., a Michigan corporation; Air Industrie Sistemas, S.A. De C.V., a corporation organized under the laws of the United States of Mexico; GEC Alsthom, a foreign joint venture; General Electric Company, a New York company; Jervis B. Webb Company, Inc., a Michigan corporation; Durr, Inc., a Michigan corporation; Duerr Holding GMBH, Stuttgart, a German corporation; Duerr Systems GMBH, a German corporation; Duerr AG, a German corporation; and Duerr Automation, Inc., a Michigan corporation, jointly and severally, Defendants, and
General Motors Corporation, a Delaware corporation, Nominal Defendant.
No. CIV.A.01-40256.
United States District Court, E.D. Michigan, Southern Division.
February 25, 2002.
*788 Mark McAlpine, Bloomfield Hills, for Plaintiffs.
Patrick F. Hickey, Dykema Gossett, Detroit, Michael S. Leib, Southfield, Edward H. Pappas, Dickinson Wright, Bloomfield Hills, for Defendants.
Victor J. Torres, D'Agostini, Sable, Sterling Heights, for Nominal Defendants.
OPINION AND ORDER
GADOLA, District Judge.
Before the Court is Plaintiffs' Motion to Remand [docket entry 3]. For the reasons set forth below, the Court will grant in part and deny in part Plaintiffs' motion.
This case essentially involves a dispute related to the negotiation and performance of two construction contracts. Pursuant to these contracts, Plaintiffs were to design, manufacture, and install a conveyor system at a General Motors assembly facility in Silao, Mexico. Under the two contracts, Plaintiffs were to earn over $8,000,000 upon completion of the construction project. However, Plaintiffs allegedly encountered a number of problems in the course of the construction project which ultimately resulted in Plaintiffs suffering financial ruin. Plaintiffs allege that the setbacks they encountered were caused by a series of wrongful acts perpetrated by Defendants in the negotiation and performance of the construction contracts.
Plaintiffs filed the Complaint in this case in the State of Michigan Circuit Court for the County of Oakland on August 14, 2001 (case number 01-033966-CK). Plaintiffs assert thirteen counts in the Complaint: (Count I) arbitration; (Count II) fraud based on false representations; (Count III) fraud based on bad-faith promise; (Count IV) fraud based on failure to disclose facts; (Count V) violation of Racketeer Influenced and Corrupt Organization Act ("RICO") pursuant to 18 U.S.C. §§ 1961 et seq.; (Count VI) negligent and innocent misrepresentations; (Count VII) alternative breach of contract; (Count VIII) alternative breach of contract; (Count IX) alternative claims for abandonment, cardinal change, rescission of contract and quantum meruit; (Count X) corporate guarantee; (Count XI) professional negligence and negligence; (Count XII) tortious interference; and (Count *789 XIII) "against Defendant GM for proceeds from retention distribution agreement."
Defendants filed a Notice of Removal on September 17, 2001, claiming that removal was proper under 28 U.S.C. § 1441(a) because this civil action was within the Court's original jurisdiction. Defendants assert that this Court has federal question jurisdiction under 28 U.S.C. § 1331, which provides that "[t]he district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States." With respect to Plaintiffs' state law claims, Defendants rely upon the supplemental jurisdiction of this Court pursuant to 28 U.S.C. § 1367(a), which provides, in pertinent part, that "the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution."
Of the thirteen counts in the Complaint, only Count V, the RICO claim, states a valid cause of action arising under federal law. In their motion to remand, Plaintiffs assert that this Court should remand the entire case, including the federal claim, to the state court. In support of this argument, Plaintiffs rely upon 28 U.S.C. § 1441(c) and this Court's decision in McKinney v. City of Grosse Pointe Park, 72 F. Supp. 2d 788, 790 (E.D.Mich.1999) (Gadola, J.). Section 1441(c) provides as follows:
Whenever a separate and independent claim or cause of action within the jurisdiction conferred by section 1331 of this title is joined with one or more otherwise non-removable claims or causes of action, the entire case may be removed and the district court may determine all issues therein, or, in its discretion, may remand all matters in which State law predominates.
28 U.S.C. § 1441(c) (emphasis added).
As in this case, the defendant in McKinney had also removed the case from state to federal court, relying upon federal question jurisdiction and supplemental jurisdiction. 72 F. Supp. 2d at 789. This Court found that the plaintiff's complaint asserted only two federal law claims, unreasonable seizure under the Fourth Amendment and deprivation of liberty under the Fourteenth Amendment, as well as various state law claims. Id. This Court remanded the entire case to state court, holding that "Section 1441(c) gives this Court the discretion to remand the entire civil action to state court when state law predominates, even though federal question jurisdiction would have existed if the action were brought originally in federal court." Id.
In their response, Defendants assert that McKinney is distinguishable from the present case. Specifically, Defendants point out that neither the Court nor the parties in McKinney seemed to have raised the issue of whether the federal claims were "separate and independent" from the state claims, and that § 1441(c) requires such an analysis. See 28 U.S.C. § 1441(c) (referring to "a separate and independent claim or cause of action within the jurisdiction conferred by section 1331"). Embarking upon this analysis, Defendants argue that state law claims that fall within the Court's supplemental jurisdiction are by their nature not "separate and independent" from the federal claim because such claims derive from a "common nucleus of operative fact." Defendants conclude that in this case, Plaintiffs' state law claims are supplemental to the lone federal claim; therefore, § 1441(c) is not applicable to this case.
The Court agrees with Defendants' analysis. It appears well settled that a *790 Court must resolve whether the federal claim is "separate and independent" from the state law claims as a predicate to the application of § 1441(c). See Salei v. Boardwalk Regency Corp., 913 F. Supp. 993, 1000-01 (E.D.Mich.1996); Padilla v. City of Saginaw, 867 F. Supp. 1309, 1312 (E.D.Mich.1994); Williams v. Huron Valley School District, 858 F. Supp. 97, 99-100 (E.D.Mich.1994); Moralez v. Meat Cutters Local 539, 778 F. Supp. 368, 370 (E.D.Mich. 1991); Kabealo v. Davis, 829 F. Supp. 923, 926 (S.D.Ohio 1993), aff'd, 72 F.3d 129 (6th Cir.1995); City of New Rochelle v. Town of Mamaroneck, 111 F. Supp. 2d 353, 372 (S.D.N.Y.2000); Hickerson v. City of New York, 932 F. Supp. 550, 558 (S.D.N.Y.1996). Courts have relied upon the Supreme Court's opinion in American Fire and Casualty Company v. Finn, 341 U.S. 6, 71 S. Ct. 534, 95 L. Ed. 702 (1951) to define "separate and independent" claims under § 1441(c). See, e.g., Moralez, 778 F.Supp. at 370 (citing Finn). The Finn Court stated that "where there is a single wrong to plaintiff, for which relief is sought, arising from an interlocked series of transactions, there is no separate and independent claim or cause of action." Id. at 14, 71 S. Ct. 534.
The standard enunciated in Finn is coextensive with the definition of supplemental jurisdiction. See Salei, 913 F.Supp. at 1003-04; Padilla, 867 F.Supp. at 1315; Williams, 858 F.Supp. at 99-100; Moralez, 778 F.Supp. at 370. A district court may exercise supplemental jurisdiction over state law claims when those claims "are so related to [the federal claims] that they form part of the same case or controversy under Article III of the United States Constitution." 28 U.S.C. § 1367(a). State and federal claims "form part of the same case or controversy" when they "derive from a common nucleus of operative fact." See United Mine Workers of America v. Gibbs, 383 U.S. 715, 725, 86 S. Ct. 1130, 16 L. Ed. 2d 218 (1966). Thus, comparing the Finn standard to the requirements of supplemental jurisdiction, it is clear that claims which derive from a "common nucleus of operative fact" cannot be "separate and independent" for purposes of § 1441(c). See Salei, 913 F.Supp. at 1003-04; Padilla, 867 F.Supp. at 1315; Williams, 858 F.Supp. at 99-100; Moralez, 778 F.Supp. at 370.
In this case, Plaintiffs' state claims and sole federal claim derive from a common nucleus of operative fact. Plaintiffs' claims stem from alleged wrongful acts perpetrated in connection with the negotiation and performance of two construction contracts. Because Plaintiffs' federal claim and state claims derive from a common nucleus of operative fact, those claims are not "separate and independent" for purposes of removal or remand under § 1441(c). See Salei, 913 F.Supp. at 1003-04; Padilla, 867 F.Supp. at 1315; Williams, 858 F.Supp. at 99-100; Moralez, 778 F.Supp. at 370. Therefore, § 1441(c) does not apply to the facts of this case.
While the Court declines to remand this entire case, the Court will remand the state law claims. This Court has discretion to exercise its supplemental jurisdiction. See 28 U.S.C. § 1367(c); Gibbs, 383 U.S. at 726, 86 S. Ct. 1130. In exercising its discretion, the Court must look to "considerations of judicial economy, convenience and fairness to litigants" and avoid needless decisions of state law. 383 U.S. at 726, 86 S. Ct. 1130; see 13B Federal Practice & Procedure, Charles A. Wright, Arthur R. Miller, Edward H. Cooper, § 3567.1 (2d ed.1984 and 2001 supp.). Where, as here, Plaintiffs assert only one federal claim out of thirteen claims in the Complaint, the state law claims substantially predominate over the remaining federal claim and might engender confusion among the jury. See 28 U.S.C. *791 § 1367(c)(2); Caraballo v. South Stevedoring, Inc., 932 F. Supp. 1462, 1465 (S.D.Fla. 1996).
Recent litigation in the federal courts involving federal law claims together with supplemental state law claims has caused procedural and substantive problems. Although the federal claim and the state claims in this action appear to arise out of the same factual situation, litigating these claims together may not serve judicial economy or trial convenience.
Because federal and state law each have a different focus, and because the two bodies of law have evolved at different times and in different legislative and judicial systems, in almost every case with supplemental state claims the courts and counsel become unduly preoccupied with substantive and procedural problems in reconciling the two bodies of law and providing a fair and meaningful proceeding.
The attempt to reconcile these two distinct bodies of law often dominates and prolongs pre-trial practice, complicates the trial, makes the jury instructions longer, confuses the jury, results in inconsistent verdicts, and causes post-trial problems with respect to judgment interest and attorney fees. Thus, in many cases the apparent judicial economy and convenience to the parties of entertaining supplemental state claims is offset by the problems those claims create.
Accordingly, this Court being fully advised in the premises,
IT IS HEREBY ORDERED that Plaintiffs' Motion to Remand [docket entry 3] is GRANTED in part and DENIED in part.
IT IS FURTHER ORDERED that Counts I, II, III, IV, VI, VII, VIII, IX, X, XI, XII, and XIII of the Complaint are REMANDED to the State of Michigan Circuit Court for the County of Oakland.
IT IS FURTHER ORDERED that only Count V of Plaintiffs' Complaint remains before this Court.
SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2411365/ | 186 F. Supp. 2d 575 (2002)
Kenneth B. NICHOLS
v.
MARYLAND CORRECTIONAL INSTITUTION JESSUP, et al.
Civil Action No. DKC 99-2738.
United States District Court, D. Maryland.
February 1, 2002.
*576 *577 Reginald W. Bours,III, Rockville, MD, Gwyn Hoerauf, Germantown, MD, for plaintiff.
*578 Glenn W. Bell, Maryland Attorney General's Office, Baltimore, MD, J. Joseph Curran, Jr., Office of Attorney General, Baltimore, MD, for defendants.
MEMORANDUM OPINION
CHASANOW, District Judge.
Plaintiff, Kenneth Nichols, a former prisoner at Maryland Correctional Institution-Jessup, filed suit alleging constitutional violations, pursuant to 42 U.S.C. § 1983, against Defendants Sergeant Alexis Cotay, Warden William Filbert, Hearing Officer John Sandstrom, and Maryland Correctional Institution-Jessup (MCI-J). Presently pending before the court is the Defendants' Motion to Dismiss, or in the alternative, Motion for Summary Judgment. The issues have been fully briefed and no hearing is deemed necessary. Local Rule 105.6. For the reasons that follow, the court shall grant the motion.
I. Background
This litigation arises from an assault upon Nichols by his cellmate, David Gregg, during the afternoon of July 13, 1999. Gregg was assigned to be Nichols' cellmate on or about July 7, 1999. Nichols asserts that Gregg began threatening his life shortly after they were placed together. Paper No. 39, p. 3. He claims that he told Cotay on July 12 and 13, 1999 that he was being threatened. Nichols states "I told him that he was down there banging on the bunk, and he was making threats towards my life.... Like he was going to kill me. He talking about getting a knife and all that stuff" on July 12. Paper No. 39, Ex. E, p. 21. He asserts that he "told [Cotay] the same thing" on July 13. Id. at p. 26. According to Nichols, Cotay responded, "I don't roll like that. Deal with it." when Nichols notified him of the threats Gregg was making. Paper No. 39, Ex. E, p. 34. Cotay recalls the circumstances differently, testifying at the adjustment hearing regarding the assault that Nichols wanted a move, Paper No. 38, Inmate Hearing Record, July 16, 1999, but later stating in an incident report, signed August 4, 1999, that Gregg had requested a change. Paper No. 39, Ex. G. Cotay stated in his declaration he told the requesting inmate he would have to see Captain Dawson, who handled cell moves, and, if he had been told it was a life-threatening situation, one or more of them could have been moved to protective custody. Paper No. 38, Ex. 1.
As a result of the injuries sustained from the beating by Gregg, Nichols was seen in the dispensary on the afternoon of July 13 and was admitted to the infirmary that day. Nichols was temporarily blinded and his entire face was swollen and deformed. While facial x-rays were negative for fractures, Nichols was treated for facial trauma. His injuries were severe enough that he was hospitalized for approximately three days. The injuries he suffered on July 13, 1999, resulted in chronic pain, recurring ear infections, and ongoing treatment at the Ear, Nose and Throat Clinic (ENT) through July 2000. Nichols asserts that there was a substantial delay in accessing medical care, but admits he was seen repeatedly by medical professionals.
As part of his treatment for the injuries suffered on July 13, 1999, and the severe ear pain that followed, Nichols was prescribed Tylenol # 3, also known as Tylenol with Codeine, by the medical personnel he was seeing at MCI-J. On approximately December 26, 1999, Nichols submitted to urinalysis for drug screening and on January 5, 2000, Nichols was charged with an Inmate Rule Violation for violating Institutional Rule # 14 by testing positive for opiates. A hearing was held January 10, 2000, and Nichols was found guilty of violating Rule # 14, based on Hearing Officer Sandstrom's determination that the registered *579 level of opiate in his urinalysis was above that of an over-the-counter medication. Defendants admit that Officer Sandstrom was mistaken in assuming that Tylenol # 3 was over-the-counter Tylenol. Based on Sandstrom's determination, Nichols was sentenced to disciplinary segregation for 60 days. Warden Filbert affirmed the sentence on January 13, 2000, but, after meeting with Nichols' father, Kirk Nichols, on January 24, 2000, Nichols was granted a new hearing. Nichols' rehearing was held February 7, 2000, and he was found not guilty. On April 12, 2000, Warden Filbert amended Nichols' wage and commitment records to reflect an uninterrupted job assignment from December 27, 1999, the day after his positive drug test. Nichols spent less than one month in disciplinary segregation between his guilty verdict on January 10, 2000 and his rehearing on February 7, 2000.
Nichols filed his original complaint pro se on September 8, 1999. On April 6, 2000, the court appointed counsel to represent Nichols. On June 15, 2000, Nichols, now having the benefit of counsel, filed an amended complaint containing four counts against the four defendants: Count One-failure to protect Nichols from Gregg; Count Two-failure by prison officials to provide him with reasonable and adequate medical care; Count Three-failure to investigate when Nichols tested positive for opiates and otherwise to provide due process in disciplinary proceedings; Count Four-retaliation against Nichols for pursuing his § 1983 action in federal court. The Amended Complaint does not specify which Defendant or Defendants is or are responsible for which claim. A fair reading of the facts and Plaintiff's memorandum, however, would bring Count One against MCI-J, Sgt. Cotay, and Warden Filbert; Count Two, MCI-J alone; Count Three, MCI-J, Warden Filbert, and Hearing Officer Sandstrom; and Count Four, MCI-J, Warden Filbert, and Hearing Officer Sandstrom. The court will proceed on that assumption.
II. Standard of Review
A. Motion to Dismiss
A court reviewing a complaint in light of a Rule 12(b)(6) motion accepts all well-pled allegations of the complaint as true and construes the facts and reasonable inferences derived therefrom in the light most favorable to the plaintiff. Ibarra v. United States, 120 F.3d 472, 473 (4th Cir.1997). Such a motion ought not to be granted unless "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957). The court, however, need not accept unsupported legal allegations, Revene v. Charles County Comm'rs, 882 F.2d 870, 873 (4th Cir.1989), or conclusory factual allegations devoid of any reference to actual events. United Black Firefighters v. Hirst, 604 F.2d 844, 847 (4th Cir.1979).
B. Motion for Summary Judgment
A motion for summary judgment will be granted only if there exists 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); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). In other words, if there clearly exist factual issues "that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party," then summary judgment is inappropriate. Anderson, 477 U.S. at 250, 106 S. Ct. 2505; see also Pulliam Inv. Co. v. Cameo Properties, 810 F.2d 1282, 1286 (4th Cir.1987); Morrison v. Nissan Motor Co., 601 F.2d 139, 141 (4th Cir. 1979); Stevens v. Howard D. Johnson Co., *580 181 F.2d 390, 394 (4th Cir.1950). The moving party bears the burden of showing that there is no genuine issue of material fact. Fed.R.Civ.P. 56(c); Pulliam, 810 F.2d at 1286 (citing Charbonnages de France v. Smith, 597 F.2d 406, 414 (4th Cir.1979)).
When ruling on a motion for summary judgment, the court must draw all reasonable inferences in favor of and construe the facts in the light most favorable to the non-moving party. Tinsley v. First Union Nat'l Bank, 155 F.3d 435, 437 (4th Cir. 1998). A party who bears the burden of proof on a particular claim must factually support each element of his or her claim. "[A] complete failure of proof concerning an essential element ... necessarily renders all other facts immaterial." Celotex, 477 U.S. at 323, 106 S. Ct. 2548. Thus, on those issues on which the nonmoving party will have the burden of proof, it is his or her responsibility to confront the motion for summary judgment with an affidavit or other similar evidence. Anderson, 477 U.S. at 256, 106 S. Ct. 2505.
In Celotex, the Supreme Court stated:
In cases like the instant one, where the nonmoving party will bear the burden of proof at trial on a dispositive issue, a summary judgment motion may properly be made in reliance solely on the "pleadings, depositions, answers to interrogatories, and admissions on file." Such a motion, whether or not accompanied by affidavits, will be "made and supported as provided in this rule," and Rule 56(e) therefore requires the non-moving party to go beyond the pleadings and by her own affidavits, or by the "depositions, answers to interrogatories, and admissions on file," designate "specific facts showing that there is a genuine issue for trial."
Celotex, 477 U.S. at 324, 106 S. Ct. 2548. However, "`a mere scintilla of evidence is not enough to create a fact issue.'" Barwick v. Celotex Corp., 736 F.2d 946, 958-59 (4th Cir.1984) (quoting Seago v. North Carolina Theatres, Inc., 42 F.R.D. 627, 632 (E.D.N.C.1966), aff'd, 388 F.2d 987 (4th Cir.1967)). There must be "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, 477 U.S. at 249-50, 106 S. Ct. 2505 (citations omitted).
III. Analysis
A. Maryland Correctional Institution Jessup
Defendants assert that the Maryland Correctional Institution-Jessup is immune from suit under the Eleventh Amendment as a state agency, because it is not a "person" for purposes of 42 U.S.C. § 1983. The Eleventh Amendment to the United States Constitution is a bar to suits against a State for damages in federal court, unless Congress has exercised its power under § 5 of the Fourteenth Amendment to override this immunity or the State has waived it. Will v. Michigan Dep't of State Police, 491 U.S. 58, 66, 109 S. Ct. 2304, 105 L. Ed. 2d 45 (1989). With regard to claims under 42 U.S.C. § 1983, neither method of overcoming the immunity has occurred. The Eleventh Amendment provides:
The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State.[1]
*581 The definition of "State" has been expanded out of necessity to include state agencies, such as the state prison system. "It is clear, of course, that in the absence of consent a suit in which the State or one of its agencies or departments is named as the defendant is proscribed by the Eleventh Amendment. This jurisdictional bar applies regardless of the nature of the relief sought." Pennhurst State School & Hospital v. Halderman, 465 U.S. 89, 100, 104 S. Ct. 900, 79 L. Ed. 2d 67 (1984) (citing Florida Department of Health v. Florida Nursing Home Assn., 450 U.S. 147, 101 S. Ct. 1032, 67 L. Ed. 2d 132 (1981) (per curiam); Alabama v. Pugh, 438 U.S. 781, 98 S. Ct. 3057, 57 L. Ed. 2d 1114 (1978) (per curiam)).
Nichols does not even argue in his opposition that the State of Maryland has waived its immunity with respect to MCI-J. Accordingly, all counts against Maryland Correctional Institution Jessup will be dismissed for failure to state a claim.
B. Sergeant Alexis Cotay
In Count One, Plaintiff asserts that Sgt. Cotay violated his rights by failing to protect him from a violent, threatening cellmate. Two elements must be established for a claim alleging failure to protect as set forth in Farmer v. Brennan, 511 U.S. 825, 834, 114 S. Ct. 1970, 128 L. Ed. 2d 811 (1994): 1) the deprivation must be sufficiently serious; and 2) the prison official must have a state of mind that is one of "`deliberate indifference' to inmate health or safety." Sgt. Cotay agrees that the injury suffered by Nichols was sufficiently serious to meet the first element, but asserts that Nichols cannot succeed in demonstrating deliberate indifference on the part of Cotay. In Farmer, the Court held that deliberate indifference means that "the official must both be aware of facts from which the inference could be drawn that a substantial risk of serious harm exists, and he must also draw the inference." Id. at 837, 114 S. Ct. 1970. This is a high standard to meet, as plaintiff must prove not only that defendant was aware of the "facts from which a reasonable person might have inferred the existence of the substantial and unique risk", but that defendant actually drew the inference. Rich v. Bruce, 129 F.3d 336, 340 (4th Cir.1997). The Fourth Circuit has held that "[t]rue subjective recklessness requires knowledge both of the general risk and also that the conduct is inappropriate in light of that risk." Id. Rich was decided on appeal from a finding of the district court after a bench trial, where the trial judge made specific findings concerning the Defendant's state of mind. It made clear, however, that actual knowledge of facts from which a reasonable person might have inferred the existence of substantial and unique risk to a plaintiff is not enough. In addition, a plaintiff must prove that the defendant was aware that his conduct was inappropriate in light of the risk. A defendant who unsoundly, stupidly, or negligently fails to appreciate the risk is not liable under Rich.
Although there is a factual dispute as to whether Nichols or Gregg was the prisoner who requested a change of cellmate and regarding precisely what specific information was told to him about any threat, Cotay has consistently stated that he was unaware of any threats and that he was only aware that one man wanted to move. He testified that:
"Mr. Gregg had just moved in with Mr. Nichols. Neither inmate indicated to me that there was a problem. I told them it would be their responsibility to see Captain Dawson, who was responsible *582 for cell moves. I told them that we do not make random moves because of the overcrowded situation of the institution. Had there been a life-threatening situation reported to me, one or both of the inmates could have been moved to protective custody. That was not the case."
Paper No. 38, Ex. 1.
Plaintiff relies on Sgt. Cotay's alleged response of "I don't roll like that. Deal with it," to show deliberate indifference. Paper No. 39, Ex. E, p. 34. To the contrary, that response, even if true, when coupled with the advice to talk to the captain concerning a cell change and the acknowledgment that assignment to protective custody would be ordered if a threat were truly perceived, unequivocally prove that Cotay did not draw the inference that his failure to act would increase the danger to Plaintiff. Instead, the evidence proves only that Cotay did not perceive that there was an imminent threat to Plaintiff such that his refusal to take immediate action was inappropriate. Nichols has forecast no evidence sufficient to show that Cotay drew the inference that is required to prove deliberate indifference to establish an Eighth Amendment violation. Therefore, the motion for summary judgment is granted in favor of Sergeant Cotay.
C. Hearing Officer John Sandstrom
A hearing officer in a prison disciplinary proceeding may be liable if his conduct "violated `clearly established law' in conducting [the] hearing in the manner in which he did." Barry v. Whalen, 796 F. Supp. 885, 895 (E.D.Va.1992). If "no action taken by [the hearing officer] violates any established legal principles regarding the operation of prisoner disciplinary hearings", the officer is not liable. Id. Only Count Three, alleging that Nichols' due process rights were violated by a failure to investigate the allegation that he had violated Rule # 14, and Count Four, alleging retaliation for filing a civil rights complaint by denying Nichols his due process rights in the disciplinary proceeding regarding his violation, pertain to Sandstrom.[2]
In Count Three, Nichols alleges that his due process rights were violated by a failure to investigate minimally the allegation that he was in violation of Rule # 14 when he tested positive for opiates. The due process standards for prison disciplinary proceedings were established in Wolff v. McDonnell, 418 U.S. 539, 556, 94 S. Ct. 2963, 41 L. Ed. 2d 935 (1974), which held that "there must be mutual accommodation between institutional needs and objective and the provisions of the Constitution that are of general application." The Court held that prisoners are entitled to procedural due process, but that they are not entitled to the "full range of procedures" in prison disciplinary hearings. Id. at 561, 94 S. Ct. 2963. Since Wolff, the Court has stated that "[t]he punishment of incarcerated prisoners ... does not impose retribution in lieu of a valid conviction .... It effectuates prison management and prisoner rehabilitative goals." Sandin v. Conner, 515 U.S. 472, 485, 115 S. Ct. 2293, 132 L. Ed. 2d 418 (1995). In Sandin, the Court held that "discipline in segregated confinement [does] not present the type of atypical, significant deprivation in which a State might conceivably create a liberty interest." Id. at 486, 115 S. Ct. 2293. The only action taken against Nichols after the *583 administrative hearing was placement in administrative segregation, which is not a protectible liberty interest. Nichols was also removed from a job assignment but, after his appeal was successful, the wage and commitment records were changed to reflect an uninterrupted assignment. Because placement in segregation, by itself, is not "a major disruption in his environment," Nichols was not denied his right to due process by Sandstrom. Therefore, the motion for summary judgment is granted in favor of Hearing Officer John Sandstrom.
D. Warden William Filbert
It is axiomatic that liability under 42 U.S.C. § 1983 must be premised on personal conduct and cannot rest on respondeat superior. Monell v. Dept. of Social Services, 436 U.S. 658, 691-695, 98 S. Ct. 2018, 56 L. Ed. 2d 611 (1978). A supervisor may be liable if his alleged supervisory indifference or tacit authorization of subordinate misconduct is a causative factor in a person's constitutional injuries. It is correct that "supervisory officials may be held liable in certain circumstances for the constitutional injuries inflicted by their subordinates." Slakan v. Porter, 737 F.2d 368, 372 (4th Cir.1984). In the context of a failure to protect claim, however, a plaintiff must prove not only that "prisoners face a pervasive and unreasonable risk of harm from some specified source, but he must show that the supervisor's corrective inaction amounts to deliberate indifference or `tacit authorization of the offensive [practices].'" Id. at 373, citing Orpiano v. Johnson, 632 F.2d 1096, 1101 (4th Cir. 1980). A supervisor's "continued inaction in the face of documented widespread abuses," id., might prove such a state of mind. "The proper question is whether [a supervisor] acted wantonly, obdurately, or with deliberate indifference to the pervasive risk of harm." Moore v. Winebrenner, 927 F.2d 1312, 1315 (4th Cir.1991). If these requirements are not met, a supervisor is not directly liable.
Plaintiff only discusses the failure to protect claim and the allegedly inadequate disciplinary proceedings in connection with Filbert. Thus, only Counts One, Three, and Four are at issue. Nichols alleges that Filbert's failure to discipline Sergeant Cotay for Cotay's willful failure to protect Plaintiff served to condone his actions, thereby becoming a "causative factor in the constitutional injuries [inflicted] on those committed to their care." Slakan v. Porter, 737 F.2d 368, 372 (1984). Nichols does not provide any evidence that Filbert was deliberately indifferent to Gregg's threat against him. There is no evidence that Filbert knew of Gregg's threat against Nichols prior to the attack, and events that occur later are irrelevant. Plaintiff cannot satisfy the burden under Slakan "by pointing to a single incident or isolated incidents" as he does here. Id. at 373. Nichols, therefore, fails to offer sufficient evidence that Filbert was deliberately indifferent to the threat against him and he has not shown that there was a pervasive and unreasonable risk of harm existing at MCI-J.
Nichols points to isolated incidents the failure to respond to his request to be moved, an alleged failure to provide medical care, despite the fact that there is no dispute that Nichols was seen frequently by the ENT clinic, and his guilty verdict at the Rule Violation hearing, which was reversed on appeal a month later after Nichols protested to Warden Filbert in an attempt to demonstrate a pattern of indifference. These are incidents that occurred after the assault, most of which are not constitutional violations, and do not characterize a pattern of deliberate indifference by Filbert. The fact that Sergeant Cotay had one prior documented disciplinary sanction against him does not constitute *584 a pattern of misconduct. As the court in Slakan so aptly put it, a supervisor cannot "reasonably be expected to guard against the deliberate ... acts of his properly trained employees when he has no basis upon which to anticipate the misconduct." Slakan, 737 F.2d at 373. Plaintiff does not allege that Filbert had or condoned a policy of ignoring inmate requests to change cell assignments based on threats of violence, nor does he adequately allege that there was a deliberate and intentional pattern of depriving inmates of their due process rights, depriving inmates of medical care, or retaliation for filing a claim.
Plaintiff also alleges that Filbert deprived him of his due process rights by initially denying his appeal for review of his Rule 14 violation as non-meritorious. However, the discipline imposed upon Nichols by Sandstrom did not violate his due process rights under Sandin v. Conner, 515 U.S. 472, 485, 115 S. Ct. 2293, 132 L. Ed. 2d 418 (1995), because "placement in segregation is not a major disruption in his environment". Nichols' placement in administrative segregation does not afford him "a protected liberty interest that would entitle him to the procedural protections set forth in Wolff." Id. at 487, 115 S. Ct. 2293. In addition, Nichols fails to mention that Filbert granted his appeal for review on January 24, 2000, just two weeks after the initial hearing. Filbert also corrected Nichols' records to reflect uninterrupted work eligibility. Therefore, Nichols has failed to identify a liberty or property interest of which he has been deprived by Filbert as alleged in Count Three.
This record also fails to support Nichols' claim of retaliation in Count Four, as it is well-established that Filbert reopened his case for appeal within the prison disciplinary system and modified his wage and commitment records so that they did not reflect an interruption from the date of his initial hearing. His actions indicate that he was attempting to protect Nichols' civil rights, rather than retaliate for a civil rights complaint.
Plaintiff has not met his burden of establishing indifference under the standards of Slakan or deprivation of his due process rights under Sandin. Therefore, the motion for summary judgment is granted in favor of Filbert.
IV. Conclusion
For the foregoing reasons, the motion to dismiss is granted in favor of Maryland Correctional Institution Jessup on Counts One through Four. The motion for summary judgment is granted in favor of Sergeant Alexis Cotay, Hearing Officer John Sandstrom, and Warden William Filbert. A separate order will be entered.
ORDER
For the reasons stated in the foregoing Memorandum Opinion, it is this ___ day of February, 2002, by the United States District Court for the District of Maryland, ORDERED that:
1. The claims against Maryland Correctional Institution Jessup BE, and the same hereby ARE, DISMISSED;
2. The motion of Warden William Filbert, Hearing Officer John Sandstrom, and Sgt. Alexis Cotay for summary judgment BE, and the same hereby IS, GRANTED and JUDGMENT BE, and the same hereby IS, ENTERED in favor of those Defendants and against Kenneth B. Nichols on all counts; and
3. The clerk will transmit copies of the Memorandum Opinion and this Order to counsel for the parties and will CLOSE this case.
NOTES
[1] The Supreme Court also has held that the fundamental rule of federal jurisprudence exemplified by the Eleventh Amendment that unconsenting states may not be sued in federal court by private parties reaches attempts by citizens to sue their own states. Atascadero State Hosp. v. Scanlon, 473 U.S. 234, 238, 105 S. Ct. 3142, 87 L. Ed. 2d 171 (1985)(citing Hans v. Louisiana, 134 U.S. 1, 10 S. Ct. 504, 33 L. Ed. 842 (1890)).
[2] Defendant does not assert he is entitled to quasi-judicial immunity. The Supreme Court has held that hearing officers in prison disciplinary proceedings are not entitled to absolute immunity, but may be entitled to qualified immunity. Cleavinger v. Saxner, 474 U.S. 193, 202-08, 106 S. Ct. 496, 88 L. Ed. 2d 507 (1985). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2411587/ | 89 F. Supp. 2d 324 (2000)
Surjumony RAJCOOAR, Individually and as Administratrix of the Estate of Rajcooar, a/k/a Johnny Rajcooar, Plaintiff,
v.
AIR INDIA LIMITED and Heathrow Airport Limited, Defendants.
No. 98CV1421(ARR).
United States District Court, E.D. New York.
March 13, 2000.
*325 Sanford Solny, Issacson, Schiowitz Korson & Solny, New York City, for plaintiff.
Michael Holland, Condon & Forsyth, LLP, New York City, for defendant.
OPINION AND ORDER
ROSS, District Judge.
By complaint filed February 25, 1998, plaintiff Surjumony Rajcooar initiated this action against defendants Air India Limited ("Air India") and Heathrow Airport Limited ("Heathrow") seeking damages on behalf of herself and her late husband for Mr. Rajcooar's death. By an order and opinion dated April 23, 1999, this court dismissed Heathrow for want of personal jurisdiction. Air India now moves for summary judgment, contending that it can only be held liable to Ms. Rajcooar under the Warsaw Convention,[1] and that under the terms of that treaty, a factual prerequisite to liability is missing. Ms. Rajcooar argues that the Warsaw Convention does *326 not apply under the circumstances of this case. For the reasons explained below, the court agrees that the Warsaw Convention applies and, consequently, grants summary judgment to Air India.
BACKGROUND
The Rajcooars boarded Air India flight 112 at New York's John F. Kennedy Airport on February 25, 1996 bound for New Delhi via London Heathrow Airport. They arrived at Heathrow around 9:00 a.m. the following morning and were required to deplane with their hand baggage for a layover. During that layover, the Rajcooars and the other passengers continuing to India, known as transit passengers, were required to remain in the area of Terminal 3 called the transit lounge. The transit lounge is a large area, utilized by several airlines and restricted to passengers who have cleared customs and security checks, either at Heathrow or at their airport of origin. Transit passengers hold plastic transit cards that enable them to re-board the plane. They are not required to check-in again at the gate, but merely need to present the transit card when the flight is called.
At some point shortly before flight 112 was to depart Heathrow, Mr. Rajcooar suffered a heart attack and collapsed. Assistance was sought from Air India personnel and paramedics were called, but Mr. Rajcooar died as a result of the heart attack. Ms. Rajcooar's complaint alleges that Air India employees failed to provide the necessary medical help in time, and that Mr. Rajcooar's death was a result of that failure. In her complaint, Ms. Rajcooar asserted that when Mr. Rajcooar collapsed, he was on line to board the plane at Gate 26. In a later affidavit, however, Ms. Rajcooar stated that her husband was in the corridor near Gate 26, but was not on line. Farok Kapadia, the Flight Handling Manager for Air India who was at Gate 26 when Mr. Rajcooar collapsed, confirmed that Mr. Rajcooar was in the corridor outside Gate 26, but stated that the line extended into the corridor and that Mr. Rajcooar was on that line.
DISCUSSION
The Warsaw Convention makes airlines liable up to $75,000 for injuries arising out of accidents on board airplanes or during the process of embarking or disembarking. See Warsaw Convention, Art. 17. The remedy provided by the Warsaw Convention is the exclusive remedy available from airlines for such injuries. See El Al Israel Airlines, Ltd. v. Tsui Yuan Tseng, 525 U.S. 155, 161, 119 S. Ct. 662, 668, 142 L. Ed. 2d 576 (1999). Whether an injured passenger was in the process of embarking, and thus compensable under the Warsaw Convention, is analyzed under a test developed in Day v. Trans World Airlines, Inc., 528 F.2d 31 (2d Cir.1975). Under the test adopted in Day, there are four factors that a court is to consider: 1) the activity in which the passenger was engaged when the accident occurred; 2) the degree of control the airline exercised over the passenger's actions; 3) the imminence of boarding; and 4) the location in which the accident occurred. See id. at 33.
In Day itself, the plaintiffs were passengers who had been injured and representatives of passengers who had been killed in a terrorist attack in the Athens airport. The Second Circuit noted that the passengers had already passed through passport control into an area open exclusively to those departing on international flights and were assembled at the gate. See id. The airline had instructed the passengers to form a queue to undergo a final weapons search, a prerequisite to boarding. See id. Because they were engaged in an activity required for boarding, at the direction of the airline and at the departure gate with boarding imminent, the court concluded that the Warsaw Convention applied. See id. at 33-34. By contrast, the decedent in Buonocore v. Trans World Airlines, Inc., 900 F.2d 8 (2d Cir.1990), was killed by terrorists while in an area of the airport open to the public while walking *327 to a snack cart and free to roam or even leave the airport, two hours before his flight. See id. at 10. The Second Circuit found that the Warsaw Convention did not apply in Buonocore. See id. at 11.
The facts in this case fall somewhere between those of Day and Buonocore. Considering the first factor, the passenger's activities, the court assumes for the purposes of this motion that Mr. Rajcooar was proceeding to the departure gate when he suffered his heart attack.[2] Like the plaintiffs in Day, he had already completed virtually all of the steps required to board the flight, needing only to surrender his transit pass and walk up the jetway. The control factor is not as strong as it was in Day, as Mr. Rajcooar was not operating under specific instructions of the airline. As in Jefferies v. Trans World Airlines, Inc., 1987 WL 8168 at *4 (N.D.Ill.1987), however, Mr. Rajcooar was preparing to perform acts implicitly required of him by the airline. When his heart attack struck, Mr. Rajcooar was reporting to the departure gate as Air India told him to do. Although he was not acting under the explicit control of the defendant, he risked missing his plane if he strayed far from the gate.
Moreover, the other two factors, on balance, also point towards application of the Warsaw Convention. Even if Mr. Rajcooar was not yet on line, the evidence introduced with this motion suggests that departure was imminent. Mr. Kapadia stated that a boarding call had been made and that passengers had already begun to queue. See Kapadia Aff. ¶ 14. There is no genuine issue as to this fact. Ms. Rajcooar stated of the timing of her husband's heart attack: "I believe it was prior to the time that any passengers had yet begun to check in at gate 26 for the flight to India." Rajcooar Aff. at 2 (unnumbered). This qualified, conclusory statement is insufficient to create a genuine issue of fact. In addition, the incident occurred immediately outside the gate from which Mr. Rajcooar's flight was departing. Although the location was not controlled exclusively by the airline, as in Alleyn v. Port Authority of New York, 58 F. Supp. 2d 15, 17 (E.D.N.Y.1999) (finding the Warsaw Convention to apply), it was a part of the airport accessible only to passengers on international flights, as in Day, 528 F.2d at 33.
The determination of the applicability of the Warsaw Convention is fact-specific, to be undertaken on a case-by-case basis. See Alleyn, 58 F.Supp.2d at 20. A review of other cases convinces the court that these facts warrant application of the Warsaw Convention. The most similar case is Jefferies. In that case, the plaintiff slipped while joining a line approximately twelve feet from the departure gate at, coincidentally, Heathrow Airport. See Jefferies, 1987 WL 8168 at *4. Like Mr. Rajcooar, she was in a restricted location and was "not free to leave the terminal or wander its environs without the risk of losing her flight." Id. "Her activity at the time of the accident was solely related to the departing flight." Id. The court in Jefferies thus concluded that she was in the process of embarking, notwithstanding the fact that she was not acting under the explicit direction of the airline and was outside the gate area. See id. at *5. By contrast, plaintiffs in cases in which the Warsaw Convention has not been applied *328 were significantly removed from the boarding process. See Buonocore, 900 F.2d at 10; Schmidkunz v. Scandinavian Airlines System, 628 F.2d 1205, 1207 (9th Cir.1980) (plaintiff was at least 500 yards from the gate, had not yet received a boarding pass, was not imminently preparing to board the plane, and was not under the direction of airline personnel); Rolnick v. El Al Israel Airlines, Ltd., 551 F. Supp. 261, 262-63 (E.D.N.Y.1982) (plaintiffs fell on an escalator in publicly accessible part of airport before obtaining boarding passes or clearing passport control); Upton v. Iran National Airlines Corp., 450 F. Supp. 176, 178 (S.D.N.Y.1978) (roof collapsed on plaintiff while awaiting delayed flight in public waiting area prior to proceeding through customs, passport control, or security check). Mr. Rajcooar was only one step removed from stepping onto the plane and was approaching the gate in order to complete that last step. The flight was departing shortly and he was not free to engage in any pursuits of his own choosing except at risk of missing his plane. He was located in the transit lounge, a restricted area, and was near gate 26 because Air India required him to be there. Under these circumstances, even if Mr. Rajcooar was not yet on the line forming to re-board the Air India flight, the Warsaw Convention governs.
Having concluded that the Warsaw Convention applies, summary judgment for the defendant is appropriate because Mr. Rajcooar's death was not the result of an "accident" under Article 17. The Supreme Court has defined an "accident" as "an unexpected or unusual event or happening that is external to the passenger." Air France v. Saks, 470 U.S. 392, 405, 105 S. Ct. 1338, 1345, 84 L. Ed. 2d 289 (1985). A heart attack does not meet that definition, as it is not external to the passenger. See Tandon v. United Air Lines, 926 F. Supp. 366 (S.D.N.Y.1996); Fischer v. Northwest Airlines, 623 F. Supp. 1064 (N.D.Ill.1985). Nor does allegedly inadequate medical care without some showing of unexpected circumstances. See Krys v. Lufthansa German Airlines, 119 F.3d 1515, 1520 (11th Cir.1997) ("In the absence of proof of abnormal external factors, aggravation of a pre-existing injury during the course of a routine and normal flight should not be considered an `accident' within the meaning of Article 17."). Ms. Rajcooar has not argued in this motion that she is entitled to recovery under the Warsaw Convention and the court concludes that she is not.
CONCLUSION
For the reasons explained herein, summary judgment is granted in favor of the defendant and the plaintiff's complaint is dismissed. The Clerk of the Court is directed to enter judgment accordingly.
SO ORDERED.
NOTES
[1] The official name of the Warsaw Convention is the "Convention for the Unification of Certain Rules Relating to International Transportation by Air." It can be found at 49 Stat. 3000 (1934).
[2] Air India encourages the court to disregard Ms. Rajcooar's affidavit testimony that her husband was not on line because it conflicts with the complaint. Although a "party's assertion of fact in a pleading is a judicial admission by which it normally is bound throughout the course of the proceeding[,]" Bellefonte Re Insurance Co. v. Argonaut Insurance Co., 757 F.2d 523, 528 (2d Cir.1985), Ms. Rajcooar could, with leave of the court, amend her complaint to conform to her affidavit. Since the complaint, unlike the affidavit, was not sworn by Ms. Rajcooar, the court would be likely to allow an amendment of the complaint. Nevertheless, as discussed in the text, the court finds that the Warsaw Convention applies even if Ms. Rajcooar's statement that her husband was not on line is taken as true. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2448301/ | 635 F.Supp.2d 6 (2009)
Jackson L. McGRADY, Plaintiff,
v.
Ray MABUS,[1] Secretary of the Navy, and Department of the Navy, Defendants.
Civil Action No. 06-752 (GK).
United States District Court, District of Columbia.
July 22, 2009.
As Amended August 25, 2009.
*10 Jackson L. McGrady, Fredericksburg, VA, pro se.
Marian L. Borum, U.S. Attorney's Office, Washington, DC, for Defendants.
MEMORANDUM OPINION
GLADYS KESSLER, District Judge.
Plaintiff Jackson L. McGrady brings this action, pro se,[2] against Defendant Ray Mabus, Secretary of the Navy, and Defendant Department of the Navy ("Navy"), pursuant to the Freedom of Information Act ("FOIA"), 5 U.S.C. § 552.[3]
This matter is now before the Court on Defendants' Motion for Summary Judgment [Dkt. No. 7] and Plaintiff's Cross-Motion for Summary Judgment [Dkt. No. 8]. Upon consideration of the Motions, Oppositions, Replies, the entire record herein, and for the reasons stated below, Defendants' Motion is denied and Plaintiff's Cross-Motion is granted.
I. Background[4]
In the Navy, a Selection Board determines which officers should be promoted. After the Board meets, it releases a public statement listing the officers selected for promotion. It also releases statistics on *11 the selected officers, including their occupational specialties and educational background.
During such proceedings, Selection Board members use Master Brief Sheets to aid their promotion determinations. The Master Brief Sheets include "key personnel data and a summary of an officer's entire performance evaluation record."[5] Defs.' Opp'n at 7. At the conclusion of the proceedings, the President of the Selection Board chooses a "sampling" of the Master Brief Sheets of officers selected and not selected for promotion, as those "most representative of the Board's deliberations and recommendations." Id. at 8-9. These are known as Sampled Master Brief Sheets. Id.
The Sampled Master Brief Sheets are stored in a limited access database and are used only during Special Selection Board proceedings. A Special Selection Board is convened only when the Secretary of the Navy determines that there was an "administrative error" or "material unfairness" during a particular Selection Board proceeding. At a Special Selection Board proceeding, the records of the individual in question are compared with the Sampled Master Brief Sheets. The Sampled Master Brief Sheets "provide the Special Selection Board with `a relative base [which indicates] which eligible officers, in the opinion of a majority of the members of the board, [were] fully qualified for promotion.'" Id. at 10 (internal quotation marks and citations omitted).
On September 28, 2005, Plaintiff wrote the Commandant of the United States Marine Corps requesting information relating to Selection Boards that met in 2004 and 2005. Specifically, he requested the following three items: (1) redacted copies of all Master Brief Sheets of the officers recommended for promotion by the Fiscal Year 2004 and 2005 Lieutenant Colonel Selection Boards, (2) redacted copies of all Master Brief Sheets of the officers not recommended for promotion by the 2004 and 2005 Lieutenant Colonel Selection Boards, and (3) a copy of the precepts[6] from the Fiscal Year 2004 and 2005 Lieutenant Colonel Selection Boards. The request included both Master Brief Sheets and Sampled Master Brief Sheets.[7]
In a letter dated October 5, 2005, Defendants informed Plaintiff that his request could not be processed within the prescribed time period and advised him that this result could be treated as an appealable adverse determination. On October 13, 2005, Plaintiff filed an appeal.
Before the appeal could be resolved, Defendants informed Plaintiff that they had *12 reached a decision partially denying his request. In a letter dated November 17, 2005, Defendants informed Plaintiff that the Board precepts he requested were publicly available on a Marine Corps Promotion Branch website.
The letter also stated that although Defendants had located the Master Brief Sheets that Plaintiff requested, they could not be released because they were "proceedings," exempted under 5 U.S.C. § 552(b)(3), and their release was prohibited under 10 U.S.C. § 618(f).[8]
In a letter dated January 4, 2006, Plaintiff filed an administrative appeal. On February 23, 2006, Defendants denied the appeal. Plaintiff filed his pro se Complaint in this Court on April 25, 2006.
II. Standard of Review
FOIA "requires agencies to comply with requests to make their records available to the public, unless the requested records fall within one or more of nine categories of exempt material." Oglesby v. Dep't of the Army, 79 F.3d 1172, 1176 (D.C.Cir.1996) (citing 5 U.S.C. §§ 552(a), (b)).
In a FOIA case, the district court conducts a de novo review of the government's decision to withhold requested documents under any of the statute's nine exemptions. 5 U.S.C. § 552(a)(4)(B). An agency that withholds information pursuant to a FOIA exemption bears the burden of justifying its decision. Petroleum Info. Corp. v. Dep't of the Interior, 976 F.2d 1429, 1433 (D.C.Cir.1992) (citing 5 U.S.C. § 552(a)(4)(B)).
In a FOIA case, a court may award summary judgment solely on the basis of information provided in affidavits or declarations when they (1) "describe the documents and the justifications for nondisclosure with reasonably specific detail;" (2) "demonstrate that the information withheld logically falls within the claimed exemption;" and (3) "are not controverted by either contrary evidence in the record nor by evidence of agency bad faith." Military Audit Project v. Casey, 656 F.2d 724, 738 (D.C.Cir.1981).
III. Analysis
FOIA "mandates a strong presumption in favor of disclosure." Multi *13 Ag Media LLC v. Dep't of Agriculture, 515 F.3d 1224, 1227 (D.C.Cir.2008) (internal quotation marks omitted). Nonetheless, an agency may withhold information that falls within one of the statute's nine enumerated exemptions. August v. FBI, 328 F.3d 697, 699 (D.C.Cir.2003). These exemptions were "designed to protect those legitimate governmental and private interests that might be harmed by release of certain types of information." Id. (internal quotation marks omitted). Because the statute favors disclosure, the exemptions "must be narrowly construed." Multi Ag Media LLC, 515 F.3d at 1227 (internal quotation marks omitted).
In the present case, Defendants claim that three FOIA exemptions apply: Exemptions 3, 5, and 6.
A. FOIA Exemption 3
FOIA Exemption 3 permits an agency to withhold information "specifically exempted from disclosure by statute ... provided that such statute (A) requires that the matters be withheld from the public in such a manner as to leave no discretion on the issue, or (B) establishes particular criteria for withholding or refers to particular types of matters to be withheld." 5 U.S.C. § 552(b)(3). When the government alleges that it may withhold information pursuant to Exemption 3, "the sole issue for decision is the existence of a relevant statute and the inclusion of withheld material within that statute's coverage." Goland v. CIA, 607 F.2d 339, 350 (D.C.Cir.1978). A statute qualifies as a withholding provision when it is "the product of congressional appreciation of the dangers inherent in airing particular data" and it "incorporate[s] a formula whereby the administrator may determine precisely whether the disclosure in any instance would pose the hazard that Congress foresaw." Wisconsin Project on Nuclear Arms Control v. Dep't of Commerce, 317 F.3d 275, 280 (D.C.Cir.2003).
Defendants argue that they must withhold the information Plaintiff requests because it is "specifically exempted from disclosure" by 10 U.S.C. § 618(f). Defs.' Mot. at 8-9. Section 618(f) stated that "proceedings of a selection board convened under section 611(a) of this title may not be disclosed to any person not a member of the board." 10 U.S.C. § 618(f).
Defendants argue that Master Brief Sheets and Sampled Master Brief Sheets are "proceedings" and are therefore protected by the statute. See Defs.' Mot. at 9-10. They contend that both types of information are "proceedings" because they "are a tool used during the promotion board process because they summarize important information regarding an officer's past performance, an integral part of determining which officers are best qualified for promotion." Id. at 10.
In response, Plaintiff concedes that if the requested information constituted a proceeding, Defendants could properly withhold it. Pl.'s Mot. at 5. Plaintiff argues, however, that the requested information is not within the purview of 10 U.S.C. § 618(f) because it is not a "proceeding" within the meaning of the statutory term. Plaintiff makes two specific claims: first, the term's plain meaning indicates that none of the requested information is a proceeding, and second, Defendants' actual practices indicate that Master Brief Sheets and Sampled Master Brief Sheets are not "proceedings."
1. Defendants' Interpretation of the Statutory Term "Proceedings" Is Entitled to Chevron Deference
In the absence of a definition of the term in the statute itself, Defendants rely upon Black's Law Dictionary to supply one. Defendants contend that the term *14 "proceedings" refers to "[a]n act or step that is part of a larger action." Defs.' Mot. at 10 (quoting Black's Law Dictionary 1241 (8th ed. 2004)). Defendants argue that because Congress did not define the term in the statute, the term is ambiguous, and the agency's definition should apply. See Defs.' Opp'n at 20 (arguing that the agency's interpretation is entitled to deference pursuant to Chevron U.S.A, Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984)).
The Supreme Court has "long recognized that considerable weight should be accorded to an executive department's construction of a statutory scheme it is entrusted to administer." Chevron, 467 U.S. at 844, 104 S.Ct. 2778. In accordance with this principle, a court must apply a two-part test to determine whether the agency's interpretation is entitled to deference. Id. at 843, 104 S.Ct. 2778. A court first must determine if the "statute is silent or ambiguous with respect to the specific issue before it." Id.; see also INS v. Aguirre-Aguirre, 526 U.S. 415, 424, 119 S.Ct. 1439, 143 L.Ed.2d 590 (1999). If it is, then a court must determine "whether the agency's answer is based on a permissible construction of the statute." Chevron, 467 U.S. at 843, 104 S.Ct. 2778. If the agency's interpretation is "reasonable," then it is entitled to deference. Sierra Club v. EPA, 536 F.3d 673, 677 (D.C.Cir. 2008).
As Defendants correctly argue, the term "proceedings" is ambiguous because Congress did not define it in the statute. Accordingly, it is necessary to apply the second prong of the Chevron test and determine whether the agency's definition of "proceedings" is reasonable.
Here, Defendants used Black's Law Dictionary to provide the definition of "proceedings." Plaintiff instead proposes two definitions from Webster's Third New International Dictionary as preferable alternatives: "a particular way of doing or accomplishing something" or "an official account (as in a book of minutes)." Pl.'s Mot. at 8-9.
Black's Law Dictionary is a well known legal reference dictionary which is widely relied upon by attorneys and courts. See, e.g., Melendez-Diaz v. Massachusetts, 174 U.S. 314, 129 S.Ct. 2527, 2532, 174 L.Ed.2d 314 (2009) (using Black's Law Dictionary to define the term "affidavit"); Karsner v. Lothian, 532 F.3d 876, 887 (D.C.Cir.2008) (using Black's Law Dictionary to define the term "award"). In evaluating the choice between Black's Law Dictionary and Webster's Third New International Dictionary, it is clear that Defendants' choice of one of the definitions used in Black's is reasonable, and therefore is entitled to deference.
2. Master Brief Sheets Do Not Fall Within Defendants' Definition of Proceedings
Even under Defendants' definition, however, a Master Brief Sheet is not a "proceeding." To be considered a proceeding under the Black's Law Dictionary definition employed by Defendants, Master Brief Sheets would need to be an "act or step." They are not. They are simply a compilation of data, and a tool, albeit a very important one, used by Selection Boards.[9] Plaintiff correctly states *15 that "deliberation about the import of the data contained within the Master Brief Sheets could be a `step in the proceeding' but the Master Brief Sheet itself cannot be." Pl.'s Mot. at 8.[10] Master Brief Sheets are plainly factual material.[11]
Accordingly, under the definition employed by Defendants themselves, Master Brief Sheets are not "proceedings" and therefore do not fall within the scope of Section 618(f).
3. Defendants' Past Practices Demonstrate that Master Brief Sheets Are Not Proceedings
Plaintiff also alleges that Master Brief Sheets are not "proceedings" because Defendants already make public similar types of information, thereby acting inconsistently with the position they are taking in this litigation. Pl.'s Mot. at 15-19.
First, Plaintiff claims that Master Brief Sheets cannot be withheld because precepts, which are similar to Master Brief Sheets, are made publicly available on the Internet by Defendants. Id. at 15-16. Precepts, like Master Brief Sheets, are provided to members of the Selection Board. Precepts, like Master Brief Sheets, are used by Board members during their deliberations. If precepts may be released then, according to Plaintiff, Master Brief Sheets may be released as well.
Defendants respond that precepts are distinguishable from Master Brief Sheets because Selection Boards use them for "direction regarding their duties as well as their oaths of confidentiality." Defs.' Opp'n at 27. Therefore, Defendants claim precepts are "fundamentally different from the `materials and other information' that the board utilized in making its promotion recommendations." Id. Defendants also state that a precept is "issued in order to instruct each selection board on the manner in which to proceed," whereas a Master Brief Sheet contains "key personnel data and a summary of each officer's entire performance record." Id. (internal punctuation and citations omitted).
The distinctions cited by Defendants do not demonstrate any meaningful difference *16 between precepts and Master Brief Sheets. Precepts, like Master Brief Sheets, are part of the Selection Board proceedings in that they provide information that shapes the conclusions reached by the Board. For example, they state the number of officers that a Selection Board may select for promotion and the selection standard that the Board shall employ. Pl.'s Mot., Ex. 6. Specifically, a precept might require a Board to refrain from considering the marital status of an officer, but to "give due consideration to the needs of the Marine Corps for officers with particular skills." Id.
If anything, the distinctions cited by Defendants suggest that precepts are more likely to be considered "proceedings" than are Master Brief Sheets.[12] Unlike Master Brief Sheets, precepts do not simply provide a set of underlying facts. Instead, they directly influence the process used by the Selection Board by determining the "manner in which to proceed." Thus, given that the Navy does not consider precepts to be "proceedings" and permits their release, the agency has not offered any rational basis for disclosing them and refusing to disclose Master Brief Sheets which contain nothing but factual material.
Second, Plaintiff argues that Defendants do not treat Master Brief Sheets as "proceedings" because they release Master Brief Sheets to individual officers and make public some of the information that appears on them, such as occupational specialty and education level. If Master Brief Sheets and information contained in them are released in some circumstances, Plaintiff argues, then Defendants cannot claim that Section 618(f) bars their release in the circumstances presented in this case.
In response, Defendants contend that two sets of Navy regulations specifically prohibit the release of Master Brief Sheets. The first, MCO P1400.31B, ¶ 4001 (2006), states that "Board presidents are charged to brief the members and recorders of the board ... that proceedings, deliberations, materials, and any other information pertaining to the board are not releasable except as authorized by the Secretary of the Navy, the Secretary of Defense, or the President." (emphasis added by Defendants). The second, Department of Army Memo 600-2 ¶ 6.g. (1999), states that "Board members will not disclose statistical analyses, details of the board proceedings, or specifics pertaining to selection or non-selection of individual officers unless authorized to do so by proper authority." (emphasis added by Defendants).
These regulations do not prevent release of Master Brief Sheets and Sampled Master Brief Sheets for two reasons. First, Defendants concede that these two regulations are aimed not at regulating disclosure by the agency as a whole, but instead at preventing disclosure by individual Board members. See Defs.' Opp'n at 22 ("This strict confidentiality imposed on board members prohibits them from disclosing how they used the information provided in making their decisions to promote certain officers.") (emphasis added). It is self-evident that disclosure by Board members presents issues distinct from official disclosure by the agency. If a Selection Board were to determine that one particular officer should not be promoted, for example, the agency would have a compelling interest in preventing dissenting Board members from voicing their disagreement with the result.
*17 Second, the regulations are not coextensive with Section 618(f). If they were coextensive with Section 618(f), then neither "materials" nor "any other information pertaining to the board" could be released. In actuality, however, the Navy releases several different types of information considered at Selection Board meetings. See Pl.'s Mot., Exh. 7 (released information includes the average "time in service," "age," and educational level of the officers selected for promotion). Additionally, as discussed supra, the Navy makes precepts publicly available, even though precepts contain detailed information about the structure and criteria employed in Selection Board proceedings. Precepts clearly "pertain[]" to the Board. Given that these two types of information are released, Section 618(f) and the regulations cannot be coextensive. As a result, the regulations do not prevent the release of Master Brief Sheets and Sampled Master Brief Sheets.
For these reasons, Master Brief Sheets are not "proceedings" and are not barred from release by FOIA Exemption 3 and 10 U.S.C. § 618(f).
B. FOIA Exemption 5
FOIA Exemption 5 permits an agency to withhold "inter-agency or intra-agency memorandums or letters which would not be available by law to a party other than an agency in litigation with the agency." 5 U.S.C. § 552(b)(5). This Exemption incorporates the "deliberative process privilege," which "covers documents reflecting advisory opinions, recommendations and deliberations comprising part of a process by which governmental decisions and policies are formulated." Dep't of Interior v. Klamath Water Users Protective Ass'n, 532 U.S. 1, 8-9, 121 S.Ct. 1060, 149 L.Ed.2d 87 (2001) (quoting NLRB v. Sears, Roebuck & Co., 421 U.S. 132, 150, 95 S.Ct. 1504, 44 L.Ed.2d 29 (1975) (internal quotation marks omitted)); see also Public Citizen, Inc. v. Office of Mgmt. & Budget, 569 F.3d 434, 442-43 (D.C.Cir. 2009). In addition, the privilege covers information that "reflect[s] the personal opinions of the writer rather than the policy of the agency." Morley v. CIA, 508 F.3d 1108, 1127 (D.C.Cir.2007) (internal quotation marks and punctuation omitted). When the information at issue is "[f]actual material that does not reveal the deliberative process," it is not protected. Id. (quoting Paisley v. CIA, 712 F.2d 686, 698 (D.C.Cir.1983)).
To invoke the deliberative process privilege, an agency must show that the requested material meets two requirements: it must be "both `predecisional' and `deliberative.'" Public Citizen, 569 F.3d at 442; see also In re Sealed Case, 121 F.3d 729, 737 (D.C.Cir.1997). Material is predecisional if "it was generated before the adoption of an agency policy." Judicial Watch, Inc. v. Food & Drug Admin., 449 F.3d 141, 151 (D.C.Cir.2006) (quoting Coastal States Gas Corp. v. Dep't of Energy, 617 F.2d 854, 866 (D.C.Cir.1980)). To be predecisional, a "court must first be able to pinpoint an agency decision or policy to which these documents contributed." Morley, 508 F.3d at 1127.
Material is deliberative if "it reflects the give-and-take of the consultative process." Judicial Watch, 449 F.3d at 151 (internal citations and quotation marks omitted). It must also "reflect[ ] advisory opinions, recommendations, and deliberations comprising part of a process by which governmental decisions and policies are formulated, [or] the personal opinions of the writer prior to the agency's adoptions of a policy." Public Citizen, 569 F.3d at 443 (quoting Taxation With Representation Fund v. IRS, 646 F.2d 666, 677 (D.C.Cir.1981)); see also Defs.' Opp'n at 13 *18 (quoting Vaughn v. Rosen, 523 F.2d 1136, 1144 (D.C.Cir.1975)).
One key factor is whether disclosing the requested information would "inhibit candor in the decision-making process." Army Times Pub. Co. v. Dep't of Air Force, 998 F.2d 1067, 1071 (D.C.Cir. 1993) (citing Petroleum Info. Corp., 976 F.2d at 1435). If documents "neither make recommendations for policy change nor reflect internal deliberations on the advisability of any particular course of action, they are not predecisional and deliberative." Public Citizen, 569 F.3d at 443. Documents that were once predecisional and deliberative but now reflect an agency's "formal or informal policy on how it carries out its responsibilities" are considered part of the agency's "working law" and are not covered by the deliberative process privilege. Id.; Coastal States Gas Corp. v. Dep't of Energy, 617 F.2d 854, 866 (D.C.Cir.1980) ("[E]ven if the document is predecisional at the time it is prepared, it can lose that status if it is adopted, formally or informally, as the agency position on an issue.").
1. Master Brief Sheets Are Not Deliberative in Nature
Master Brief Sheets are clearly predecisional because they are "generated" prior to the promotion determinations and are used during the Selection Board proceedings as a tool for the Selection Board.
For the deliberative prong, the central question is not whether the information at issue bears a causal connection to a final determination, but is rather whether the requested information independently "reflects" the deliberative process itself. See Public Citizen, 569 F.3d at 444 ("Only those portions of a predecisional document that reflect the give and take of the deliberative process may be withheld.") (internal citations omitted). Defendants contend that because the Master Brief Sheets are so "inextricably connected to the deliberative material," they are deliberative in nature and their release would "cause harm to the agency's deliberations." Defs.' Opp'n at 16 (citing Wolfe v. Dep't of Health & Human Servs., 839 F.2d 768, 774 (D.C.Cir.1988)).
Master Brief Sheets are used as a tool in the decision-making process, and serve as an important factor in the final promotion decision. However, they reveal only the data used during the process, not the substance of the deliberations. See Public Citizen, 569 F.3d at 444 ("[A]gencies must disclose those portions of predecisional and deliberative documents that contain factual information that does not inevitably reveal the government's deliberations.") (internal citations and quotation marks omitted). Defendants' own definition of Master Brief Sheets suggests that they contain no information about the content of Selection Board proceedings, but rather provide only facts that are used during the proceedings. Defs.' Opp'n at 7 ("Master Brief Sheets contain key personnel data and a summary of an officer's entire performance evaluation record."). Thus, they are not deliberative in nature because they do not "make[ ] recommendations or express[ ] opinions" on the issue of a particular officer's fitness for promotion. Vaughn, 523 F.2d at 1144.
In addition, it is unlikely that candor would be inhibited during Selection Board proceedings because releasing Master Brief Sheets reveals no information about the content of Board members' deliberations, or about the weight that a particular fact was given in a decision on any individual officer.
Finally, even if Master Brief Sheets were to satisfy the two prongs of the deliberative *19 process inquiry, Exemption 5 covers only "memorandums or letters." Master Brief Sheets are neither. They are data. Therefore, they are not protected by Exemption 5.
For these reasons, Exemption 5 does not apply to Master Brief Sheets.
2. Sampled Master Brief Sheets Are Not Deliberative in Nature[13]
Defendants also argue that the Sampled Master Brief Sheetsas opposed to Master Brief Sheets alone[14]present unique considerations. The President of the Board selects a sampling after he "compares, evaluates, and analyzes" the Master Brief Sheets and identifies those that are representative of the entire body of officers selected for promotion. The Sampled Master Brief Sheets are then stored in a confidential database for use in the event that the Navy holds Special Selection Board proceedings.
First, Defendants correctly argue that the Sampled Master Brief Sheets are predecisional because "they are antecedent to any decision by the Navy regarding promotions." Defs.' Opp'n at 15.[15]
Second, Defendants contend that because this process requires the president to "exercise[ ] his judgment," the Sampled Master Brief Sheets are deliberative in nature. Id. The Sampled Brief Sheets are not protected by the deliberative process privilege for three reasons.
First, the Sampled Master Brief Sheets are not deliberative. As our Court of Appeals has stated, the "first step in determining whether disclosure would harm the deliberative process is to examine the context in which the materials are used." Wolfe, 839 F.2d at 774. In determining whether the deliberative process privilege applies, the inquiry must be conducted "in light of the policies and goals that underlie" "the privilege." Id.
In this case, although Defendants may be correct that the process by which the President of the Selection Board selects the Sampled Master Brief Sheets does require deliberation, the sampling process itself is not the relevant deliberation for analysis. Defendants have asserted the deliberative process privilege not because they have an interest in protecting the sampling process, but because they seek to protect the promotion process. Defs.' Opp'n at 15 ("[T]he sampled Master Brief Sheets are predecisional because they are antecedent to any decision by the Navy regarding promotions.") (emphasis added).
The sampling process has no impact on the officer selection proceedings, and samples do not reveal anything more about the deliberative process than the current practice of releasing the names and basic statistical information of officers selected for promotion. It would distort the purpose of the deliberative process privilegeto protect the consultations that precede decisions on important legal or policy mattersif tangential deliberations could be used as a bootstrap for withholding information that otherwise is not protected by the privilege.
Second, disclosing the samples will not inhibit dialogue or discourage candor at future Selection Board proceedings because they reveal no information about individual Board members and no substantial information about the content of the deliberations.
*20 Third, Sampled Master Brief Sheets, like Master Brief Sheets, are not "memorandums or letters." Therefore, like Master Brief Sheets, they are not protected by Exemption 5.
C. FOIA Exemption 6
Defendants assert FOIA Exemption 6 as their third basis for withholding the requested information. This Exemption permits an agency to withhold "personnel and medical files and similar files the disclosure of which would constitute a clearly unwarranted invasion of personal privacy." 5 U.S.C. § 552(b)(6). The Supreme Court has held that Exemption 6 was "intended to cover detailed Government records on an individual which can be identified as applying to that individual." Dep't of State v. Wash. Post Co., 456 U.S. 595, 602, 102 S.Ct. 1957, 72 L.Ed.2d 358 (1982) (quoting H.R.Rep. No. 1497, 89th Cong., 2d Sess. 11, U.S.Code Cong. & Admin.News 1966, pp. 2418, 2428) (internal quotation marks omitted).
Because the Exemption requires an agency to demonstrate that disclosure would be "clearly unwarranted," courts must "tilt the balance (of disclosure interests against privacy interests) in favor of disclosure." Morley, 508 F.3d at 1127 (quoting Wash. Post Co. v. Dep't of Health & Human Servs., 690 F.2d 252, 261 (D.C.Cir.1982) (internal quotation marks omitted)). Such strong language creates a "heavy burden" for Defendants. Id. (quoting Wash. Post Co., 690 F.2d at 261). Under Exemption 6, "the presumption in favor of disclosure is as strong as can be found anywhere in [FOIA]." Id. (quoting Wash. Post Co., 690 F.2d at 261).
To succeed on a claim pursuant to Exemption 6, an agency must first identify a privacy interest. See Defs.' Opp'n at 23; Consumers' Checkbook, Ctr. for the Study of Servs. v. Dep't of Health and Human Servs., 554 F.3d 1046, 1051 (D.C.Cir.2009) ("[P]hysicians have a substantial privacy interest in the total payments they receive from Medicare for covered services."); see also Judicial Watch, 449 F.3d at 153. If the requested information has no link to a specific individual, no privacy interest is implicated. Citizens for Envtl. Quality, Inc. v. Dep't of Agric., 602 F.Supp. 534, 538 (D.D.C.1984) (citing Dep't of Air Force v. Rose, 425 U.S. 352, 380 n. 19, 96 S.Ct. 1592, 48 L.Ed.2d 11 (1976)). Once the agency has identified a privacy interest in withholding the information, it must then show that the asserted privacy interest outweighs "whatever public interest exists in having the names and addresses disclosed." See Judicial Watch, 449 F.3d at 153.
Here, Plaintiff requests only redacted information. See Defs.' Mot., Ex. C (in his FOIA request, Plaintiff states, "I wish to emphasize that I am not seeking personal identifiers of any of the records and anticipate that you will redact these identifiers."). Nonetheless, Defendants assert that "[d]espite plaintiff's proposed redactions, protected personal information would still be disclosed," including "the tabulated results of performance evaluations spanning the bulk of the subject officers' careers." Defs.' Opp'n at 24 & n. 13.
In the absence of any "personal identifiers," it is highly unlikelyif not impossible that disclosure would threaten an individual's privacy interests. Defendants have not shown that a citizen would be able to use the redacted Master Brief Sheets to identify any particular individual described. Therefore Defendants have not carried their "heavy" burden to show that disclosure would cause a "clearly unwarranted" invasion of privacy.
For this reason, Exemption 6 does not protect the requested information in this case.
*21 IV. Conclusion
For the reasons set forth above, Defendants' Motion for Summary Judgment is denied, and Plaintiff's Cross-Motion for Summary Judgment is granted. An Order shall accompany this Memorandum Opinion.
NOTES
[1] Pursuant to Fed.R.Civ.P. 25(d), Secretary of the Navy Ray Mabus is automatically substituted as Defendant for former Secretary of the Navy Donald C. Winter.
[2] Plaintiff may be pro se but his pleadings were as clear, well-written, and well-reasoned as those submitted by most practicing lawyers. There is some documentary evidence to suggest that he is a lawyer. See Pl.'s Mot., Ex. 2.
[3] Plaintiff has also filed a related suit against the same Defendants. See Civil Action No. 05-1651. In that case, Plaintiff filed suit challenging Defendants' denial of his request to convene a Special Selection Board after he was not selected for promotion to Lieutenant Colonel.
[4] Unless otherwise noted, the facts set forth herein are undisputed and drawn from the parties' Statements of Undisputed Material Facts submitted pursuant to Local Civil Rule 7(h) and the parties' summary judgment papers.
[5] A Master Brief Sheet is available for each officer in the Marine Corps. It is generated by the Optical Digital Imaging Records Management System. Using this system, officers may access their own Master Brief Sheets. The personnel data on the Master Brief Sheets includes the officer's occupational specialty and education level. The performance evaluation data includes Value Distribution Markings and Comparative Assessments. The Value Distribution Markings are ratings made by a reviewing officer, ranging from unsatisfactory to outstanding. Comparative Assessments are ratings on an alphabetical scale that are assessed in relation to other officers. Defs.' Opp'n at 7 & nn. 2-4.
[6] A precept is a document that "provides the selection board with specific instructions regarding how the selection board should be conducted," "as well as the substantive information to be considered." Defs.' Opp'n at 6, 27 (internal citations omitted). It "includes factors that board members can and cannot consider in making their selection decisions." Pl.'s Mot. at 4.
[7] Unless otherwise specified, the term "Master Brief Sheets" is used herein to refer to both Master Brief Sheets and Sampled Master Brief Sheets.
[8] After the parties completed briefing on the pending Motions, Congress repealed 10 U.S.C. § 618(f) and replaced it with 10 U.S.C. § 613a. Section 618(f) had stated that "proceedings of a selection board convened under section 611(a) of this title may not be disclosed to any person not a member of the board." 10 U.S.C. § 618(f). The newly enacted Section 613a states that "proceedings of a selection board convened under section 611 of this title may not be disclosed to any person not a member of the board." Congress passed the new statute on October 17, 2006 as part of the National Defense Authorization Act for Fiscal Year 2007. Pub.L. No. 109-364, § 547, 120 Stat. 2216 (2006); Defs.' Notice of Supplemental Authority (Oct. 29, 2008) [Dkt. No. 16].
Briefing on the present Motions was completed on September 25, 2006. Apart from Defendants' Notice of Supplemental Authority, neither party has submitted any briefing on the issue of whether the changes to the statute impact the issues in this case, although the relevant language of both statutes appears to be identical. When a statute is enacted after the events in issue and Congress has not "expressly prescribed the statute's proper reach," a court must "determine whether the new statute would have retroactive effect, i.e., whether it would impair rights a party possessed when he acted, increase a party's liability for past conduct, or impose new duties with respect to transactions already completed." Landgraf v. USI Film Prods., 511 U.S. 244, 280, 114 S.Ct. 1483, 128 L.Ed.2d 229 (1994). Because the statutes are substantively similar and therefore do not substantively alter the parties' rights, it is clear that 10 U.S.C. § 613a does not have retroactive effect. Accordingly, the relevant statute in this case is 10 U.S.C. § 618(f).
[9] Defendants cite to several cases to bolster their claim that Master Brief Sheets are "proceedings." Defs.' Mot. at 10-11. One such case is In re England, 375 F.3d 1169 (D.C.Cir. 2004). Neither party contests the case's holding that "[d]isclosure of selection board proceedings in civil discovery would certainly undermine, if not totally frustrate, the purpose of Section 618(f)." Id. at 11 (quoting In re England, 375 F.3d at 1178). Nor does either party contest that the information requested by the plaintiffs in that casetestimony of Selection Board members about the Selection Board proceedingsconstituted part of the "proceeding." While In re England affirms propositions on which both parties agree, it does not address the issue of what is encompassed in the term "proceedings" and therefore provides no support for Defendants' argument that Master Brief Sheets are "proceedings."
[10] Defendants argue that the information withheld in Miller v. Dep't of the Navy, 383 F.Supp.2d 5 (D.D.C.2005), rev'd on other grounds, 476 F.3d 936 (D.C.Cir.2007), is analogous to the information at issue in the present case. At issue in Miller was information redacted from a report by an inspector general. Id. at 7-8. The inspector general had been charged with reviewing whether the Selection Board's decision was "materially unfair" because one of the Selection Board members had conducted himself improperly during deliberations. Id. This review would have required the inspector general to examine the content of the Selection Board's deliberations, and thus the court noted in a footnote that the plaintiff had "provided the court with no reason" to conclude that the requested information was not subject to withholding pursuant to Exemption 3. See id. at 17 n. 3. In contrast, the information requested in this case does not involve the content of deliberations.
[11] As the Government states in its Opposition, "a District Court considering a FOIA action has `an affirmative duty to consider the segregability issue sua sponte.'" Defs.' Opp'n at 31 (citing Trans-Pacific Policing Agreement v. U.S. Customs Service, 177 F.3d 1022, 1028 (D.C.Cir.1999)). Here, the Court is simply segregating out what is purely factual data from the opinions, conversations, and deliberations that are protected under Section 618(f).
[12] Defendants' argument that Master Brief Sheets contain "key personnel data" is not relevant to the analysis of whether Master Brief Sheets are non-disclosable proceedings under FOIA Exemption 3 and 10 U.S.C. § 618(f). Instead, the disclosure of data that could be considered private is relevant to the analysis under Exemption 6. See infra III.C.
[13] It has come to the Court's attention that there was an error in this heading; it is corrected herein.
[14] See supra note 7.
[15] Plaintiff does not seem to contest this. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2410862/ | 382 F.Supp.2d 536 (2005)
Laura ZUBULAKE, Plaintiff,
v.
UBS WARBURG LLC, UBS Warburg, and UBS AG, Defendants.
No. 02 Civ. 1243SAS.
United States District Court, S.D. New York.
March 16, 2005.
*537 *538 *539 James A. Batson, Liddle & Robinson, LLP, New York City, for Plaintiff.
Bettina B. Plevan, Proskauer Rose LLP, New York City, for Defendants.
OPINION AND ORDER
SCHEINDLIN, District Judge.
Laura Zubulake is suing her former employer, UBS Warburg LLC (hereinafter "UBS"), for sex discrimination, including disparate treatment and wrongful termination, and retaliation in violation of, inter alia, Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000e et seq. Both parties have filed motions in limine that are addressed in this Opinion and Order.
I. PLAINTIFF'S MOTION TO PRECLUDE EVIDENCE OF HER PRIOR EMPLOYMENT
Plaintiff seeks to preclude defendants from using evidence of plaintiff's prior employment to show that she had a propensity for certain performance deficiencies. Defendants intend to proffer two categories of evidence. First, UBS seeks to introduce evidence of plaintiff's employment history, specifically the fact that she worked for ten different securities firms in a period of less than twenty years. Because *540 this evidence is relevant to plaintiff's ability to find subsequent employment it is admissible.
The second category of evidence involves plaintiff's poor work performance at Credit Suisse First Boston ("CSFB") and, in particular, the performance appraisal she received shortly before negotiating a severance package. See May 5th 1999 Memorandum from Jay Plourde entitled "Performance Deficiencies." Plaintiff claims that this is character evidence which is inadmissible under Federal Rule of Evidence 404(b). Defendants claim that this evidence is admissible because: (1) plaintiff's character is in issue;[1] (2) the evidence is proffered to prove matters other than plaintiff's character, specifically to rebut her contention that she was not insubordinate and uncooperative; and (3) the evidence is admissible to prove habit pursuant to Rule 406. Defendants' arguments are rejected.
An almost identical issue involving previous employment was addressed in Neuren v. Adduci, Mastriani, Meeks & Schill, 43 F.3d 1507 (D.C.Cir.1995). In that case, plaintiff sued her employer Adduci, Mastriani, Meeks & Schill ("AMM & S"), a Washington D.C. law firm, for sex discrimination in violation of Title VII. In addition to introducing evidence of plaintiff's performance problems at AMM & S, defendants introduced evidence concerning plaintiff's prior employment with another law firm, Dow, Lohnes & Albertson ("DL & A"). See id. at 85 (defendants introduced written evaluations of plaintiff's work at DL & A and related testimony regarding plaintiff's difficulties in getting along with staff and meeting deadlines while an associate at DL & A).
Defendants argued that the DL & A evidence was admissible to demonstrate that plaintiff had the same difficulties at a previous law firm that she had at AMM & S or, failing that, to impeach her testimony regarding her reasons for leaving DL & A. The court rejected the argument that the DL & A evidence was admissible because it demonstrated that plaintiff displayed similar work-related problems in her former employment. In finding that the district court abused its discretion in admitting this evidence, the court stated:
Both AMM & S and the district court misapprehend the Federal Rules' treatment of character evidence. Under Federal Rule of Evidence 404, "[e]vidence of a person's character or a trait of [her] character is not admissible for the purpose of proving that [she] acted in conformity therewith on a particular occasion," except in certain defined circumstances none of which is present here. Fed.R.Evid. 404(a). Additionally, Rule 404(a) provides specifically that evidence of prior acts cannot be introduced to prove the character of a person in order to show that she acted in conformity therewith. Fed.R.Evid. 404(b). When the district court admitted the DL & A evidence relating to Neuren's difficulties with personal relationships at that firm, it noted that the evidence was "relevant with respect to how she performed at another firm.... [AMM & S is] just showing that this is the same problem that this woman had." (citation *541 omitted). Thus, the district court admitted the evidence for the purpose specifically prohibited by Rule 404 as evidence that she acted in conformity with her behavior at DL & A while working for AMM & S.
The DL & A character evidence does not fall within any of the exceptions expressly contemplated by Rule 404(b). See Fed.R.Evid. 404(b) (exceptions for proof of motive, opportunity, intent, preparation, plan, knowledge, identity, or absence of mistake or accident). Moreover, appellee's argument that this evidence is admissible because character was "in issue" in the case is equally unavailing. Under the "character in issue" doctrine, character evidence is admissible where character itself is "an element of a crime, claim, or defense." Fed.R.Evid. 404(a), Notes of Advisory Committee on Proposed Rules. An example of evidence admissible where character is "in issue" is evidence of the chastity of a victim in a prosecution for the crime of seduction where chastity is an element of that crime. Id. In this case, AMM & S has not offered a plausible theory under which Neuren's character could be considered an element of its defense. AMM & S's business justification for Neuren's termination was that she had difficulty in interpersonal relationships with co-workers and in meeting deadlines. Strictly speaking, this defense is based on Neuren's behavior at the firm, not her character. Consequently, her character was not "in issue" in the sense contemplated by the exception to the rule.
Id. at 511. Several lower courts in the District of Columbia have reached similar conclusions. In Zenian v. District of Columbia, 283 F.Supp.2d 36 (D.D.C.2003), the District wanted to introduce documentary evidence pertaining to plaintiff's performance problems prior to July 1995. The district court precluded such use, stating:
If the District is offering the evidence to show that plaintiff has always been a bad employee, it is doing exactly what it cannot do: introduce evidence of a person's character to prove that his behavior on one or more occasions was consistent with that character. Fed.R.Evid. 404(a). The only purpose of proving that plaintiff was a bad employee before 1995 is to prove that he was an equally bad employee after 1995. That, of course, is exactly what a litigant cannot do.
Id. at 40. See also Rauh v. Coyne, 744 F.Supp. 1181 (D.D.C.1990) (holding inadmissible evidence concerning plaintiff's job performance before and after her employment at defendants' establishment).
The reasoning found in these cases is persuasive. Because this is an employment discrimination case, plaintiff's character is not in issue, either as an essential element of a claim or defense. See EEOC v. HBE Corp. 135 F.3d 543, 553 (8th Cir.1998) (plaintiff's moral character was not an essential element of his retaliatory discharge claim). And no matter how defendants try to frame their intended use whether to rebut plaintiff's contention that she was not insubordinate and uncooperative or whether to prove that she was insubordinate and uncooperative outright they are seeking to introduce inadmissible propensity evidence. Because none of the exceptions found in Rule 404(b) apply here, such evidence is inadmissible to prove that plaintiff acted insubordinately at UBS.
Finally, defendants argue that the evidence at issue is admissible under Rule 406 as evidence of plaintiff's habit of behaving insubordinately in response to conflicts in the workplace. Rule 406 provides as follows: "Evidence of the habit of a *542 person or of the routine practice of an organization ... is relevant to prove that the conduct of the person or organization on a particular occasion was in conformity with the habit or routine practice." The Advisory Committee Note to Rule 406 of the Federal Rules of Evidence defines "habit" as follows: "`A habit ... is the person's regular practice of meeting a particular kind of situation with a specific type of conduct, such as the habit of going down a particular stairway two stairs at a time, or of giving the hand-signal for a left turn, or of alighting from railway cars while they are moving. The doing of the habitual acts may become semi-automatic.'" Fed.R.Evid. 406, Advisory Committee Note (quoting McCormick on Evidence, § 195 at 462-63 (2d. ed.1972)).
Habit is conduct that is situation-specific, i.e., specific, particularized conduct capable of almost identical repetition. Character, on the other hand, is a generalized description of a person's disposition or a general trait such as honesty, violence or peacefulness. There is a tension between Rule 404 (character) and Rule 406 (habit) which stems from the difficulty in distinguishing between admissible evidence of habit and inadmissible character evidence. See Simplex, Inc. v. Diversified Energy Sys., Inc., 847 F.2d 1290, 1293 (7th Cir.1988) ("We are cautious in permitting the admission of habit or pattern-of-conduct evidence under Rule 406 because it necessarily engenders the very real possibility that such evidence will be used to establish a party's propensity to act in conformity with its general character, thereby thwarting Rule 404's prohibition against the use of character evidence except for narrowly prescribed purposes.").
"[B]efore a court may admit evidence of habit, the offering party must establish the degree of specificity and frequency of uniform response that ensures more than a mere `tendency' to act in a given manner, but rather, conduct that is `semi-automatic' in nature." Id. "Although a precise formula cannot be proposed for determining when the behavior may become so consistent as to rise to the level of habit, `adequacy of sampling and uniformity of response' are controlling considerations." Reyes v. Missouri Pac. R.R. Co., 589 F.2d 791, 795 (5th Cir.1979) (quoting Notes of Advisory Committee). "It is only when examples offered to establish such pattern of conduct or habit are numerous enough to base an inference of systematic conduct, that examples are admissible." Loughan v. Firestone Tire & Rubber Co., 749 F.2d 1519, 1524 (11th Cir.1985) (internal quotation marks and citation omitted).
These principles have been applied to exclude evidence of conduct that falls short of the definition of habit. One such case is Becker v. ARCO Chem. Co., 207 F.3d 176 (3d Cir.2000), an age discrimination case. In that case, defendant offered a legitimate non-discriminatory reason for its termination of Becker. To rebut that defense, Becker offered evidence that ARCO had previously fabricated evidence of a legitimate reason for terminating one of Becker's co-employees, Linwood Seaver. See id. at 183, 185. Specifically, Becker testified that two of his supervisors solicited his assistance in fabricating evidence of Seaver's poor performance on a particular project to facilitate Seaver's termination. See id. at 185.
"[T]he district court found Becker's testimony admissible under Rule 404(b) because it was evidence of a scheme or plan of fabricating reasons used by the decisionmaker in terminating employees." Id. at 189 (internal quotation marks and citation omitted). The appellate court rejected this reasoning. See id. at 201 ("[W]e hold that standing alone, the similarities between the Seaver evidence and the allegation of fact in this case do not provide *543 a sufficient foundation from which the existence of ARCO's `scheme or plan' of fabricating reasons in terminating its employees may be inferred so as to justify admitting the Seaver evidence on that basis.").
The district court also found the Seaver evidence admissible "under the theory that it tended to show ARCO's `habit' when confronted with the task of having to terminate its employees." Id. at 204. The appellate court disagreed:
Clearly, Rule 406 does not support the introduction of the Seaver evidence on the basis that it was ARCO's "habit" to fabricate reasons for terminating its employees. The Seaver evidence did not show ARCO's "regular response to a specific situation," as the nature of the alleged conduct the fabrication of reasons to justify its employees' dismissals is not the sort of semi-automatic, situation-specific conduct admitted under the rule. Moreover, the Seaver evidence ostensibly showed only, at best, one other instance in which ARCO exhibited its alleged repetitive behavior.
Id.
Similarly, in McCarrick v. New York City Off-Track Betting Corp., No. 91 Civ. 5626, 1995 WL 261516, at *5 (S.D.N.Y. May 3, 1995), the plaintiff argued that witnesses should have been allowed to testify as to OTB's policy of discriminating against its employees on the ground that OTB's conduct constituted habit evidence admissible under Rule 406. The court rejected this argument stating that "[i]n order to be admissible under this rule ... the conduct at issue must constitute a `regular response to a repeated specific situation.'" Id. (quoting Thompson v. Boggs, 33 F.3d 847, 854 (7th Cir.1994)). The court found that "evidence of an employer's overall policy of discrimination against several individuals under varying circumstances is not the sort of repeated conduct covered by Rule 406." Id.
Here, plaintiff's alleged insubordination and lack of teamwork at CSFB was in response to the specific circumstances plaintiff confronted at that job. In other words, plaintiff's conduct at CSFB resulted from many factors, including her interaction with supervisors and other employees, within the CSFB working environment. Plaintiff's experience at UBS was necessarily different because UBS had a working environment distinct from that at CSFB. Plaintiff's alleged insubordination and lack of teamwork at UBS therefore cannot be seen as habit because it is not "a regular response to a repeated specific situation." In any event, insubordination at two securities firms is not of sufficient frequency to show the type of semi-automatic conduct envisioned in Rule 406. The CSFB Performance Deficiency Memorandum is therefore not admissible as habit evidence under Rule 406.
In addition to the prohibition found in Rule 404(b) and the inapplicability of Rule 406, there is another reason to preclude the admission of the CSFB Memorandum. To admit the Memorandum would, in effect, create a trial within a trial. Absent a stipulation, documents must be authenticated before they are admitted. That means that someone from CSFB would have to testify as to the Memorandum's authenticity. Then, both sides would likely call witnesses to testify regarding plaintiff's performance at CSFB. Weighing the slight probative value of this evidence against the confusion it would cause the jury and the inevitable delay in the core trial proceedings, I also find the proffered evidence inadmissible under Rule 403.
*544 II. DEFENDANTS' MOTIONS
A. To Preclude Alleged Acts of Discrimination Against Another UBS Employee
Defendants seek to preclude plaintiff from introducing evidence of alleged acts of discrimination directed at sales assistant Peggy Yeh by Matthew Chapin, the Manager of the U.S. Asia Equities Sales Desk. These acts include: (1) use of the expressions "chicks" and "yellow fever" when referring to Asian women; (2) asking whether Yeh planned to wear a one-piece or two-piece bathing suit on vacation; (3) asking whether Yeh had any "weekend exploits;" (4) stating his belief that extramarital affairs between consenting adults were acceptable; and (5) his suggestion that Yeh use her feminine charms to improve client relationships. Defendants also seek to preclude an alleged statement made by co-worker Robert Hrabchak, who responded to Yeh's comments belittling him at an employee dinner by saying "fuck me, Peggy."[2] Finally, defendants also seek to preclude any evidence concerning Yeh's exit interview at UBS, in which Yeh allegedly described discriminatory comments and conduct by Chapin and Hrabchak.[3]
"As a general rule, the testimony of other employees about their treatment by the defendant is relevant to the issue of the employer's discriminatory intent." Spulak v. K Mart Corp., 894 F.2d 1150, 1156 (10th Cir.1990) (collecting cases). The Ninth Circuit cited Spulak in stating that "[i]t is clear that an employer's conduct tending to demonstrate hostility towards a certain group is both relevant and admissible where the employer's general hostility towards that group is the true reason behind firing an employee who is a member of that group." Heyne v. Caruso, 69 F.3d 1475, 1479 (9th Cir.1995). In addition, the Third Circuit has recognized that, as a general rule, "evidence of a defendant's prior discriminatory treatment of a plaintiff or other employees is relevant and admissible under the Federal Rules of Evidence to establish whether a defendant's employment action against an employee was motivated by invidious discrimination." Becker, 207 F.3d at 194 n. 8.
The type of discrimination directed at other employees must be similar in nature to that experienced by the plaintiff in order to make the "other employee" conduct admissible. In Heyne, for example, the plaintiff claimed she was fired for rejecting the sexual advances of her employer, Mario Caruso. See Heyne, 69 F.3d at 1477. The court admitted evidence of the employer's sexual harassment of other female employees, stating as follows:
Evidence of Caruso's sexual harassment of other female workers may be used, however, to prove his motive or intent in discharging Heyne. The sexual harassment of others, if shown to have occurred, is relevant and probative of Caruso's general attitude of disrespect toward his female employees, and his sexual objectification of them. That attitude is relevant to the question of Caruso's motive for discharging Heyne.
Id. at 1480 (citation omitted). The court found that the probative value of this evidence outweighed the danger of unfair prejudice.
*545 There is no unfair prejudice, however, if the jury were to believe that an employer's sexual harassment of other female employees made it more likely that an employer viewed his female workers as sexual objects, and that, in turn, convinced the jury that an employer was more likely to fire an employee in retaliation for her refusal of his sexual advances. There is a direct link between the issue before the jury the employer's motive behind firing the plaintiff and the factor on which the jury's decision is based the employer's harassment of other female employees.
Id. at 1481.
Two types of discrimination are at play: (1) the sexual harassment experienced by Yeh because of Chapin's attraction to her; and (2) the alleged unfavorable treatment of plaintiff by Chapin because she is a woman. Facially, the two types of discrimination appear to differ, one being the kind of harassment seen in hostile work environment cases and the other being disparate treatment. But there is a common thread both result from Chapin's non-performance based reaction to individuals based on their gender and they both degrade individuals because of their sex, albeit in different ways.
In Becker, the Third Circuit noted that the courts that admitted other employee evidence did so because the discriminatory nature of the conduct tended to show the employer's state of mind or attitude toward members of the protected class. See id., 207 F.3d at 194 n. 8. Similarly, the Eighth Circuit reversed a jury verdict for defendant in an age and race discrimination suit where the district court excluded, on relevance grounds, "evidence which tended to show a climate of race and age bias at [defendant's company]." Estes v. Dick Smith Ford, Inc., 856 F.2d 1097, 1102 (8th Cir.1988), abrogated on other grounds by Price Waterhouse v. Hopkins, 490 U.S. 228, 109 S.Ct. 1775, 104 L.Ed.2d 268 (1989).[4] In Estes, the court noted that an employer's prior or ongoing discriminatory conduct is indeed relevant to proving a particular instance of discrimination. See id. at 1102. See also Phillip v. ANR Freight Sys., Inc., 945 F.2d 1054 (8th Cir.1991) (stating that "`background evidence may be critical for the jury's assessment of whether a given employer was more likely than not to have acted from an unlawful motive'") (quoting Estes, 856 F.2d at 1103).
Accordingly, plaintiff may introduce evidence of Chapin's allegedly discriminatory treatment of Yeh, including use of the phrase "yellow fever."[5] In addition, defendants *546 will likely offer evidence that four of the seven people Chapin hired were women, albeit all of them were Asian. Chapin's comments to Yeh, particularly his use of the phrase "yellow fever," indicate his attraction to Asian women. The fact that he hired and promoted four women, all from the group he finds sexually attractive, does not negate the possibility of discrimination against non-Asian women. Thus, plaintiff would be allowed to offer the Yeh evidence, in any event, to rebut this defense.
B. To Preclude Irrelevant Testimony
1. Court Decisions and Discovery
Defendants contend that this Court's previous decisions in this case, including the imposition of sanctions on UBS, are irrelevant to plaintiff's discrimination claims and would unfairly prejudice UBS. Defendants are right. Placing the five previous decisions in this case before the jury would serve no legitimate purpose. The jurors will be told all they need to know through the evidence admitted at trial and my charge. There is no need to reference my earlier decisions.
Defendants also argue that none of the correspondence between counsel on discovery matters is relevant to plaintiff's claims or the adverse inference instruction and seek to preclude plaintiff from introducing this evidence. In Zubulake v. UBS Warburg LLC, No. 02 Civ. 1243, 2004 WL 1620866, at *5 (S.D.N.Y. July 20, 2004) ("Zubulake V"), I found that "UBS personnel unquestionably deleted relevant e-mails from their computers after August 2001, even though they had received at least two directions from counsel not to." I also found that "UBS acted wilfully in destroying potentially relevant information, which resulted either in the absence of such information or its tardy production...." Id. at *12. I therefore concluded that the appropriate remedy was an adverse inference instruction with respect to e-mails deleted after August 2001. See id. at *13. The text of the adverse inference instruction I intend to give the jury in this case is set forth at the end of Zubulake V. It states, in pertinent part, as follows: "You may also consider whether you are satisfied that UBS's failure to produce this information was reasonable."
In light of the above, plaintiff may introduce correspondence between counsel on discovery matters if defendants open the door by introducing evidence as to whether their failure to produce was reasonable. If defendants decide not to offer proof that their failure to produce certain e-mails (or late production of other e-mails) was justified, plaintiff will not be permitted to introduce any of the correspondence between counsel in her case in chief.
2. Back-Up Tapes
Defendants seek to preclude any evidence concerning the failure by UBS to preserve several monthly back-up tapes. In Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, (S.D.N.Y.2003) ("Zubulake IV"), I stated the following:
Whether a company's duty to preserve extends to backup tapes has been a grey area. As a result, it is not terribly surprising that a company would think that it did not have a duty to preserve all of its backup tapes, even when it reasonably anticipated the onset of litigation. Thus, UBS's failure to preserve all potentially relevant backup tapes was merely negligent, as opposed to grossly negligent or reckless.
Id. at 220. The destruction of some of the backup tapes may be relevant to UBS's justification for failing to produce some of the e-mails sent or received in August and September 2001. However, for the reasons stated with regard to attorney correspondence, the choice as to whether to *547 introduce such evidence is left to defendants. Plaintiff can introduce evidence of backup tape destruction if, and only if, defendants first open the door to such evidence.
3. Securities Exchange Commission Compliance
According to defendants, any testimony about UBS's compliance with Securities Exchange Commission ("SEC") Rule 17a-4 is irrelevant and should be excluded. Defendants correctly point out that this case does not arise out of any alleged failure by UBS to comply with SEC Rule 17a-4. Admitting testimony of UBS's noncompliance with the Rule would only serve to unfairly prejudice the jury against UBS. I previously noted that "[i]n the absence of a clear professional duty, the only obvious reason for Zubulake to disclose this material to regulators is to gain leverage against UBS in this action." Zubulake v. UBS Warburg LLC, No. 02 Civ. 1243, 2003 WL 21087136, at *2 (S.D.N.Y. May 13, 2003) ("Zubulake II"). This same observation applies to plaintiff presenting evidence of alleged violations of SEC Rule 17a-4 to the jury, which could cause undue prejudice. This evidence is excluded even if defendants seek to prove the reasonableness of their non-production of certain e-mails.
4. Chapin's Arrest
Defendants also seek to prevent plaintiff from introducing testimony and documents concerning Chapin's arrest for disorderly conduct which occurred during a client outing with Leland Timblick. In her initial opposition papers, plaintiff states that she does not intend to present evidence of Chapin's arrest at trial. See Pl. Opp. at 3, n. 3. However, in her supplemental opposition papers, plaintiff reserves the right to testify as to Chapin's arrest should defendants raise the issue of plaintiff's perceived lack of respect for Chapin as her manager. See Plaintiff's Supplemental Memorandum of Law in Opposition to Defendants' Motions in Limine. Plaintiff's request is denied. The resulting prejudice from proof of this arrest would outweigh its probative value. Furthermore, the conduct resulting in the arrest does not relate in any way to the truthfulness of the witness. See Fed.R.Evid. 608(b).
5. Chapin's Alleged Prior Conduct
Defendants seek to preclude testimony of Chapin's alleged discriminatory conduct at other firms. Such evidence includes rumors that Chapin sexually harassed a former colleague at HSBC, allegations that he discriminated against women at his prior place or places of employment, and a former colleague's reference to him as a "misogynist." Defendants argue that such hearsay testimony is barred by Rule 602 as plaintiff has no personal knowledge of Chapin's prior conduct. In response, plaintiff has stated that although she herself will not give such testimony, she may call individuals who do have actual knowledge, including Raymond Tam and Michael Bugel, both of whom were formerly employed by HSBC. See Pl. Opp. at 5-6.
In a telephone conference held on March 15, 2005, plaintiff conceded that she does not intend to call either witness in her direct case. Whether she is entitled to call either witness on rebuttal is an open question, but it is highly unlikely that this Court would permit such testimony for the same reasons discussed in Part I, supra, with regard to character evidence.
6. Demographics of Senior Management
Defendants anticipate that plaintiff will proffer her own testimony concerning the number of women in senior positions at UBS. Plaintiff has stated that she *548 does not intend to provide such testimony unless UBS opens the door. See id. at 6. Plaintiff is permitted to testify to her own observations.
7. September 2001 Conference
Defendants seek to preclude evidence of Chapin's decision not to cancel a conference in New York attended by visitors from China during the wake of the September 11, 2001 tragedy. Plaintiff claims that such evidence is relevant to discrediting an e-mail in which Chapin describes as false Zubulake's statement to another salesperson that Peggy Yeh was forced to attend the conference. This is surely a collateral issue. The e-mail, in fact, is favorable to defendants as it highlights plaintiff's alleged insubordination in saying negative things about Chapin to others. Whether or not Yeh, in fact, felt pressured to attend the conference is irrelevant. Furthermore, the probative value of this evidence, if any, is completely outweighed by the danger of unfair prejudice given the emotions associated with the attacks of September 11th. This evidence is therefore excluded.
8. Client Functions
Defendants argue that evidence that plaintiff's co-workers organized client trips to strip clubs is irrelevant to plaintiff's claims. Although plaintiff has not alleged a hostile work environment, she has alleged discriminatory treatment, including the purposeful exclusion from client outings. Having client outings at strip clubs, knowing that women would obviously not want to attend, is one such method of exclusion. Therefore, evidence of these outings is relevant and will be admitted.
C. To Preclude Certain Stray Remarks
Defendants anticipate that plaintiff will seek to admit evidence that: (1) Derek Hillen, a UBS employee, referred to a male contact as a "dickhead" in an e-mail to Chapin and plaintiff;[6] and (2) an e-mail from Andrew Clarke, a co-worker on the Desk, in which he stated that plaintiff and a co-worker, Lisa Marrapodi, were engaging in a "mutual bitch session."[7] Clarke, however, was not a decision-maker, nor was he accused by plaintiff of discriminating against her. Accordingly, Clarke's stray remark is not evidence of discrimination and is therefore excluded. See Minton v. Lenox Hill Hosp., 160 F.Supp.2d 687, 695 (S.D.N.Y.2001) (stating that it is well established that "[a]s a general matter, stray comments are not evidence of discrimination if ... they are made by individuals without decision-making authority") (internal quotation marks and citation omitted, ellipsis in original).
D. To Preclude Testimony from Defendants' Attorneys
Plaintiff has indicated that she intends to elicit testimony from defendants' counsel, including Kevin LeBlang, Norman Simon and Robert Salzberg, regarding the preservation of e-mails and back-up tapes. Defendants claim that such testimony would be cumulative as defendants have already produced documents regarding UBS's official retention policies and the requests made to employees to retain documents. Moreover, the risk that privileged communications could be probed during trial is arguably too great to permit plaintiff to call opposing counsel to testify. I do not see any legitimate need plaintiff *549 may have for calling opposing counsel given the extensive discovery on the issue of e-mail and back-up tape preservation and retention. Plaintiff is therefore precluded from calling LeBlang, Simon and Salzberg as witnesses. See In re Grand Jury Subpoena Dated October 22, 2001, 282 F.3d 156, 160 (2d Cir.2002) (quashing grand jury subpoena directed to attorney and finding that work product establishes a "zone of privacy for an attorney's preparation to represent a client in anticipation of litigation"); ResQNet.com, Inc. v. Lansa, Inc., No. 01 Civ. 3578, 2004 WL 1627170, at *6 (S.D.N.Y. July, 23, 2004) (holding that the risk of encountering work product and privilege issues and the amount of discovery already conducted are factors courts must consider in determining whether counsel may be deposed).
SO ORDERED.
NOTES
[1] Character may itself be an element of a crime, claim or defense. See Advisory Committee Note to Subdivision (a). One example is the chastity of a victim under a statute requiring chastity as an element of the crime of seduction. See id. These kinds of situations are commonly referred to as "character in issue" cases. See id. In these cases, Rule 404 does not apply and the relevant character evidence is admissible. This case is not covered by the exception. A plaintiff's character is not an essential element of any claim or defense in an employment discrimination case. The prohibitions of Rule 404 therefore apply.
[2] Plaintiff does not intend to offer any evidence of this statement. See Plaintiff's Memorandum of Law in Opposition to Defendants' Motions in Limine ("Pl.Opp.") at 3, n. 2.
[3] Lauren Cullinane is the Human Resources employee who conducted Yeh's exit interview. Cullinane's testimony as to what Yeh told her during that interview and her contemporaneous notes of what Yeh told her are not hearsay if offered for the limited purpose of rebutting a charge of recent fabrication. See Fed.R.Evid. 801(d)(1)(B).
[4] In Estes, the district court excluded background evidence concerning defendant's workforce on materiality grounds because Estes presented an individual disparate treatment case, not a disparate impact case. See id. at 1103. The court stated that "it is hard to see how evidence which suggests that Ford discriminated against blacks in hiring would be irrelevant to the question of whether it fired a black employee because of his race." Id.
[5] Defendants' reliance on Haskell v. Kaman Corp., 743 F.2d 113 (2d Cir.1984), is misplaced. In Haskell, the Second Circuit held that testimony of six former employees had been admitted in error because that testimony did not produce statistically significant evidence of a pattern and practice of discrimination. Thus, the court found that the probative value of the evidence was outweighed by the prejudicial impact of "a parade of witnesses, each recounting his contention that defendant laid him off because of his age." Id. at 122. Haskell is a decision addressing the value of statistical evidence in which the sample was held to be too small. Because the plaintiff in Haskell proffered the evidence to show a "pattern and practice" of discrimination, the court did not discuss whether the evidence was probative of a discriminatory attitude on the part of the employee's supervisor. Haskell, therefore, is not a controlling case here.
[6] Plaintiff does not intend to introduce evidence of Hillen's e-mail. See Pl. Opp. at 7, n. 5.
[7] Defendants also seek to exclude Chapin's use of the expression "yellow fever" when referring to Asian women. This issue has been addressed in Part II.A of this Opinion. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2413411/ | 192 F. Supp. 2d 31 (2001)
Ginger HART o/b/o Ginger E. HART, Plaintiff,
v.
Larry G. MASSANARI, Acting Commissioner of Social Security, Defendant
No. 00-CV-6327 CJS.
United States District Court, W.D. New York.
November 8, 2001.
Catherine M. Callery, Esq., Public Interest Law Office of Rochester, Rochester, for the Plaintiff.
Kathleen M. Mehtretter, United States Attorney, By Christopher V. Taffe, Rochester, of Counsel: Barbara L. Spivak, Chief CounselRegion II, Ivelisse Clausell, Assistant Regional Counsel, Office of the General Counsel, Social Security Administration, for the Defendant.
DECISION AND ORDER
SIRAGUSA, District Judge.
I. INTRODUCTION
Plaintiff brought this action on behalf of her minor daughter pursuant to 42 U.S.Code § 405(g) to review the final determination of the Acting Commissioner of Social Security ("Commissioner") who denied plaintiff's application for disability benefits. Before the Court is the Commissioner's motion for judgment on the pleadings (docket # 8) seeking an order affirming the Commissioner's denial of benefits, and plaintiff's cross-motion for judgment *32 on the pleadings (docket # 10) seeking an order reversing the Commissioner's decision and remanding for calculation of benefits. For the reasons stated below, the Court denies the Commissioner's motion and grants plaintiff's motion.
II. BACKGROUND
Ginger E. Hart ("Ginger") was born on February 24, 1984, making her 17 years old now. Plaintiff claims her daughter is disabled and entitled to benefits under section 1602 of the Social Security Act, Supplemental Security Income for the Aged, Blind, and Disabled (codified at 42 U.S.Code § 1381a). Plaintiff protectively filed an application for supplemental security income on October 6, 1996. The application was denied initially and on reconsideration. Plaintiff filed a request for a hearing before an Administrative Law Judge ("ALJ") and the hearing was held on April 6, 1998. On April 20, 1998, the ALJ found Ginger was not eligible for supplemental security income. That decision became the Commissioner's final decision when the Appeals Council denied plaintiff's request for review on May 19, 2000. Plaintiff commenced a civil action in this court on July 13, 2000. Oral argument on plaintiff's and defendant's motions for judgment on the pleadings was held before the Court on October 18, 2001. In considering the Commissioner's and plaintiff's motions for judgment on the pleadings, the Court has carefully considered the pleadings, the entire administrative record, and the comments of counsel made during oral argument.
III. DISCUSSION
A. THE STANDARD OF REVIEW
The issue to be determined by this Court is whether the Commissioner's conclusions "are supported by substantial evidence in the record as a whole or are based on an erroneous legal standard." Schaal v. Apfel, 134 F.3d 496, 501 (2d Cir.1998). It is well settled that
it is not the function of a reviewing court to determine de novo whether the claimant is disabled. Assuming the Secretary [Commissioner] has applied proper legal principles, judicial review is limited to an assessment of whether the findings of fact are supported by substantial evidence; if they are supported by such evidence, they are conclusive.
Parker v. Harris, 626 F.2d 225, 231 (2d Cir.1980). Substantial evidence is defined as "more than a mere scintilla. It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Id. at 231-32. Where there are gaps in the administrative record or where the Commissioner has applied an incorrect legal standard, remand for further development of the record may be appropriate. Id. at 235. However, where the record provides persuasive proof of disability and a remand would serve no useful purpose, the Court may reverse and remand for calculation and payment of benefits. Id.
B. THE STANDARD FOR DETERMINING DISABILITY FOR A CHILD
The Social Security Act's Supplemental Security Income ("SSI") program is a federal program designed to meet the needs of needy aged, blind, or disabled individuals who meet certain statutory income and resource limitations. See 42 U.S.Code § 1381. In 1996 Congress passed the Personal Responsibility and Work Opportunity Reconciliation Act which established new standards by which child SSI claims based on a disability are adjudicated. The new statute provides that,
(i) An individual under the age of 18 shall be considered disabled for the purposes of this subchapter if that individual *33 has a medically determinable physical or mental impairment, which results in marked and severe functional limitations, and which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.
42 U.S.Code § 1382c(a)(3)(C)(i). This section was added by Public Law 104-193, see 62 Fed.Reg. 6409 (Feb. 11, 1997), which also required the Commissioner to revise his regulations for determining a child's disability. The parties agree that these regulations, first published in the Federal Register on February 11, 1997, see 62 Fed. Reg. 6407-6432 (Feb. 11, 1997), and corrected by 62 Fed.Reg. 13733 (Mar. 21, 1997), are applicable to this case. Under those regulations, the Commissioner determines whether the child's impairment or combination of impairments meets, medically equals or functionally equals, in severity any impairment contained in the listings at 20 Code of Federal Regulations, Part 404, Subpart P, Appendix 1. If the impairment or combination of impairments does not meet or medically equal a listed impairment, the Commissioner then must determine whether the child's impairment "functionally equals" a listed impairment. The steps for a disability determination are set out in the Federal Register as follows:
§ 416.924 How we determine disability for children. (a) Steps in evaluating disability. We consider all relevant evidence in your case record when we make a determination or decision whether you are disabled. If you allege more than one impairment, we will evaluate all the impairments for which we have evidence. Thus, we will consider the combined effects of all your impairments upon your overall health and functioning. We will also evaluate any limitations in your functioning that result from your symptoms, including pain (see § 416.929). When you file a new application for benefits, we use the evaluation process set forth in (b) through (d) of this section. We follow a set order to determine whether you are disabled. If you are doing substantial gainful activity, we will determine that you are not disabled and not review your claim further. If you are not doing substantial gainful activity, we will consider your physical or mental impairment(s) first to see if you have an impairment or combination of impairments that is severe. If your impairment(s) is not severe, we will determine that you are not disabled and not review your claim further. If your impairment(s) is severe, we will review your claim further to see if you have an impairment(s) that meets, medically equals, or functionally equals in severity any impairment that is listed in appendix 1 of subpart P of part 404 of this chapter. If you have such an impairment(s), and it meets the duration requirement, we will find that you are disabled. If you do not have such an impairment(s), or if it does not meet the duration requirement, we will find that you are not disabled.
20 C.F.R. § 416.924 as published in[1] 62 Fed.Reg. 6408, 6421-22 (Feb. 11, 1997).
To determine functional equivalence, the Commissioner employs four methods. The first is called the limitation of specific functions. Under this method, the Commissioner will find that a child's impairments are functionally equivalent in severity to a listed impairment because of extreme limitation of one specific function, such as walking or talking. See 20 C.F.R. *34 § 416.926a(b)(1) as published in 62 Fed. Reg. 6408, 6424-28 (Feb. 11, 1997).
The second method is called broad areas of development or functioning. As the name implies, the Commissioner will evaluate the effect of the child's impairments in broad areas of development or functioning. For children between the ages of three and eighteen, the Commissioner will evaluate their development in the areas of cognitive/communicative function, motor function, social function, personal function and concentration, persistence or pace. See 20 C.F.R. 416.926a(c)(4) as published in 62 Fed.Reg. 6408, 6425-26. If a child has extreme limitations in one area, or marked limitation in two areas of functioning, the Commissioner will find that the child's impairment is functionally equivalent in severity to a listed impairment. See 20 C.F.R. § 416.926a(b)(2) as published in 62 Fed.Reg. 6408, 6425. It is this second method that was employed in the case before the Court. As to that method, while the ALJ found that Ginger has a marked impairment in the area of social functioning, Record of Proceedings ("R.") at 19, plaintiff claims that the ALJ erred by not finding Ginger has an extreme impairment.
The third method is called "episodic impairments," and is used to evaluate chronic impairments characterized by frequent illness or attacks. Finally, the fourth method evaluates limitations related to treatment or medication effects. Neither of these two methods was used here. See R. at 20.
C. THE ALJ'S DECISION
After evaluating the evidence, the ALJ determined as the first step in the sequential evaluation process that Ginger had never done any work or earned any wages. R. at 19. See 20 C.F.R. § 416.924(a) as published in 62 Fed.Reg. 6408, 6421. In step two, the ALJ found that Ginger's impairments were "severe" within the meaning of the Social Security Act, "as they are more than slight abnormalities causing more than minimal functional limitations. Specifically, those impairment are Attention Deficit Disorder (ADD), Oppositional Defiant Disorder (ODD), and a learning disorder characterized by emotional disturbance." R. at 19.
The ALJ reached the third step of the sequential evaluation process and determined that Ginger's impairments did not meet or equal those listed in Appendix 1, Subpart P of Regulation No. 4. The ALJ found that Ginger did not have a marked or extreme limitation of any specific function. He then assessed whether she had any disabling broad functional limitations, including cognitive/communicative, motor, social, personal, and concentration, persistence or pace. R. at 20; see 20 C.F.R. § 416.926a(c)(4) as published in 62 Fed. Reg. 6408, 6426. He examined these areas in detail in his decision, and found no disabling limitations. He concluded, therefore, that she was not eligible for SSI benefits.
D. EVIDENCE OF GINGER'S SOCIAL FUNCTIONING
The first Committee on Special Education from Ginger's school in June 1995 (fourth grade) noted her history of "pervasive social delays and lack of self control." R. at 133. Specifically, their report stated on this point:
Information presented indicates that Ginger is struggling with social development. She has difficulty expressing her feelings and will often separate herself from others. She has a low self-esteem and often seeks attention through deviant and aggressive behaviors. Her behaviors range from flat and lethargic to aggressive verbally and physically. Ginger *35 works hard to distance herself from others and rarely smiles. She had difficulty trusting others and cannot express her wants and needs clearly....
Minutes of Committee on Special Education (June 27, 1995) at 1 ( R. at 133). At that time, she was placed in a 15:1 program (a classroom with 15 students and one teacher). R. at 134. Her individualized education plan ("IEP") noted she needed to improve her peer and adult relations. R. at 142. It also noted that she "[i]nteracts appropriately 1:1 with adult support." Id.
The following year, she was suspended for assaulting a school sentry. R. at 105. The Superintendent of the Rochester City School District decided, however, to continue her in classification and placement. Id. The minutes of the Committee on Special Education indicate that "Ginger is view[ed] as being socially immature." R. at 112. Her classroom teacher indicated on a form dated May 1995 that Ginger had two incidents of aggressive behavior towards staff at the beginning of the school year. A classroom observer noted on the same form that Ginger got along fairly well with the teacher, but never spoke to any of her peers during the 45 minute observation period. R. at 169. Her classroom teacher noted that, "Ginger has problems making friends in the school. She is withdrawn in group situations." R. at 171. In a school questionnaire presented by the ALJ to Ginger's teacher on January 7, 1998, the teacher opined that Ginger had a severe emotional impairment, and that she, "frequently has arguments, has pushed staff & physically confronted [staff]," which the teacher rated as a severe impairment. R. at 187-91.
E. ANALYSIS
Plaintiff alleges that the ALJ erred by failing to find that Ginger has an extreme impairment in the area of social functioning. The regulations provide, in part, that the domain of social functioning for 12-18 year old children includes:
(C) Social functioning (age 12 to attainment of age 18): Your ability or inability to initiate and develop friendships, to relate appropriately to individual peers and adults and to peer and adult groups, and to reconcile conflicts between yourself and peers or family members or other adults outside your family.
20 C.F.R. § 416.926a(c)(5)(v)(C) as published in 62 Fed.Reg. 6408, 6428 (Feb. 11, 1997).
The regulation explains that a "marked" limitation means one which is "`more than moderate' and `less than extreme'." 20 C.F.R. § 416.926a(c)(3)(i)(C) as published in 62 Fed.Reg. 6408, 6426 (Feb. 11, 1997). An "extreme" limitation is defined in the regulation as "no meaningful function in a given area." 20 C.F.R. § 416.926a(c)(3)(ii)(C) as published in 62 Fed.Reg. 6408, 6426 (Feb. 11, 1997). In the current version of 20 C.F.R. § 416.926a, however, the Commissioner defines extreme as, "when your impairment(s) interferes very seriously with your ability to independently initiate, sustain, or complete activities." 20 C.F.R. § 416.926a(e)(3)(i) (2000). Plaintiff argues that under this definition of extreme, "there should be no question that Ginger's impairment causes extreme social limitations." Plaintiff's memorandum at 18.
At oral argument, plaintiff conceded that the regulations first published in February 1997 (called the "interim final rules") are applicable to this case. See also 65 Fed. Reg. 54747, 54751 (where the Commissioner states that the interim final rules remain in effect until January 2, 2001). However, plaintiff also argued that in the later regulations (first published in September 2000), the Commissioner stated *36 that he was reorganizing and clarifying the provisions from the interim final rules and expanding some of his guidance. See 65 Fed.Reg. at 54,757. The Commissioner explained that the interim final rules defined "extreme limitation" as "having no meaningful function in a given area." Id. at 54,758. He then stated, "[a] commenter thought that this was a stricter standard than we intended, equivalent to a requirement that a child be completely unable to function. To clarify that this was not our intent, we deleted the phrase and added in the final rule that, while `extreme' is the rating we use for the worst limitations, it does not necessarily mean a total lack or loss of ability to function. It means that the impairment very seriously limits functioning. ..." Id. (emphasis added).
The Commissioner argues that the ALJ's finding that Ginger has a marked, but not extreme, limitation in social functioning is supported by substantial evidence in the Record. The Court, using the Commissioner's clarification of the meaning of his definition of this term in the interim final rules, disagrees.
The Commissioner points out that "Ginger's teachers, examining psychologists and counselors, and even her mother all noted that she was able to relate appropriately in a one-to-one situation with adults, and where trust had developed." Commissioner's reply brief at 2. However, the information in the record relied upon by the Commissioner in support of the final decision in this case supports just the opposite conclusion. For example, in Ginger's IEP for September 1995, under individual characteristics, it was noted that Ginger, "[c]an be cooperative. [H]as good days. [F]lat affect. [L]ethargic. [D]ifficulty. [T]rusting of others. [C]an be aggressive and verbally defiant." R. at 136. Later in the same document, her strengths are listed as, "[i]nteracts appropriately 1:1 with adult support," and "[r]elates appropriately when trust has been developed." R. at 142 & 144. At the same time, the reviewer noted that Ginger needed to "[d]evelop ability to cope with stress" and "[i]mprove peer and adult relations." R. at 142. Later in the same document, the reviewer noted that Ginger needed to "develop trust in significant adults" and "[w]ork cooperatively in a small group of peers." R. at 144.
In a document entitled, "Pupil Personnel Services Team Recommendations for Committee on Special Education and Review/Action," under a section entitled "Integrated Summary for Parent," Ms. Stortt wrote in June 1995, "Ginger relates 1:1 fairly well. She needs much interaction to gain trust. She has difficulty with peer relations and has had verbal and physical altercations at times." R. at 149. A Certified School Social Worker wrote in a June 1, 1995 psycho social assessment that, "Ginger does well 1:1 with adults socially. She has difficulty interacting with peers in small and large group situations. She has difficulty expressing and identifying her feelings. Mother reports Ginger's attitude needs to improve. She is easily frustrated and resorts to fighting as a coping strategy." During the hearing before the ALJ, plaintiff reported that Ginger, "talks with her friends" on the phone. R. at 39. Ginger testified that she did not like to "hang around with people but I'll, I will say hi to them or something or we all go somewhere together." R. at 58. She also testified that she eats lunch with one of her classmates. R. at 58.
Michael Boccia, Ph.D., performed a psychiatric evaluation on Ginger in February 1997. R. at 196. During his interview with what he termed "the family," he reported that Ginger "has had significant problems with authority figures from time to time. She has also had problems making *37 friends and getting along with her peers, especially in school[,] but also in the neighborhood... Mother also stated that Ginger gets along well with mother and siblings." R. at 197. Dr. Boccia concluded that Ginger and her family ought to seek outpatient mental health counseling and evaluate her need for psychotropic medication "if there are serious issues of depression or withdrawal behavior." R. at 198.
The domain of social functioning for children 12 to 18 years of age includes:
Your ability or inability to initiate and develop friendships, to relate appropriately to individual peers and adults and to peer and adult groups, and to reconcile conflicts between yourself and peers or family members or other adults outside your family.
20 C.F.R. § 416.926a(c)(5)(v)(C) as published in 62 Fed.Reg. 6408, 6428. As plaintiff points out in her brief, at 16-18, the record supports a finding that Ginger has a severe impairment that very seriously limits her functioning in this domain.
Based upon the Commissioner's clarification in 2000[2] of the term "severe limitation," the Court finds that the Commissioner's decision is not supported by substantial evidence. In fact, the record is clear that Ginger's disability meets the definition of "severe limitation" in the domain of social functioning.
IV. CONCLUSION
Accordingly, the Court grants plaintiff's cross-motion (docket # 6-1) to reverse the Commissioner's decision, grants plaintiff's cross-motion to remand for calculation of benefits (docket # 6-2) and denies the Commissioner's motion for judgment on the pleadings (docket # 4).
IT IS SO ORDERED.
NOTES
[1] The Court will refer to the version of 416.926a printed in the Federal Register of March 11, 1997, since the version printed in the present C.F.R. is organized differently.
[2] Obviously in reaching his decision, the ALJ did not have the benefit of this clarification. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2413415/ | 192 F. Supp. 2d 421 (2002)
Mark GIDDINGS, Personal Representative for the Estate of Pauline Rodman, Deceased, Plaintiff,
v.
BRISTOL-MYERS SQUIBB CO. et al, Defendant.
No. CIV.A.AW-97-101.
United States District Court, D. Maryland, Southern Division.
March 29, 2002.
Douglas R. Thomas, Thomas, Pearlstein and Essex, Beltsville, MD, Leslie D. Silverman, Law Office, Beltsville, MD, for plaintiff.
*422 Richard Alan Dean, Arter and Hadden LLP, Washington, DC, for defendants.
MEMORANDUM OPINION
WILLIAMS, District Judge.
Plaintiff brings this products liability case on behalf of his deceased mother, Mrs. Pauline Rodman, alleging defects in certain breast implants manufactured by Defendants, Bristol-Myers Squibb Co. ("Bristol-Myers"), Medical Engineering Corp. ("MEC"), and MEC Subsidiary Corp. (formerly known as "Surgitek"). On May 3, 2001, the Court granted Defendants' Motion for partial summary judgment relating to all claims of wrongful death and systemic injury. Pending before the Court is Defendants' Motion for Summary Judgment as to the remaining claims for local inflammation of breast tissue. Alternatively, Defendants move to exclude Plaintiff's two experts, who are preparing to testify on the issues of product defect and causation.
The parties have fully briefed the Motion. No hearing is deemed necessary. See Local Rule 105.6. Upon consideration of the arguments made in support of, and opposition to, the respective motion, the Court makes the following determinations.
I. FACTUAL BACKGROUND
In 1979, Dr. Teimourian, Mrs. Rodman's doctor, surgically implanted an artificial breast, manufactured by MEC, in the right-hand portion of Mrs. Rodman's chest. The breast implant was the result of reconstruction surgery following a mastectomy of her right breast due to cancer. Mrs. Rodman never had an implant in her left breast. In 1992, following complaints of discomfort, the same doctor partially removed the artificial breast. At that time, the doctor found a rupture in the implant. Because of Mrs. Rodman's health, the doctor completed only a partial removal of the implant.
Mrs. Rodman died in 1996. During the autopsy, Dr. King of the Maryland Medical Examiner's Office found another breast implant (hereinafter "second breast implant") in Mrs. Rodman's right breast. The second breast implant was not ruptured[1] and its manufacturer remains unknown. Moreover, the parties do not know how, when or who placed the second breast implant in Mrs. Rodman.[2] Dr. King took a biopsy of the surrounding tissue and noted an inflammation in the immediate area of the breast capsule.
Initially brought in 1997, this case boils down to whether the MEC breast implant or the second breast implant, if either, was defective and caused the alleged injury. Plaintiff argues that the MEC breast implant caused the inflammation and injury. Defendants argue that their implant was not defective and that the second breast implant caused the alleged injury. Defendants move for summary judgment or, in the alternative, to preclude Plaintiff's experts from testifying that the MEC breast implant was defective or caused the alleged injury.
II. DISCUSSION
A. Motion for Summary Judgment
In reviewing a motion for summary judgment, the court must review the facts *423 in the light most favorable to the nonmoving party. Anderson v. Liberty Lobby, 477 U.S. 242, 255, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). The court must "draw all justifiable inferences in favor of the nonmoving party, including questions of credibility and of the weight to be accorded to particular evidence." Masson v. New Yorker Magazine, 501 U.S. 496, 520, 111 S. Ct. 2419, 115 L. Ed. 2d 447 (1991) (citations omitted). Rule 56(c) of the Federal Rules of Civil Procedure provides that the entry of summary judgment is proper, "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." Cray Communications, Inc. v. Novatel Computer Systems, Inc., 33 F.3d 390, 393 (4th Cir. 1994); see also LeBlanc v. Cahill, 153 F.3d 134 (4th Cir.1998).
In Maryland, "[r]egardless of the recovery theory, the plaintiff in product liability litigation must satisfy three basics from an evidentiary standpoint: 1) the existence of a defect; 2) the attribution of the defect to the seller; and 3) a causal relation between the defect and the injury." Jensen v. American Motors, Corp., 50 Md.App. 226, 234, 437 A.2d 242, 247 (Md.Spec.App.1981) quoted in Foster v. American Home Products Corp., 29 F.3d 165, 168 (4th Cir.1994) (finding that the same causation requirement applies to actions for negligent misrepresentation of a product). "[P]roof of defect and causation is also required to support [Plaintiff's] breach of warranty claim." Miskin v. Baxter Healthcare Corp., 107 F. Supp. 2d 669, 672 (D.Md.1999), aff'd, 213 F.3d 632, 2000 WL 517518 (4th Cir.2000) (unpublished opinion). At the summary judgment stage, failure to produce evidence of an essential element may be fatal to a Plaintiff's case. See Drewitt v. Pratt, 999 F.2d 774, 778-79 (4th Cir.1993) (recognizing that it is an affirmative obligation of the trial judge to prevent factually unsupported claims and defenses from going to trial) (quoting Felty v. Graves-Humphreys Co., 818 F.2d 1126, 1128 (4th Cir.1987)).
Regarding causation, Plaintiff has the burden of showing generally that the MEC breast implants could cause the injury and specifically that breast implants were the cause-in-fact of the injury. See Lee v. Baxter Healthcare Corp., 721 F. Supp. 89, 95 (D.Md.1989), (citing Phipps v. General Motors, 278 Md. 337, 363 A.2d 955 (1976)); see also Owens-Illinois, Inc. v. Armstrong, 326 Md. 107, 117, 604 A.2d 47 (1992). To satisfy this burden "[e]xpert testimony is usually necessary since the evidence relating to causation involves technical medical questions beyond the common knowledge of laypersons, and the interaction of a breast prosthesis with the human body raises technical questions requiring expert testimony." Miskin v. Baxter Healthcare Corp. 107 F. Supp. 2d 669, 672 (D.Md.1999). Nevertheless, like other evidence, where a party offers irrelevant or unreliable expert testimony to satisfy an element of the offense, the trial Court may exclude the expert testimony from its summary judgment consideration. Cavallo v. Star Enter., 100 F.3d 1150, 1159 (4th Cir.1996).
Citing Miller v. Bristol-Myers Squibb, 121 F. Supp. 2d 831 (D.Md.2000), Defendants argue that summary judgment is appropriate because, as a matter of law, they cannot be held responsible for an injury allegedly caused by an implant, where there is no evidence they made the implant. In Miller this Court observed that "[u]nder Maryland law, the inability of a plaintiff to establish that a defendant actually manufactured her breast implants creates a material deficiency in her prima *424 facie casethe element of causation." Miller v. Bristol-Myers Squibb, 121 F. Supp. 2d 831, 837 (D.Md.2000). There, this Court granted summary judgment to the defendant, a manufacturer of breast implants, because the plaintiff could not establish which defendant manufactured her implant, and therefore, plaintiff could not establish who caused her alleged injury. Id.
While not directly analogous, the Court agrees that Miller is instructive with regard to what courts must do when a plaintiff fails to produce evidence necessary to develop a prima facie case. Here, Defendants do not dispute that they manufactured the breast implant, that the breast implant was surgically implanted in Mrs. Rodman's body, and that the breast implant ruptured. Defendants also do not dispute that Plaintiff can produce at least some evidence of injury. Defendants dispute product defect and causation, arguing that it was the second breast implant, if either, that caused the injury and that Plaintiff has produced insufficient evidence, as a matter of law, to survive summary judgment. Defendants argue that the absence of evidence of a defect creates material deficiencies in plaintiff's prima facie case. Because Plaintiff proffers expert testimony to satisfy its burden of proof as to product defect and causation, and without such evidence Plaintiff lacks evidence sufficient to meet its burden at trial, the Court finds it necessary in its summary judgment analysis to turn directly to Defendants' alternative Motion to preclude Plaintiff's two experts. For the reasons discussed below, the Court finds material deficiencies in Plaintiff's prima facie case and, therefore, grants Defendants' Motion for Summary Judgment.
B. Motion to Preclude Experts from Testifying
Defendants move to bar the testimony of Plaintiff's two experts on the local injury claim. Plaintiff first expert, Dr. Pierre Blais, a chemist, will speak to the alleged product defect, namely:
"the appropriateness of the materials defendants chose to incorporate into their products, the compatibility of those materials with each other and with the biological tissue, and the likelihood of failure after a certain period of time."
Plaintiff's Opp. at 14. Plaintiff's second expert, Dr. Andrew Tegeris, a pathologist who reviewed the pathology slide created during the 1996 autopsy, will speak to the alleged causal link between the defect and the injury. He will testify that the defect caused silicone gel to be released into Mrs. Rodman's chest, causing chronic inflammation of her breast tissue and pain. Dr. Tegeris' testimony rests on the foundation of Dr. Blais' testimony. If either is barred, Plaintiff's remaining local injury claim will fail because one's testimony is necessary to establish a product defect, and the other is necessary to show causation.
An expert may state an opinion or conclusion if the subject matter is appropriate, the witness is qualified, the witness possesses a reasonable probability regarding the opinion, the opinion has a proper factual basis, and the information used to form that basis of the opinion is the type reasonably relied upon by experts in the particular field. Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S. Ct. 2786, 125 L. Ed. 2d 469 (1993). Fed. R.Evid. 702 provides:
If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise, if (1) the testimony is *425 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.
Daubert and Fed.R.Evid. 702 require the trial court to exercise its discretion and act as a "gate keeper," until it is satisfied that the proffered expert scientific testimony meets certain standards of reliability. Cooper v. Smith & Nephew, Inc., 259 F.3d 194, 199-200 (4th Cir.2001). An essential part of the Court's gate keeping function is to ensure that the expert testimony is more than mere speculation. Daubert, 509 U.S. at 590, 113 S. Ct. 2786. Only relevant, reliable testimony that is based on scientific knowledge should be admitted. Id.
Because the experts rely on each other's testimony, Plaintiff has the burden of proving that both expert witnesses' testimony are admissible pursuant to Rule 702 and the Daubert standards. Plaintiff does not have to show that either expert's testimony is scientifically correct, however. Daubert, 509 U.S. at 590, 113 S. Ct. 2786. Plaintiff must simply show that the methodology used was reliable under Daubert's standards. See, e.g., Grant v. Bristol-Myers Squibb, 97 F. Supp. 2d 986, 989 (D.Ariz.2000) (Daubert standards applied in breast implant litigation). This Court then must exercise its discretion to assess the reliability and relevance of the proffered expert testimony by determining whether the expert has the requisite qualifications to render an opinion under Rule 702, whether the expert used appropriate methodology in arriving at his or her opinions, whether the expert relied on facts or data of a type reasonably relied upon by experts in the particular field, and whether the testimony is relevant, that is, "fits" the facts of the case. Id. at 591, 113 S. Ct. 2786.
Dr. Pierre Blais
Defendants argue that the Court should preclude Dr. Blais from testifying at trial because his testimony does not comport with Rule 702. The Court agrees. Based on the facts and circumstances of this case, the Court finds Dr. Blais unqualified to state an opinion on product defects. Dr. Blais is not a medical doctor. He is not a pathologist. He is not a toxicologist. By his own admission he is not qualified to diagnosis medical conditions, provide treatment, or a give prognosis for a patient. Yet the core of Dr. Blais' testimony is that the MEC breast implant is defective because it presents medical and toxicological risks. Finding that he lacks the basic skills, education and training of a medical doctor, toxicologist or pathologist to opine that the gel is harmful to the human body, the Court exercises its discretion to preclude his testimony.
To be sure, Dr. Blais's testimony lacks reliability and relevance. Dr. Blais has not published any related research or opinions in peer review literature. More significantly, Dr. Blais proposes to testify that the Defendants' product is "grossly defective" in that the gels are the result of "incorrectly formulated reagents," "improper processing," and "contain large amounts of bioavailable reactive impurities with potential for adverse reaction." Yet he concedes that he has not done general testing to confirm or refute the presence of many alleged harmful chemicals he alleges are present. Moreover, Dr. Blais has not done specific testing on the implant removed from Mrs. Rodman's body to confirm or refute the presence of many alleged harmful chemicals, nor has the Plaintiff offered evidence that the alleged harmful chemicals were found in Mrs. Rodman's tissue. Without evidence that the claimed impurities or product defect was present in the implant at issue, or *426 evidence that the alleged defect was transmitted to Mrs. Rodman's body and caused an injury, the Court finds the testimony inadmissible.
Many federal and state courts have similarly excluded or strictly limited Dr. Blais' proposed testimony on these matters. See, e.g., Grant v. Bristol-Myers Squibb, 97 F. Supp. 2d 986, 991 (D.Ariz.2000) (finding Dr. Blais' theories unsupported with testing, not developed independent of litigation, and not accepted in the general scientific community); In re Breast Implant Litig., 11 F.Supp.2d at 1242-43 (finding Dr. Blais unqualified by "knowledge, skill, experience, training, [and] education" and noting that his proposed testimony was untested, unpublished in peer reviewed literature, not supported by generally accepted scientific data, not created by using any definable scientific methodology, and not developed independent of litigation); Cabrera v. Cordis Corp., 134 F.3d 1418, 1423 (9th Cir.1998) (affirming district court's exclusion of Dr. Blais's testimony because testimony not tested or published in peer reviewed materials).
Absent evidence of a product defect, Plaintiff necessarily lacks evidence of causation and the fact-finder is left to speculate about which implant, if either, caused the alleged injury. Thus, assuming that Dr. Tegeris' testimony is admissible under Rule 702 and Daubert, Plaintiff remains unable to fill significant gaps in evidence required to sustain a prima facie case. The mere possibility that Defendants' silicone breast implants could have been defective and caused Ms. Rodman's alleged injury is not sufficient to support a causation claim at summary judgment. See Davidson v. Miller, 276 Md. 54, 60, 344 A.2d 422 (1975) (holding that expert testimony cannot be received as evidence unless it is in terms of the "certain or probable and not of the possible."); see also Miskin, 107 F.Supp.2d at 671-72. ("[T]o support causation in the face of a summary judgment challenge, evidence which amounts to a probability, not just a possibility, must be identified by the non-moving party, to guard against `raw speculation' by the fact finder.").
III. CONCLUSION
Because Plaintiff fails to make a showing sufficient to establish the existence of elements essential to its case, namely a product defect and ultimately causation, the Court GRANTS Defendants' Motion for Summary Judgment. An Order consistent with this Opinion will follow.
NOTES
[1] Dr. King described the second breast implant as, "Intact breast implant surrounded by an intact fibrous capsule." For the purpose of this Motion, the Court assumes this fact to be true.
[2] Dr. Teimourian speculates and deems it logical that he might possibly have done a "piggy-back" implantation in 1979, wherein he placed one implant on top of another. But his operative notes do not reflect that procedure, nor can he confirm it by recollection. It is also possible that Mrs. Rodman had another implant placed in 1992, but this cannot be confirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2448818/ | 704 F. Supp. 2d 32 (2010)
Mukhtar Yahia NAJI AL WARAFI (ISN 117), Petitioner,
v.
Barack OBAMA, et al., Respondents.
Civil No. 09-2368 (RCL).
United States District Court, District of Columbia.
March 24, 2010.
*34 Alan Arnold Pemberton, Brian E. Foster, Philip A. Scarborough, Schuyler William Livingston, Jr., Covington & Burling, Washington, DC, David H. Remes, Appeal for Justice, Silver Spring, MD, Marc D. *35 Falkoff, Northern Illinois University College of Law Swen Parson Hall, Dekalb, IL, for Petitioner.
Kathryn Celia Mason, Sarah Maloney, David Hugh White, U.S. Department of Justice Federal Programs Branch, Washington, DC, for Respondents.
MEMORANDUM OPINION
ROYCE C. LAMBERTH, Chief Judge.
Petitioner Mukhtar Yahia Naji al Warafi ("petitioner") is challenging the legality of his detention at the United States Naval Base in Guantanamo, Cuba ("Guantanamo"), where respondents have detained him since 2002. Respondents contend that petitioner's detention is lawful under the Authorization for the Use of Military Force ("AUMF"), Pub.L. No. 107-40 § 2(a), 115 Stat. 224 (2002). The AUMF authorizes the President to detain individuals who were part of, or substantially supported, the Taliban, Al Qaeda, or associated forces that are engaged in hostilities against the United States or its coalition partners. Specifically, respondents argue that petitioner joined the Taliban in Afghanistan and fought against the Northern Alliance.
Petitioner argues that his detention is not lawful under the AUMF because he never joined the Taliban. Rather, he claims that he went to Afghanistan for the sole purpose of working as an assistant at a medical clinic. In the alternative, petitioner asserts as an affirmative defense that, even if he were a part of the Taliban, his detention is not lawful because he was exclusively engaged in providing medical services to the Taliban, and thus qualifies as non-detainable medical personnel under Article 24 of the First Geneva Convention.
On January 12, 2010, the Court conducted a merits hearing on this matter to determine the legality of petitioner's detention. At the conclusion of the merits hearing, the Court granted the parties' request to provide supplemental briefing to address the effect, if any, of the Court of Appeals' recent decision in Al-Bihani v. Obama, 590 F.3d 866 (D.C.Cir.2010), on this matter.
Based upon the arguments of counsel, the exhibits, and the supplemental briefings, the Court concludes that respondents may lawfully detain petitioner under the AUMF because the evidence demonstrates that petitioner more likely than not was part of Taliban forces. In addition, petitioner's alternative argument fails because petitioner may not invoke the Geneva Conventions in his habeas proceeding as a source of rights. Accordingly, for the reasons set forth below, the Court will DENY petitioner's petition for a writ of habeas corpus.
I. BACKGROUND
Petitioner is a Yemeni citizen who was born in Taiz, Yemen. (J. Ex. 1 ¶ 1; J. Ex. 40 ¶ 1.) He has only a few years of formal education and has worked since a young age. (J. Ex. ¶ 3; J. Ex. 40 ¶¶ 2-3.) Petitioner's employment history consists of a variety of odd jobs, including stints as a waiter, a dishwasher, a custodian, and, for a short while, a lab assistant at his brother's medical clinic in Taiz. (J. Ex. 1 ¶ 5; J. Ex. 8 ¶ J. Ex. 40 ¶ 4.) At his brother's clinic, he learned several basic medical skills, including how to administer IVs and take blood samples. (J. Ex. 40 ¶ 4.)
Petitioner did not serve in the military or receive formal military training in Yemen. (J. Ex. 1 ¶ 4.) Like many Yemeni, however, he learned how to use firearms and often hunted wild game with a rifle. (Id.; J. Ex. 40 ¶ 5.)
In the spring of 2001, petitioner read two fatwas at the Jamal Al Din Mosque in *36 Taiz. (J. Ex. 1 ¶ 7; J. Ex. 40 ¶ 6.) The fatwas discussed the Taliban and its victories in Afghanistan and encouraged individuals to assist the Taliban. (Id.) One of the fatwas described the travel route individuals should take if they wish to go to Afghanistan to assist the Taliban. (J. Ex. 1 ¶ 7.) The fatwa instructed individuals to travel to the Taliban Center in Quetta, Pakistan. Once there, members of the Taliban would assist individuals in crossing the border into Afghanistan. (Id.)
In August 2001, petitioner decided that he would heed the fatwas and travel to Afghanistan to assist the Taliban. (Id.; J. Ex. 18 ¶ 7; J. Ex. 40 ¶ 7.) To fund his trip, petitioner borrowed $400 from his father. (J. Ex. 1 ¶ 8; J. Ex. 18 ¶ 7; J. Ex. 40 ¶ 8.) Petitioner did not tell his father that the money was to travel to Afghanistan. (Id.) Instead, he told his father that he needed the money to take a pilgrimage to Mecca, Saudi Arabia. (J. Ex. 1 ¶ 8; J. Ex. 18 ¶ 7.) Similarly, petitioner concealed the purpose of his trip when he went to the Pakistani embassy to obtain a visa. (J. Ex. 1 ¶ 8.) He told the Pakistani officials that he was traveling to Pakistan to seek medical treatment, even though his true purpose was to travel to Pakistan to gain entry into Afghanistan. (Id.) The only persons with whom petitioner discussed the true purpose of his trip were his mother and older brother. (J. Ex. 40 ¶ 8.)
Having used a portion of his father's loan to purchase an airline ticket, petitioner traveled to Karachi, Pakistan. (J. Ex. 1 ¶¶ 8-9.) As the fatwa instructed, petitioner then traveled by taxi and bus to Quetta, Pakistan, where he went to the Taliban Center. (Id. ¶ 9.) He told the officials there that he would like to fight the Northern Alliance in Afghanistan. (Id.) The officials accepted his offer to assist the Taliban in its fight against the Northern Alliance and arranged for his travel into Afghanistan. (Id.)
Petitioner entered Afghanistan at Spin Balduk. (Id.) He then traveled to Kabul, where he stayed for several days before continuing on to Konduz. (Id. ¶¶ 9-10.) From Konduz, petitioner traveled to the Khoja Khar line, which was where the Taliban were fighting the Northern Alliance. (Id.)
Petitioner spent approximately one to two weeks at the Khoja Khar line. (Id. ¶ 10; J. Ex. 18 ¶¶ 10-11; Gov't Ex. 1.) While there, he received training on an AK-47, but did not engage in any active combat. (Id.) A superior then sought volunteers to serve as medics at a nearby clinic. (Gov't Ex. 1.) Petitioner volunteered and was transferred to a clinic run by a Saudi doctor, Dr. Abdullah Aziz, for first aid training. (J. Ex. 1 ¶ 11; Gov't Ex. 1.)
The clinic was located approximately twenty kilometers from the Khoja Khar line in Dastareshi. (J. Ex. 40 ¶ 16.) At the clinic, Dr. Aziz taught petitioner how to clean wounds, draw blood, and recognize the symptoms of malaria. (Gov't Ex. 1.) Petitioner remained at the clinic for approximately twenty-five days and treated approximately six to seven sick and wounded Taliban fighters per day. (Id.)
Petitioner was then transferred from the Dastareshi clinic to a clinic in Konduz, which was also run by Dr. Aziz and was known as the Al Ansar Clinic. (Id.; J. Ex. 7 ¶ 1.) Petitioner treated wounded and sick Taliban fighters at the Al Ansar Clinic. (Gov't Ex. 1; J. Ex. 7 ¶ 4.) After one month, petitioner left the Al Ansar Clinic and went to work at a hospital because the area in which the Al Ansar Clinic was located had become too dangerous as the Northern Alliance advanced toward Konduz. (Gov't Ex. 1.)
*37 On November 23, 2001, after experiencing several days of air strikes in Konduz, the Taliban agreed to surrender to Coalition forces. (J. Ex. 1 ¶ 11; J. Ex. 5; J. Ex. 18 ¶ 12.) As part of this surrender, Thakker, petitioner's Taliban commander, negotiated a safe passage from Konduz to Kandahar via Mazar-e-Sharif for petitioner and the others under Thakker's command. (J. Ex. 18 ¶ 12.) Petitioner believed that when he and the others reached Kandahar, they would be returned to their home countries. (J. Ex. 5.) As a result, petitioner, along with Dr. Aziz and others, left Konduz for Kandahar via Mazar-e-Sharif pursuant to the safe passage negotiated by Thakker. (J. Ex. ¶ 12.)
Petitioner, however, never arrived at Kandahar. On November 24, 2001, Dostum, the commander of the Northern Alliance, detained Thakker's men, including petitioner and Dr. Aziz. (Id.; J. Ex. 40 ¶ 20.) Dostum's troops ordered petitioner and the others to surrender their weapons and then transported them to the Qala-i-Jangi prison. (J. Ex. 1 ¶ 12; J. Ex. 18 ¶ 12.)
On November 25, 2001, an uprising occurred at the prison. (J. Ex. 1 ¶ 12.) The Northern Alliance soldiers repelled the uprising by firing at the prisoners. (Id.) Many prisoners were killed, including Dr. Aziz. (J. Ex. 40 ¶ 21.) Petitioner was shot in the arm and then sought refuge in the basement. (Id. ¶¶ 21-22.) About one hundred other prisoners were also hiding in the basement. (Id. ¶ 22.) After eight days, the International Red Cross intervened, and petitioner and the others surrendered to the Northern Alliance. (Id. ¶ 23.) Petitioner was then transferred to the Shebrigan prison. (Id.)
After several weeks at Shebrigan, petitioner was transferred to the custody of the United States in Kandahar. (Id. ¶ 24.) The United States held petitioner at a prison in Kandahar for approximately three months. (Id.) Then, the United States transferred petitioner to Guantanamo Bay, where he has remained since 2002. (Id.)
II. LEGAL STANDARDS
A. Detention Standard
This Court has previously held that the AUMF authorizes respondents to lawfully detain individuals who were part of the Taliban, Al Qaeda, or associated enemy forces. See Mattan v. Obama, 618 F. Supp. 2d 24, 26 (D.D.C.2009) (adopting the detention standard set forth by Judge Bates in Hamlily v. Obama, 616 F. Supp. 2d 63, 77-78 (D.D.C.2009)). Recently, however, the Court of Appeals approved a more expansive detention standard. Al-Bihani v. Obama, 590 F.3d 866, 874 (D.C.Cir. 2010). Specifically, the court recognized that respondents could lawfully detain not only individuals who were part of the Taliban, Al Qaeda, or associated enemy forces, but also individuals who substantially supported the Taliban, Al Qaeda, or associated enemy forces. Id. Accordingly, respondents' detention authority has two independently sufficient prongs: (1) whether an individual is part of the Taliban, Al Qaeda, or associated enemy forces; and (2) whether an individual substantially supported the Taliban, Al Qaeda, or associated enemy forces. Id.
This matter concerns only the first prong of the detention standardi.e., whether petitioner was part of the Taliban.[1] There are no established criteria for *38 the Court to apply to answer this question. Hamlily, 616, F.Supp.2d at 75. As a result, the Court employs a functional, rather than formal, approach. Id. The "key inquiry" of this approach is whether petitioner functioned or participated within or under the command structure of the Talibani.e, whether he received and executed orders or directions. Id. This inquiry, however, "does not encompass those individuals who unwittingly become part of the [Taliban] apparatussome level of knowledge or intent is required." Id.
Although the Court may consider any number of factors to determine whether petitioner was part of the Taliban, one factor the Court will not consider is whether petitioner presently poses a threat to the national security of the United States. See Anam v. Obama, 696 F. Supp. 2d 1, 3-4 (D.D.C.2010) (Hogan, J.) (rejecting the proposition that the United States may only detain individuals who are likely to rejoin the battlefield adopted by Judge Huvelle in Basardh v. Obama, 612 F. Supp. 2d 30, 34 (D.D.C.2009)). The AUMF is clear that respondents may detain individuals "for the duration of the relevant conflict ... based on longstanding law-of-war principles." Id. (quoting Hamdi v. Rumsfeld, 542 U.S. 507, 521, 124 S. Ct. 2633, 159 L. Ed. 2d 578 (2004)). Thus, as long as the conflict continues, respondents may lawfully detain an individual who was part of the Taliban, "even if that individual does not presently pose a threat to the national security of the United States." Id. (citing Al-Bihani, 590 F.3d at 874).
B. Burden of Proof
This Court follows the procedures set forth in the Case Management Order ("CMO") issued by Judge Hogan in the consolidated habeas cases on November 6, 2008, as amended December 16, 2008. Pursuant to the Amended CMO, respondents "bear the burden of proving by a preponderance of the evidence that the petitioner's detention is lawful." In re Guantanamo Bay Litig., 08-442, CMO § II.A. (Nov. 6, 2008); see also Al-Bihani, 590 F.3d at 878. Thus, respondents may lawfully detain petitioner if they demonstrate that petitioner more likely than not was part of the Taliban.
C. Evidentiary Standard
In Guantanamo habeas proceedings, the Court must assess the "accuracy, reliability, and credibility" of each piece of evidence presented by the parties "in the context of the evidence as a whole." Abdah v. Obama, Civ. No. 04-1254, Order [606] (D.D.C. Aug. 26, 2009) (Kennedy, J.).[2] The burden is on the party submitting the evidence to establish its accuracy, reliability, and credibility. Id. When a party submits hearsay evidence, "the question a habeas court must ask ... is not whether it is admissibleit is always admissiblebut what probative weight to ascribe to whatever indicia of reliability it exhibits." Al-Bihani, 590 F.3d at 879. Thus, the Court will assess the accuracy, reliability, and credibility of all evidence, including hearsay, that is necessary to answer "a simple, binary question: is detention lawful?" Id. at 880.
*39 III. ANALYSIS
Before the Court can determine the legality of petitioner's detention, it must first assess the accuracy, reliability, and credibility of the evidence presented by the parties. The Court will then address whether the evidence shows that petitioner more likely than not was part of the Taliban. Last, the Court will address petitioner's alternative argument that his detention is not lawful under Article 24 of the First Geneva Convention.
A. Assessment of the Evidence
The parties submitted a total of 112 exhibits for the Court to review. After reviewing the exhibits and hearing the parties' arguments at the Merits Hearing, the Court has identified which exhibits are material to petitioner's petition for a writ of habeas corpus. The Court will now address the accuracy, reliability, and credibility of those exhibits.
1. Interrogation Reports and Summaries
Respondents primarily rely on the statements of petitioner that are contained in eight classified interrogation reports or summaries. (See J. Exs. 1, 2, 5, 7, 8, 17, and 18; Gov't Ex. 1.) These interrogation reports and summaries are hearsay evidence. See Al-Bihani, 590 F.3d at 879 (noting that interrogation reports and summaries have a level of hearsay). That the summaries and reports are hearsay, however, does not render the statements contained therein inadmissible. Id. To the contrary, in Guantanamo habeas proceedings, hearsay evidence is always admissible, and the Court is charged with assessing its reliability. Id. at 879-80. As the party relying on these statements, respondents have the burden of establishing that the interrogation reports and summaries, and thus the statements within the reports and summaries, are accurate, reliable, and credible.
Respondents have met their burden. Respondents demonstrated the accuracy of the interrogation summaries and reports by including the original notes of the interrogators. Similarly, they established that the interrogation summaries and reports on which they rely are reliable and credible. First, petitioner does not allege that the statements contained in the summaries and reports were coerced, and there is nothing in the record to indicate that the statements were coerced. As a result, petitioner's statements do not suffer from the taint of unreliability inherent in coerced statements. Second, that the statements were translated does not render them unreliable or incredible. Petitioner's reservations about the accuracy of the translations of the statements goes to the weight of the Court should afford the statements, not their reliability. Last, the summaries and reports are largely consistent with the evidence as a whole, including petitioner's declaration and his statements before the Administrative Review Board ("ARB"). Accordingly, the interrogation reports and summaries upon which respondents rely are accurate, reliable, and credible.
2. Petitioner's Statement to the Administrative Review Board and Declaration in Support of his Habeas Petition
Petitioner relies on two documents in which he denies being a part of the Taliban: the summary of his statement before the ARB and the declaration he submitted in support of his habeas petition in lieu of testifying during the Merits Hearing. (J. Ex. 38; J. Ex. 40.) There is no dispute that these documents are accurate. Furthermore, these documents are reliable in part, specifically the portions of the documents that are corroborated by respondents' evidence, *40 and other reliable evidence in the record. Moreover, neither statement was coerced.
Nevertheless, the Court cannot accept the entire documents as reliable. First, petitioner's statements in the ARB proceeding and his declaration are inconsistent. For example, he denied treating wounded soldiers at the ARB proceeding, but admitted to treating soldiers in his declaration. (J. Ex. 38 ¶ 18; J. Ex. 40 ¶ 18.) He also provided conflicting accounts of his use of an AK-47 while in Afghanistan. (J. Ex. 38 ¶ 18; J. Ex. 40 ¶ 15.) Second, petitioner's declaration is a self-serving document that was submitted in lieu of live testimony. As a result, respondents could not cross-examine petitioner on the contents of the declaration. Thus, the Court cannot adequately assess the reliability of petitioner's explanations for taking certain actions or the statements for which he failed to provide an explanation. For example, the Court cannot assess petitioner's explanation for why he went to the front line or learn why petitioner went to Mazar-e-Sharif. (J. Ex. 40 ¶¶ 14, 19.)
Accordingly, petitioner's declaration and the summary of petitioner's ARB proceeding are reliable in part and unreliable in part. To the extent that the documents are inconsistent with each other and the other reliable evidence on the record, the Court finds that the documents are not credible and will defer to the other reliable evidence on the record. The Court will also defer to the other reliable evidence where petitioner's declaration fails to explain why he took certain actions or where petitioner's declaration offers an explanation that is unsupported in the record.
3. Third-Party Statements
In addition to the interrogation summaries and reports above, respondents rely on a handful of third-party statements, which were made by other detainees, to corroborate and supplement petitioner's admissions. (See J. Exs. 3, 4, 16, 19, 20, 21, 26.) In these statements, the witnesses identify petitioner as an individual associated with the Taliban and place petitioner at certain locations, including the Khoja Khar line, Konduz, and Shebrigan prison.
Respondents have not provided any evidence demonstrating that these statements are accurate, reliable, and credible. In particular, respondents have not assured the Court that these statements were not coerced. In addition, respondents have determined that at least one of the detainees on whose statements they rely is unreliable. Accordingly, the Court will not rely on these statements to answer the question of whether petitioner's detention is lawful.
Therefore, the accurate, reliable, and credible evidence in the record consists of the summaries and reports of petitioner's interrogations, the summary of petitioner's statements before the ARB in part, and petitioner's declaration in part. From this evidence, the Court will answer the question: was petitioner more likely than not a part of the Taliban?
B. The Reliable Evidence Shows That Petitioner More Likely Than Not Was "Part of" the Taliban
Respondents contend that petitioner was more likely than not part of the Taliban because: (1) petitioner traveled to Afghanistan to fight with the Taliban against the Northern Alliance after reading two fatwas in support of the Taliban; (2) petitioner was stationed on the Khoja Khar front line and received weapons training there; (3) petitioner volunteered to serve as a medical assistant on an as needed basis and provided medical treatment to wounded *41 Taliban fighters; and (4) petitioner traveled to Mazar-e-Sharif on his commander's orders to surrender to the Northern Alliance. Based on the reliable evidence in the record, the Court agrees with respondents and finds that petitioner more likely than not was part of the Taliban.
1. Petitioner Traveled to Afghanistan to Fight with the Taliban
Respondents rely on several interrogation reports and summaries in which petitioner stated that he went to Afghanistan to fight against the Northern Alliance after reading two fatwas in Yemen. (See J. Exs. 1, 5, 8, 18; Gov't Ex. 1.) Petitioner admits that he was inspired by the fatwas to travel to Afghanistan to help the Afghan people. (J. Ex. 40 ¶¶ 6-7.) He also admits that he followed the travel route explained in one of the fatwas. (J. Ex. 1 ¶ 7.) Petitioner, however, denies that he traveled to fight with the Taliban. (J. Ex. 38 ¶¶ 16, 18; J. Ex. 40 ¶ 11.) He argues that he traveled to Afghanistan to provide medical assistance. (Id.)
Petitioner's argument is directly contrary to his original, reliable statements. His only explanation for his inconsistent statements is that he did not make the statements that are attributed to him during his interrogations. Petitioner argues that he only told interrogators that he went to Afghanistan to "assist the Taliban" by providing medical services (J. Ex. 1 ¶ 7; J. Ex. 40 ¶ 11.) The Court is not convinced by petitioner's explanation.
First, the interrogation summary in which he states that he went to Afghanistan to assist the Taliban states in other paragraphs that he went to Afghanistan to fight against the Northern Alliance. Specifically, the interrogation summary states that he told the officials at the Taliban center that he wanted "to fight the Northern Alliance" and that he wanted to go to northern Afghanistan because that was where the fighting was. (J. Ex. 1 ¶¶ 9-10.) Second, the notes underlying the interrogation summary state that petitioner went to Afghanistan after reading two fatwas that encouraged Muslims to help the Taliban fight the Northern Alliance. (J. Ex. 41.) Third, the interrogation reports relied upon by respondents consistently state that petitioner admitted that he went to Afghanistan to fight the Northern Alliance. (See, e.g., J. Exs. 1, 8, 18.) Petitioner's recent denials of his statements in the interrogation reports do not outweigh his previous consistent admissions.
Accordingly, after weighing the reliable evidence, Court finds that respondents have shown by a preponderance of the evidence that petitioner traveled to Afghanistan to fight with the Taliban. Moreover, even if the evidence failed to demonstrate that petitioner more likely than not traveled to Afghanistan to fight with the Taliban, the Court would not be precluded from finding that petitioner was part of the Taliban. An individual is part of the Taliban if he operates within its command structure. If petitioner provided medical service within the Taliban's command structurei.e., provided service where the Taliban ordered him tohe would be part of the Taliban, and therefore detainable.
2. Petitioner Received Weapons Training at the Khoja Khar Line
Petitioner concedes that after he arrived in Afghanistan with the help of the officials at the Taliban Center in Quetta, Pakistan, he went to the Khoja Khar line. (J. Ex. 40 ¶ 14.) Nevertheless, petitioner contends that he did not go to the Khoja Khar line as a fighter and that he did not receive weapons training at the Khoja Khar line. In light of petitioner's own admissions, the Court disagrees.
*42 Petitioner argues that he went from Konduz to the Khoja Khar line because he "became curious about the fighting occurring" there. (Id.) It is inconceivable that the Taliban would allow an outsider to stay at their front line camp just to see what the fighting was like. An outsider, whose trustworthiness and loyalty are unknown, poses a threat to a military camp. Moreover, petitioner's explanation is inconsistent with his previous admission that he went to the Khoja Khar line to fight. (See, e.g., J. Exs. 1, 18.)
Petitioner also contends that he did not receive weapons training at the Khoja Khar line. (J. Ex. 40 ¶ 15.) The reliable evidence in the record refutes this contention. Petitioner admitted on numerous occasions that he trained for at least one week on an AK-47. (J. Exs. 1, 7, 18; Gov't Ex. 1.) In addition, petitioner's statement that a soldier lent him an AK-47 for a few practice shots is not only unreliable but also highly unlikely. (J. Ex. 40 ¶ 15.) Certainly, a soldier would not lend a stranger his AK-47 without first knowing whether or not the stranger was an ally.
At the Merits Hearing, petitioner offered two additional reasons for why he cannot be lawfully detained as a part of the Taliban: he was at the Khoja Kjar line before the United States invaded Afghanistan; and he did not engage in combat. The Court agrees that petitioner was likely not at the Khoja Khar line when the United States invaded Afghanistan on October 7, 2001, and that petitioner likely did not engage in combat in Afghanistan. (See J. Ex. 18; Gov't Ex. 1.) The Court, however, finds that those facts do not preclude a finding that petitioner more likely than not was part of the Taliban. To be sure, those facts are relevant to the Court's inquiry, but there is no doubt that an individual may be part of the Taliban without being at the front line. See Hamlily, 616 F.Supp.2d at 75 (finding that an individual need only function within the command structure of the Taliban to be lawfully detained).
Accordingly, the Court concludes that respondents have demonstrated by reliable evidence that petitioner more likely than not went to the Khoja Khar line to join the Taliban's fight against the Northern Alliance and that petitioner more likely than not received weapons training when he was stationed at the Khoja Khar front line,
3. Petitioner Volunteered to Serve as a Medic on an "As Needed" Basis
It is undisputed that petitioner worked at clinics run by Dr. Aziz in Dastereshi and Konduz. The issue is whether petitioner worked at the clinics on an as needed basis within the command structure of the Taliban, or whether he worked at the clinics on his own volition, free from the Taliban's command. Based on the reliable evidence, the Court finds that petitioner more likely than not worked at the clinics on an as needed basis within the command structure of the Taliban.
Petitioner argues that upon arriving in Afghanistan, he went to work for a clinic run by Dr. Aziz in Konduz. (J. Ex. 40 ¶ 13.) Then after visiting the front line, petitioner worked at another clinic run by Dr. Aziz in Dastareshi before returning to the clinic in Konduz. (Id. ¶¶ 16-17.) While working with Dr. Aziz, petitioner contends that he only treated four persons for battle wounds. (Id. ¶ 18.)
Petitioner's argument is contrary to his prior reliable admissions. First, petitioner's admissions state that he was stationed on the front line at Khoja Khar before serving in a clinic. (See J. Exs. 1, 5, 7, 18; Gov't Ex. 1.) Second, petitioner volunteered to serve as a medic when a superior asked for volunteers to be trained as medics. (Gov't Ex. 1.) By volunteering to *43 serve as a medic, petitioner did not remove himself from the command structure of the Taliban. Rather, like a soldier volunteering for a special duty, petitioner remained in the command structure of the Taliban and served as a medic only on an as needed basis. In addition, he was transferred from the clinic in Dastereshi to the clinic in Konduz as the Northern Alliance advanced toward the Khoja Khar line. (Id.) The fact that petitioner was transferred from one clinic to another tends to demonstrate that petitioner functioned within the command structure of the Taliban. Last, petitioner treated numerous battle injuries. For example, at the Dastereshi clinic, petitioner treated six to seven wounded soldiers a day for twenty-five days. (Id.)
Accordingly, based on the reliable evidence in the record, the Court concludes that petitioner more likely than not served as a medic on an as needed basis within the command structure of the Taliban.
4. Petitioner Traveled to Mazar-e-Sharif on His Commander's Orders to Surrender
Petitioner contends that he was not ordered to go to Mazar-e-Sharif as part of Thakker's surrender and safe-passage agreement. Petitioner fails, however, to offer an alternative reason for why he was at Mazar-e-Sharif with Thakker's troops when they surrendered. He simply states, without further explanation, that he and Dr. Aziz went to Mazar-e-Sharif. (J. Ex. 40 ¶ 20.) Based on the reliable evidence in the record, the Court rejects petitioner's contention.
At the Merits Hearing, petitioner's counsel urged the Court to infer from his lack of explanation that petitioner was fleeing the fighting in Konduz or that Thakker's surrender applied to all foreigners, not just fighters. Those inferences, however, are not supported by the reliable evidence. The reliable evidence shows that on November 23, 2001, the Taliban fell to the Northern Alliance, and the Taliban commander, Thakker, surrendered. (J. Ex. 18 ¶ 12.) The surrender included a safe passage for Thakker's men from Konduz to Kandahar by way of Mazar-e-Sharif. (J. Ex. 1 ¶ 11.) According to the terms of the safe passage, the men would surrender at Kandahar and be returned to their home countries. (J. Ex. 5.) As a result, Thakker's troops then left for Konduz via Mazar-e-Sharif. (J. Ex. 1 ¶ 11.) When his men were outside Mazar-e-Sharif, the Northern Alliance detained Thakker's men, forced them to surrender their weapons, and transported them to the Qala-i-Jangi prison. (J. Ex. 1 ¶ 12.)
The reliable evidence further shows that petitioner was with Thakker's men when they were detained by Dostum. (J. Exs. 1 ¶¶ 11-12, 18 ¶¶ 12-13; Gov't Ex. 1.) He was then forced to surrender his weapon and transported to the Qala-i-Jangi prison with Thakker's troops. (J. Exs. 1 ¶ 12, 18 ¶ 13; Gov't Ex. 1.) As a result, the most logical inference for the Court to make is that petitioner was traveling to Mazar-e-Sharif to eventually surrender at Kandahar on Thakker's orders.
Petitioner correctly asserts that the reliable evidence does not explicitly state that petitioner was ordered to surrender or that petitioner surrendered on his commander's orders. Such a definitive statement, however, is not necessary. Respondents need not show that petitioner was ordered to surrender beyond a reasonable doubt; rather they need only show that petitioner was ordered to surrender by a preponderance of the evidence. As stated above, the reliable evidence shows that petitioner went to Mazar-e-Sharif with Thakker's troops to surrender and be returned to Yemen. Accordingly, respondents have met their burden. The reliable *44 evidence demonstrates that petitioner more likely than not went to surrender at Mazar-e-Sharif on his commander's orders.
C. Petitioner May Not Invoke the First Geneva Convention As a Source of Private Rights in a Habeas Corpus Proceeding
Petitioner argues in the alternative that even if he were a part of the Taliban, he is not detainable because he qualifies as non-detainable medical personnel under the First Geneva Convention. See Article 24, Geneva Convention for the Amelioration of the Condition of the Wounded and Sick in Armed Forced in the Field (hereinafter "First Geneva Convention") (providing that medical personnel "exclusively engaged in ... treatment of the wounded or sick, or in the prevention of disease" are not detainable, except as necessary to treat other prisoners).
Petitioner's argument fails. "No person may invoke the Geneva Conventions... in any habeas corpus proceeding... as a source of rights in any court of the United States." See 28 U.S.C. § 2241 (Note).[3] Thus, the Court may only look to "the text of the relevant statutes and controlling domestic caselaw" to determine whether petitioner's detention is lawful. Al-Bihani, 590 F.3d at 871-72. Those sources provide that an individual may be lawfully detained if he were part of, or substantially supported, the Taliban, al Qaeda, or associated forces. See id. at 871-874 (analyzing the relevant statutory text and caselaw to determine the President's detention authority).
As discussed in detail above, the Court has determined that the reliable evidence in the record demonstrates that petitioner more likely than not was part of the Taliban. This determination ends the Court's inquiry into whether petitioner's detention is lawful. Accordingly, petitioner's detention is lawful.
* * *
In sum, the reliable evidence in the record shows that petitioner more likely than not was part of the Taliban. Petitioner more likely than not went to Afghanistan to fight with the Taliban; received weapons training while stationed at the Khoja Khar line; volunteered to serve as a medic when the need arose; and surrendered on his commander's orders. Accordingly, petitioner's detention is lawful.
Although the reliable evidence in the record demonstrates that petitioner more likely than not was part of the Taliban, the undersigned, like Judge Hogan in Anam, "is not convinced that it is more likely than not that [petitioner is a threat to the security of the United States." 696 F. Supp. 2d at 16. Petitioner was a low-level member or associate of the Taliban. He spent no more than a few weeks at the front line, and there is no evidence that he "planned in, participated in, or knew of any terrorist plots." Id. The Court hopes that this Memorandum does not foreclose the government from continuing to review petitioner's file and assess whether he continues *45 to pose a threat to the national security of the United States.
IV. CONCLUSION
For the reasons set forth above, the Court concludes that respondents have demonstrated by a preponderance of evidence that petitioner was more likely than not part of the Taliban. Accordingly, petitioner is being lawfully detained by respondents, and his petition for habeas corpus shall be denied.
A separate Order shall issue this date.
NOTES
[1] As Judge Hogan noted in Anam v. Obama, this Court need not address whether petitioner "substantially supported" the Taliban because the Court holds that petitioner was "part of" the Taliban. 696 F. Supp. 2d at 4 n. 1 (D.D.C.2010). Moreover, the parties had stipulated prior to the Merits Hearing that the sole issue was whether the evidence shows that petitioner was more likely than not part of the Taliban.
[2] This matter was transferred to the undersigned from Judge Kennedy on December 14, 2009. Abdah v. Obama, Civ. No 04-1254, Order [721] (D.D.C. Dec. 14, 2009). As a result, any orders issued by Judge Kennedy before December 14, 2009 in Abdah are binding on petitioner's case.
[3] This provision was enacted as Section 5 of the Military Commissions Act, Pub.L. No. 109-366, § 5, 120 Stat. 2600, 2631 (Oct. 17, 2006). In Boumediene v. Bush, the Supreme Court declared Section 7 of the Military Commissions Act, 28 U.S.C. § 2241(e), unconstitutional because it "effects an unconstitutional suspension of the writ [of habeas corpus.]" 553 U.S. 723, 128 S. Ct. 2229, 2274, 171 L. Ed. 2d 41 (2008). The Court left the remaining provisions of the act intact. Id. at 2275-76. Thus, Section 5 of the Military Commissions Act remains constitutional and does not effect a suspension of the writ of habeas corpus. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2447698/ | 597 F. Supp. 2d 1100 (2009)
Jonathan M. RITCHIE and January J. Ritchie, Plaintiffs,
v.
WAHIAWA GENERAL HOSPITAL, Defendant.
Civil No. 08-00133 JMS/LEK.
United States District Court, D. Hawai`i.
January 20, 2009.
*1102 Eric A. Seitz, Lawrence I. Kawasaki, A Law Corporation, Della A. Belatti, Honolulu, HI, for Plaintiffs.
William S. Hunt, Jan M. Vernon, Alston Hunt Floyd & Ing, Honolulu, HI, for Defendant.
ORDER (1) GRANTING IN PART AND DENYING IN PART PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT AS TO LIABILITY OF DEFENDANT WAHIAWA GENERAL HOSPITAL AND (2) DENYING DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT ON COUNTS II AND IV OF PLAINTIFFS' COMPLAINT REGARDING CLAIMS FOR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS AND PUNITIVE DAMAGES
J. MICHAEL SEABRIGHT, District Judge.
I. INTRODUCTION
On August 25, 2006, five-month pregnant Plaintiff January J. Ritchie ("January") was rushed to Defendant Wahiawa General Hospital ("Defendant" or "Wahiawa General") on the island of Oahu, Hawaii with early contractions. The next day, she delivered her son, Gregory Michael Ritchie ("Gregory"), who was either stillborn or died shortly after birth. When January and her husband Jonathan M. Ritchie (collectively, "Plaintiffs") attempted to pick up Gregory's remains on April 20, 2007, Wahiawa General could not locate them. After a search and internal investigation, Defendant has still not found Gregory's remains or determined their whereabouts.
Subsequently, Plaintiffs filed this action against Defendant alleging negligence; negligent, reckless, and/or intentional infliction of emotional distress; and tortious interference with the right to bury Gregory in accordance with their religious practices. Currently before the court is Plaintiffs' Motion for Partial Summary Judgment as to Liability of Defendant ("Plaintiffs' Motion for Partial Summary Judgment") and Defendant's Motion for Partial Summary Judgment on Counts II and IV of Plaintiffs' Complaint Regarding Claims for Intentional Infliction of Emotional Distress and Punitive Damages ("Defendant's Motion for Partial Summary Judgment"). Based on the following, the court (1) GRANTS in part and DENIES in part Plaintiffs' Motion for Partial Summary Judgment and (2) DENIES Defendant's Motion for Partial Summary Judgment.
II. BACKGROUND
A. Factual Background
1. The Delivery
On August 25, 2006, five-month pregnant January was admitted to Wahiawa General with contractions. Pls.' Exs. 1 at 29-30, 4 at W0082;[1] Kohrer Decl. ¶ 3. At approximately 10:09 a.m. the next day, *1103 January delivered Gregory, which Dr. William McKenzie ("Dr. McKenzie") first documented as a "stillborn infant" that "showed no signs of life." Pls.' Exs. 2-3.[2] When Gregory was given to January to hold, she felt and saw a strong heartbeat, which she reported to Dr. McKenzie and the attending nurses. Id.; Pls.' Ex. 1 at 70-71. Although neither Dr. McKenzie nor Tammy Kohrer, a registered nurse who attended the birth ("Nurse Kohrer"), noted any signs of life,[3]see Def.'s Opp'n Ex. B at 26-27, 29; Kohrer Decl. ¶¶ 7-8, Dr. McKenzie later added on January's chart that a heartbeat was detected and recorded Gregory's time of death as 10:39 a.m. Pls.' Exs. 2-3; Def.'s Opp'n Ex. B at 29.
At some point while January was in surgery on August 26, 2006, Gregory's remains were taken to the hospital morgue. See Gage Decl. Ex. 1.
2. The Birth and Death Certificates
Before leaving the hospital on August 30, 2006, January met with Wahiawa General Patient Liaison Dawn Michell ("Michell"). Michell Decl. ¶ 2.[4] Michell recalls that January requested a birth certificate for Gregory, and she informed January that Wahiawa General would not issue one because Gregory was stillborn. Id. January recalls that this meeting was to address her concerns about Gregory's remains staying at the hospital until Plaintiffs could make funeral arrangements. Pls.' Opp'n Ex. 1 at 84.
After meeting with January, Michell looked into whether Wahiawa General should issue a birth certificate for Gregory because, even though Dr. McKenzie noted on January's chart that Gregory had a heartbeat and lived for thirty minutes, only January witnessed Gregory's heartbeat firsthand. Michell Decl. ¶¶ 3-5. Michell consulted the Ob-Gyn Chief and the hospital's insurer who determined that a birth certificate should not be issued. Id. ¶ 5. Dr. McKenzie, however, disagreed and believed Wahiawa General should issue the birth certificate. Pls.' Opp'n Ex. 2 at 44-45.
In late October 2006, Plaintiffs called Wahiawa General to obtain Gregory's birth certificate. Pls.' Exs. 1 at 39, 9 at 39. After contacting Defendant, Plaintiffs had a meeting with Michell, the Director of Patient Services Kelly Bitonio ("Bitonio"), and a hospital social worker to discuss whether the hospital would issue a birth certificate. Pls.' Exs. 1 at 39-41, 9 at 39-40; Michell Decl. ¶ 6; Bitonio Decl. ¶ 4. Plaintiffs claim that Defendant told them Wahiawa General would not issue a birth certificate, in part, because of the instruction of their insurance lawyers. Pls.' Exs. 1 at 39-41, 9 at 39-40. Defendant *1104 maintains that Wahiawa General Staff explained they could not issue a birth certificate because Gregory was stillborn. Michell Decl. ¶ 6.
Plaintiffs also claim that Wahiawa General personnel told them that they could contact a mortuary to pick up Gregory's remains without a birth certificate. Pls.' Exs. 1 at 42, 9 at 42. When Plaintiffs contacted mortuaries, however, they were informed that they needed a birth and death certificate before they would retrieve the body. Pls.' Exs. 1 at 95, 9 at 42-43.
After this meeting, Plaintiffs contacted Dr. McKenzie who told them "not to worry" because he would help them get the birth certificate. See Pls.' Exs. 1 at 43-44, 9 at 40. At some point later, Dr. McKenzie went to Wahiawa General's Director of Medical Records June Beaumont ("Beaumont") and asked her to process the birth certificate because January felt a heartbeat. Def.'s Opp'n Ex. C at 14-15. Beaumont, however, claims that she did not issue a birth certificate at that time because she called Dr. David, Head of Vital Statistics at the State of Hawaii Department of Health ("Vital Statistics") who told her to wait until he spoke to Dr. McKenzie directly. Id. Subsequently, Dr. McKenzie spoke to Dr. David, who determined that Gregory was a live birth, after which Dr. McKenzie "went back to the [Wahiawa General] medical records and . . . gave them the name of whoever [he] talked to at [Vital Statistics] and said, you know, we need a birth certificate and we need a death certificate and eventually they gave that to [him] and [he] signed it." Def.'s Opp'n Ex. B at 46.
On January 5, 2007, Wahiawa General personnel submitted information online to the State Department of Health in order to process Gregory's birth certificate. Pls.' Ex. 5; Def.'s Opp'n Ex. C at 18, 22. Wahiawa General, however, submitted the incorrect birth date which delayed the issuance of Gregory's birth certificate until March 27, 2007. Pls.' Exs. 5-7. Plaintiffs received the corrected birth certificate in March or April 2007. Def.'s Opp'n Ex. A at 97-98.
On February 12, 2007, Dr. McKenzie certified Gregory's cause of death to the State Department of Health. Pls.' Ex. 8. Gregory's death certificate was filed by the State registrar on April 20, 2007. Id.
3. Wahiawa General's Morgue Policy
Wahiawa General policy requires that any person who transports a body to the morgue must sign the "morgue book" (also referred to as the "morgue log") which documents the name, age, and time of death of the deceased person, the attending physician, and the date of placement in the morgue. Gage Decl. ¶¶ 2-3; see also Kohrer Decl. ¶ 13; Bitonio Decl. ¶ 7. Wahiawa General's policy also mandates that (1) fetal remains be wrapped in a bag or blue chux and labeled with the baby's name, date of birth, and physician's name and placed in the walk-in cooler, Def.'s Opp'n Ex. D at A000012; (2) only authorized Wahiawa General personnel have access to the morgue using a morgue key, Bitonio Decl. ¶ 6; (3) Defendant keeps a "key control log" that documents who signs out the morgue key, id.; and (4) a nurse supervisor must assist removal of a body from the morgue to mortuaries. Gage Decl. ¶ 2. At the time of removal, a nurse supervisor must confirm that the mortuary transporter has authorization to remove the body and document the name of the mortuary and the date and time on the morgue log. Id. ¶ 3; Kohrer Decl. ¶ 13.
4. Loss of Gregory's Remains
On or about April 20, 2007, Mililani Mortuary arrived at Wahiawa General to pick up Gregory's remains to prepare them for *1105 shipment to California. Pls.' Ex. 1 at 100-02. Wahiawa General, however, could not locate Gregory's remains. Id.; Michell Decl. ¶ 8.
Michell, Bitonio, Assistant Director of Nursing Jean Look, and others conducted an unsuccessful two-hour search for Gregory's remains. Michell Decl. ¶ 8; Bitonio Decl. ¶¶ 5-6. Although Gregory's remains were never signed out on the morgue log, see Gage Decl. ¶ 4; Def.'s Opp'n Ex. 1, Wahiawa General also contacted various mortuaries to see if they had picked up the remains by mistake. Michell Decl. ¶ 8; Bitonio Decl. ¶ 7. After the search was exhausted, Bitonio called January to explain the problem. Bitonio Decl. ¶ 8.
Over the next two days, Michell and Bitonio interviewed over fifteen staff members, including medical and cleaning staff, who had access to the morgue key during that time.[5] Michell Decl. ¶ 8; Bitonio Decl. ¶ 6. None of the employees recalled seeing Gregory's remains after, on, or about March 27, 2007 when the remains wrapped in a chux and blanket and placed into a small basketwere moved to accommodate another body. Id.[6] Subsequently, January met with Bitonio again. Bitonio Decl. ¶ 8.
Defendant never located Gregory's remains or determined the cause for their loss. Bitonio Decl. ¶¶ 8-9; Michell Decl. ¶¶ 8-9. Defendant's expert witness Jeffrey Killeen, M.D., a board certified physician in anatomic and clinical pathology and Director of Laboratories, Clinical Laboratories of Hawaii at Kapiolani Medical Center for Women and Children hypothesizes that "due to the small size of the basin in which the remains were stored and the decomposition of the remains over the length of time they were in the morgue, the basin was inadvertently misplaced or discarded by someone who did not recognize what it contained." Killeen Decl. ¶ 7.[7]
5. Plaintiffs' Resulting Emotional State
As a result of Gregory's death, the loss of his remains, and an inability to have a proper Catholic funeral,[8] Plaintiffs assert that they have experienced anxiety and depression. See Pls.' Opp'n Exs. 1 at 119-24, 5 at 55.
Between August and October 2007, January began having anxiety attacks and suffering from depression, which she and her therapist at the time, Pat Debusca ("Debusca"), attributed to Gregory's death, the loss of his remains, and an inability to obtain closure. See Pls.' Opp'n Ex. 1 at 121-24. During this time, January met with Debusca for scheduled and unscheduled appointments, attended group therapy for grief and loss, and began taking Zolofta drug for the treatment of depression and anxiety. Id. at 119-22. As of September 18, 2008, January was still on Zoloft, had found a therapist in Washington State,[9] and planned to continue seeing *1106 a therapist regularly. Id. at 116, 123-24.
As a result of the loss of Gregory's remains, Jonathan reports feeling depressed, angry, easily irritated, and has experienced sleepwalking episodes and a heightened need to be with his daughter, which he calls "separation anxiety." Pls.' Opp'n Ex. 5 at 55. Defendant disputes that Jonathan's sleepwalking episodes are the result of the loss of Gregory's remains because Jonathan was discharged from the Army for sleepwalking in April 2005. Def.'s Reply Ex. F at 7-8, 17.
B. Procedural Background
On March 21, 2008, Plaintiffs filed their Complaint alleging that Defendant negligently misplaced Gregory's remains, interfered with their right to bury him in accordance with their religious practices, and thereby intentionally, recklessly, and/or negligently caused them emotional distress, and requesting special, general, and punitive damages.
On November 7, 2008, Plaintiffs filed a Motion for Partial Summary Judgment. On November 26, 2008, Defendant filed an Opposition. On December 2, 2008, Plaintiffs filed a Reply. Also on December 2, 2008, Defendant filed a Motion for Partial Summary Judgment. On December 18, 2008, Plaintiffs filed an Opposition, and on December 24, 2008, Defendant filed a Reply. A hearing was held on January 5, 2009.
III. STANDARD OF REVIEW
Summary judgment is proper where 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). Rule 56(c) mandates summary judgment "against a party who fails to make a showing sufficient to establish the existence of an element essential to the 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, 91 L. Ed. 2d 265 (1986); see also Broussard v. Univ. of Cal. at Berkeley, 192 F.3d 1252, 1258 (9th Cir.1999).
"A party seeking summary judgment bears the initial burden of informing the court of the basis for its motion and of identifying those portions of the pleadings and discovery responses that demonstrate the absence of a genuine issue of material fact." Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 (9th Cir.2007) (citing Celotex, 477 U.S. at 323, 106 S. Ct. 2548); see also Jespersen v. Harrah's Operating Co., 392 F.3d 1076, 1079 (9th Cir.2004). "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 [and] come forward with specific facts showing that there is a genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 586-87, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986) (citation and quotation signals omitted); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986) (stating that a party cannot "rest on mere allegations or denials of his pleading" in opposing summary judgment).
"An issue is `genuine' only if there is a sufficient evidentiary basis on which a reasonable fact finder could find for the nonmoving party, and a dispute is `material' only if it could affect the outcome of the suit under the governing law." In re Barboza, 545 F.3d 702, 707 (9th Cir.2008) (citing Anderson, 477 U.S. at 248, 106 S. Ct. 2505). When considering the evidence on a motion for summary judgment, the court must draw all reasonable inferences on behalf of the nonmoving party. Matsushita Elec. Indus. Co., 475 U.S. at 587, 106 *1107 S.Ct. 1348; see also Posey v. Lake Pend Oreille Sch. Dist. No. 84, 546 F.3d 1121, 1126 (9th Cir.2008) (stating that "the evidence of the [nonmovant] is to be believed, and all justifiable inferences are to be drawn in his favor." (citations omitted)).
IV. ANALYSIS
A. Plaintiffs' Motion for Partial Summary Judgment
While not entirely clear, it appears that Plaintiffs bring their Motion for Partial Summary Judgment on their claim of negligence based upon Defendant's loss of Gregory's remains and upon Defendant's delay in forwarding information necessary for the State to issue a birth and/or death certificate as required by its own policies and Hawaii Revised Statutes ("HRS") §§ 338-5 and 338-8. For the following reasons, the court GRANTS Plaintiffs' Motion for Partial Summary Judgment as to Defendant's loss of Gregory's remains and DENIES Plaintiffs' Motion for Partial Summary Judgment as to Defendant's conduct regarding the issuance of Gregory's birth and/or death certificate.[10]
1. Law
"[T]hose who are entrusted with the care and preparation for burial of a decedent's body have a duty to exercise reasonable care." Guth v. Freeland, 96 Hawai`i 147, 154, 28 P.3d 982, 989 (2001). "The duty to use reasonable care in the preparation of a body for funeral, burial, or crematory services, or in the rendition of those services, runs to the decedent's immediate family members who are aware of the services and for whose benefit the services are being performed." Id. at 155, 28 P.3d at 990. Immediate family members include decedent's parents. Id.
"Issues of negligence are ordinarily not susceptible of summary adjudication; however, where there is no dispute in the evidence before the trial court, it has the duty to pass upon the question of negligence and proximate cause as a matter of law." Pickering v. State, 57 Haw. 405, 407, 557 P.2d 125, 127 (1976).
2. Application
Defendant concedes it had a duty to reasonably care for Gregory's remains but contends that Plaintiffs failed to establish that Defendant breached that duty as a matter of law. For the foregoing reasons, the court disagrees in part.
a. Negligence for misplacing the remains
Based on a thorough review of the record and viewing the evidence presented in the light most favorable to Defendant, the court finds that Defendant did not reasonably care for Gregory's remains, which proximately caused the loss of his body. Plaintiffs have put forth sufficient evidence that Defendant's negligence is the only possible explanation for the loss of Gregory's remainsnamely that the carelessness of an unidentified Wahiawa General employee at some unknown point between March 27, 2007 (the last day Wahiawa General employees recall seeing the body) and April 20, 2007 (the day Mililani Mortuary arrived to pick up the remains) directly resulted in the loss of their son's body. Specifically, Plaintiffs have demonstrated that: (1) Defendant's policies require that a chain of custody be *1108 maintained for each body, only authorized Wahiawa General personnel have access to the morgue using a morgue key, and infant remains be wrapped in a bag or blue chux labeled with the baby's name, date of birth, and physician's name, Gage Decl. ¶¶ 1-3; Bitonio Decl. ¶ 6; Def.'s Opp'n Ex. D at A000012; (2) Gregory's body was wrapped in a chux and blanket and placed in a small basin per Defendant's policy for storage of infant remains, Michell Decl. ¶ 8; Pls.' Ex. 14 at A000012; (3) Gregory's remains were properly signed into the morgue but never signed out, Def.'s Opp'n Ex. 1; (4) only a nurse supervisor is authorized to remove remains from the morgue, Gage Decl. ¶ 3; and (5) Defendant lost Gregory's remains and has no information regarding their whereabouts. Bitonio Decl. ¶¶ 8-9; Michell Decl. ¶¶ 8-9. Further, at the hearing, Defendant conceded that Gregory's remains could only have been removed from the morgue by Wahiawa General personnel acting within the scope of their employment.[11] Because Defendant concedes that an employee lost Gregory's remains while acting within the scope of his or her employment and any removal or disposal of the remains was necessarily against Wahiawa General policies, any conceivable explanation for losing Gregory's remains constitutes negligence by the Defendant.[12]
Further, because Plaintiffs have carried their Rule 56(c) burden, Defendant's inability to come forward with any explanation for the loss of Gregory's remains that does not involve a Wahiawa General staff person negligently misplacing the remains is fatal. While the exact negligent act remains unknown, Defendant must reply with more than "some metaphysical doubt as to the material facts [and] come forward with specific facts showing that there is a genuine issue for trial" on the issue of negligence in order to overcome summary judgment. See Matsushita, 475 U.S. at 586-87, 106 S. Ct. 1348.
Defendant's argument that its policies governing the care of infant remains are reasonable and meet the standard of care fails because Defendant does not provide any evidence that Wahiawa General staff followed its policies. See Def.'s Opp'n 14-15. In fact, if the policies were followed, Gregory's remains would not be missing. While Defendant's expert testified that Wahiawa General's policies governing the storage and labeling of fetal remains conform with "applicable industry standards," see Killeen Decl. ¶¶ 3-4, Defendants have presented no admissible evidence[13] that *1109 Wahiawa General employees complied with those standards. As noted above, Defendant could not provide a single plausible explanation for the loss of Gregory's remains that did not involve Defendant's personnel violating Wahiawa General's policies.
This court, therefore, GRANTS in part Plaintiff's Motion and finds that Defendant is liable for negligence for the loss of Gregory's remains as a matter of law.[14]
b. Negligence for Defendant's delay in sending information necessary for issuance of a birth and/or death certificate
Plaintiffs also bring their Partial Motion for Summary Judgment on their claim for negligence based upon Defendant's delay in complying with its polices and the statutory provisions regarding birth and/or death certificates, which they claim led to the loss of Gregory's remains. For the foregoing reasons, Plaintiffs have failed to meet their summary judgment burden on this point.
Viewing the evidence presented in the light most favorable to Defendant, there is a genuine issue of material fact as to whether Defendant's lag in sending the necessary information to the State for Gregory's birth and/or death certificate constitutes negligence as a matter of law. While the record contains evidence that Defendant did not forward the required information for a death certificate within three days as mandated by HRS § 338-8[15] and their own polices,[16]see Pls.' Ex. 8, and that Defendant delayed in providing the State with the data for a birth certificate even though Dr. McKenzie recorded that the child had a heartbeat,[17] Michell Decl. ¶¶ 3-6; Pls.' Ex. 3; Pls.' Opp'n Ex. 2 at 44-45, Defendant has countered with evidence that the postponement was reasonable under the circumstances due to confusion as to whether Gregory was a live birth or stillbirth. See Michell Decl. ¶¶ 3-6; Def.'s Opp'n Ex. C at 14-15. Specifically, Defendant has presented evidence that during this time, Wahiawa General employees actively investigated whether a *1110 birth and/or death certificate should be issued because only January reported the presence of Gregory's heartbeat. See id. Considering this evidence, a reasonable person could find that Wahiawa General's delay was reasonable under the circumstances, and therefore, did not breach the standard of care.
Because there is a genuine issue of material fact as to whether Defendant's delay regarding the birth and death certificates was reasonable, the court DENIES Plaintiffs' Partial Motion for Summary Judgment as to this conduct.
B. Defendant's Motion for Partial Summary Judgment
Defendant argues that Plaintiffs' claims for intentional infliction of emotional distress ("IIED") and derivative punitive damages fail as a matter of law. For the foregoing reasons, the court disagrees and finds that Defendant has not met its summary judgment burden.
1. IIED Law
"The elements of the tort of intentional infliction of emotional distress are 1) that the act allegedly causing the harm was intentional or reckless, 2) that the act was outrageous, and 3) that the act caused 4) extreme emotional distress to another." See Hac v. Univ. of Haw., 102 Hawai`i 92, 106-07, 73 P.3d 46, 60-61 (2003) (adopting IIED standard from Restatement (Second) of Torts).
To demonstrate the first element, a plaintiff must show that the defendant acted either with a "desire to inflict severe emotional distress, . . . where he knows that such distress is certain, or substantially certain, to result from his conduct" or "recklessly . . . in deliberate disregard of a high degree of probability that the emotional distress will follow." Restatement (Second) Torts Section 46, cmt. i (1965); see also Potter v. Firestone Tire & Rubber Co., 6 Cal. 4th 965, 1014, 25 Cal. Rptr. 2d 550, 863 P.2d 795, 828 (1993) ("[D]efendant's conduct is in reckless disregard of the probability of causing emotional distress if [he] . . . has knowledge of a high degree of probability that emotional distress will result and acts with deliberate disregard of that probability or with a conscious disregard of the probable results."); State v. Carpenter, 171 P.3d 41, 58 (Alaska 2007) (noting that an IIED plaintiff must show that "the defendant acted in deliberate disregard of a high degree of probability that the emotional distress will follow" to prove a reckless mental state).
Recklessness, unlike negligence, involves more than "inadvertence, incompetence, unskillfulness, or a failure to take precautions" but instead rises to the level of a "conscious choice of a course of action . . . with knowledge of the serious danger to others involved in it." See Restatement (Second) Torts, § 500, cmt. g; Iddings v. Mee-Lee, 82 Hawai`i 1, 11, 919 P.2d 263, 273 (1996) ("The usual meaning assigned to . . . `reckless,' . . . is that the actor has intentionally done an act of an unreasonable character in disregard of a risk known to or so obvious that he . . . must be taken to have been aware of it, and so great as to make it highly probable that harm would follow."). As is clear, context matters in determining if conduct is reckless.
Ross v. Stouffer Hotel Co., 76 Hawai`i 454, 879 P.2d 1037 (1994), describes what constitutes sufficiently "outrageous" conduct:
Liability has been 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. Generally, the case is one in which the recitation of the facts to an average *1111 member of the community would arouse his resentment against the actor, and lead him to exclaim, "Outrageous!"
76 Hawai`i at 465 n. 12, 879 P.2d at 1048 n. 12 (citation and quotation signals omitted); see also Shoppe v. Gucci Am., Inc., 94 Hawai`i 368, 387, 14 P.3d 1049, 1068 (2000) (stating that an act is outrageous if it is "without just cause or excuse and beyond all bounds of decency"). "The question whether the actions of the alleged tortfeasor are . . . outrageous is for the court in the first instance, although where reasonable persons may differ on that question it should be left to the jury." Nagata v. Quest Diagnostics, Inc., 303 F. Supp. 2d 1121, 1127 (D.Haw.2004) (citing Shoppe, 94 Hawai`i at 387, 14 P.3d at 1068).
Extreme or severe "emotional distress is defined as mental suffering, mental anguish, mental or nervous shock [,] . . . includ[ing] horror, grief, shame, humiliation, embarrassment, anger, chagrin, disappointment, worry and nausea." Hac, 102 Hawai`i at 106, 73 P.3d at 60 (citation and quotation signals omitted); Enoka v. AIG Hawai`i Ins. Co., 109 Haw. 537, 559, 128 P.3d 850, 872 (2006) ("`[E]xtreme emotional distress' constitutes, inter alia, mental suffering, mental anguish, nervous shock, and other `highly unpleasant mental reactions.'"). To show extreme emotional distress, Plaintiff must produce evidence that "a reasonable [person], normally constituted, would be unable to adequately cope with the mental stress engendered by the circumstances of the case." Shoppe, 94 Hawai`i at 386, 14 P.3d at 1068; Rodrigues v. State, 52 Haw. 156, 173, 472 P.2d 509, 520 (1970) ("[S]erious mental distress may be found where a reasonable man, normally constituted, would be unable to adequately cope with the mental stress engendered by the circumstances of the case.").
"Medical proof can be offered to assist in proving the `seriousness' of the claim and the extent of recovery, but should not be a requirement allowing or barring the cause of action. Once the trial court . . . is satisfied that the distress is `serious,' the duration and symptoms of the distress affect the amount of recovery." Campbell v. Animal Quarantine Station, 63 Haw. 557, 564-65, 632 P.2d 1066, 1070-71 (1981); see also Hac, 102 Hawai`i at 106, 73 P.3d at 60 ("[B]odily injury, while compensable, is not necessary to establish severe emotional distress.").
2. Application
Defendant argues that Plaintiffs have failed to demonstrate an IIED claim as a matter of law. The court disagrees.
As a preliminary matter, Defendant applies the incorrect, pre-Hac elements of an IIED claim. See Def.'s Mot. 8. Prior to Hac, the elements of IIED were "(1) that the act allegedly causing the harm was intentional; (2) that the act was unreasonable; and (3) that the actor should have recognized that the act was likely to result in illness." Hac, 102 Hawai`i at 105, 73 P.3d at 59 (quotation signals omitted). Hac, however, established the following elements of an IIED claim: "1) that the act allegedly causing the harm was intentional or reckless, 2) that the act was outrageous, and 3) that the act caused 4) extreme emotional distress to another." Id. at 106-07, 73 P.3d at 60-61 (adopting approach set forth in the Restatement (Second) of Torts) (emphasis added).
a. Recklessness
Viewing the evidence in the light most favorable to Plaintiffs, the court cannot conclude that Defendant's conduct was not reckless as a matter of lawin other words, that Defendant did not make a "conscious choice of a course of action . . . with knowledge of the serious danger to others involved in it." See Restatement (Second) Torts, § 500, cmt. g. Namely, *1112 Plaintiffs have provided evidence that, due to Defendant's delay, a death certificate was not certified until over six months after Gregory's death on February 12, 2007, with full knowledge that bodies shall not be removed from the morgue without a death certificate, see Pls.' Exs. 14-15, and the morgue could not accommodate bodies for a long period of time. See Pls.' Ex. 12 ¶ 6. Further, Defendant's own expert hypothesizes that someone with access to the locked morgue may have "inadvertently" discarded the remains, see Killeen Decl. ¶ 7, although Gregory's body was wrapped in a chux and blanket in a small basin per Defendant's requirement for storage of infant remains. See Michell Decl. ¶ 8; Pls.' Ex. 14 at A000012. Finally, Gregory's remains were misplaced never to be found. Based upon this evidence and given the particular context of this case, a reasonable person could find that Defendant acted recklessly. Iddings, 82 Hawai`i at 11, 919 P.2d at 273 ("The usual meaning assigned to . . . `reckless,' . . . is that the actor has intentionally done an act of an unreasonable character in disregard of a risk known to or so obvious that he . . . must be taken to have been aware of it, and so great as to make it highly probable that harm would follow.") Thus, the court cannot find that Defendants were not reckless as a matter of law.
b. Outrageousness
Defendant has not established that its acts were not outrageous as a matter of law. There is evidence that due to Defendant's delay Plaintiffs did not receive either Gregory's birth or death certificate for over six months, see Pls.' Exs. 7-8; Michell Decl. ¶¶ 2-6; Pls.' Opp'n Ex. 2 at 44-45, had knowledge of their small morgue, ill equipt for long-term storage, see Pls.' Ex. 12 ¶ 6, and ultimately lost baby Gregory's remains. A reasonable fact finder could certainly find that the recitation of these facts to an average member of the community would arouse his sentiment against Wahiawa General and lead him to exclaim, "Outrageous!" See Restatement (Second of Torts) § 46, cmt. d; In re Air Crash Disaster Near Cerritos, Cal., Aug. 31, 1986, 973 F.2d 1490, 1498 (9th Cir.1992) (J., Rymer, dissenting) (citing Supreme Court of California case for proposition that "conduct in mortuaries in mishandling remains was `outrageous and reprehensible'").
c. Extreme Emotional Distress
Contrary to Defendant's conclusory assertions, Plaintiffs have put forth sufficient evidence of severe emotional distress to avoid summary judgment. It is undisputed that Defendant misplaced Plaintiffs' son's remains. Certainly, a reasonable person, "normally constituted" may be unable to cope with such a loss. See Rodrigues, 52 Haw. at 173, 472 P.2d at 520 ("[S]erious mental distress may be found where a reasonable man, normally constituted, would be unable to adequately cope with the mental stress engendered by the circumstances of the case."); see also Leong v. Takasaki, 55 Haw. 398, 403, 520 P.2d 758, 762 (noting there is a special likelihood that mental distress will result from the negligent mishandling of corpses). Further, Plaintiffs have provided evidence that they have experienced mental suffering and anguish in the form of anxiety, depression, and shock. See Pls.' Opp'n Exs. 1 at 119-124, 5 at 55. While Defendant asserts that Plaintiffs' evidence of emotional distress is insufficient, see Def.'s Reply 8-9, Plaintiffs have put forth adequate evidence of their continued suffering to raise a genuine issue of fact for trial.
Additionally, because the enormity of losing Gregory's corpse "carries the conviction that there has in fact been severe emotional distress," Plaintiffs need not *1113 submit proof of physical injury to prove the fourth element of their IIED claim. See Hac, 102 Hawai`i at 106, 73 P.3d at 60 ("[I]f the enormity of the outrage carries conviction that there has in fact been severe emotional distress, bodily harm is not required."); see also Guth, 96 Hawai`i at 159, 28 P.3d at 994 (Acoba, J., concurring in part and dissenting in part) ("[T]here is near universal agreement that a reasonable person, normally constituted, may be unable to adequately cope with the mental stress engendered by the desecration of a deceased family member's remains.").[18]
Because Defendant has failed to meet its summary judgment burden, the court DENIES Defendant's Motion for Summary Judgment on Count II of Plaintiffs' Complaint.
3. Punitive Damages
Because Plaintiffs' IIED claim survives summary judgment, the court denies Defendant's derivative request for summary judgment of Plaintiffs' incidental claim for punitive damages. See Kang v. Harrington, 59 Haw. 652, 660, 587 P.2d 285, 291 (1978) ("An award of punitive damages is purely incidental to the cause of action."); see also Lee v. Aiu, 85 Hawai`i 19, 34, 936 P.2d 655, 670 (1997) (holding record contained substantial evidence that defendants engaged in "aggravated or outrageous misconduct" required to impose punitive damages where IIED claim also stood). Thus, the court DENIES Defendant's Motion for Partial Summary Judgment on Count IV of Plaintiffs' Complaint.
V. CONCLUSION
For the reasons stated above, the court (1) GRANTS in part and DENIES in part Plaintiffs' Motion for Partial Summary Judgment as to Liability and (2) DENIES Defendant's Motion for Partial Summary Judgment on Counts II and IV of Plaintiffs' Complaint Regarding Claims for IIED and Punitive Damages.
IT IS SO ORDERED.
NOTES
[1] Plaintiffs attach one set of exhibits to their Concise Statement of Facts in Support of their Motion for Partial Summary Judgment (Pls.' Ex.) and one set of exhibits to their Concise Statement of Facts in Opposition to Defendant's Motion for Partial Summary Judgment (Pls.' Opp'n Ex.). Defendant attaches one set of exhibits to its Concise Statement of Facts in Support of its Motion for Partial Summary Judgment (Def.'s Ex.) and one set of exhibits to its Concise Statement of Facts in Opposition to Plaintiffs' Motion for Partial Summary Judgment (Def.'s Opp'n Ex.).
[2] Because a 20-week old fetus is nonviable incapable of surviving outside of the womb no resuscitation is performed even if the infant shows signs of life after birth such as breathing or a heartbeat. Kohrer Decl. ¶¶ 4-5; see also Def.'s Opp'n Ex. B at 29 (noting Gregory was handed to the mother without examination because he was nonviable).
[3] Nurse Kohrer maintains that Gregory was not alive at birth because she noticed signs of death prior to delivery (i.e., maceration of the skin) and did not observe any cardiac activity or see any other movement. Kohrer Decl. ¶¶ 7-8. She did not, however, examine Gregory's chest with a stethoscope. Id. Dr. McKenzie also "didn't really check the baby" before giving Gregory to January to hold because he "knew it was nonviable." Def.'s Opp'n Ex. B at 29.
[4] All citations to the Michell and Bitonio Declarations refer to the declarations attached to Defendant's Opposition. Plaintiffs also submitted separate Michell and Bitonio Declarations as Exhibits 11 and 12 in Support of their Motion for Partial Summary Judgment, which are cited as Plaintiffs' Exhibits 11 and 12.
[5] Wahiawa General staff reviewed the "key control log" to determine whom to interview. Bitonio Decl. ¶ 6.
[6] In its investigation, Wahiawa General did not find any affirmative evidence that anyone intentionally displaced or destroyed the remains. Bitonio Decl. ¶ 9; Michell Decl. ¶ 9.
[7] Defendant also claims that due to the limited size of the Wahiawa General morgue it is very difficult to store remains for many months because it often requires that they be moved and relocated. Pls.' Ex. 12 ¶ 6.
[8] Plaintiffs held a memorial service for Gregory on May 8, 2007 in California without the remains. Pls.' Ex. 1 at 110, 116. The memorial service, however, was not in accordance with Plaintiffs' Catholic faith, which "expresses a consistent preference for all funeral rites to be celebrated in the presence of the body." Pls.' Exs. 1 at 110, 116, 13 at 2.
[9] In October 2007, the Army relocated January from Hawaii to Washington. Pls.' Opp'n Ex. 1 at 121, 124. Around September 2008, January began counseling in Washington. Id. at 116.
[10] To the extent Plaintiffs make a claim of negligence per se based upon Defendant's failure to follow their own policies or HRS §§ 338-5 and 338-8, the court DENIES Plaintiffs' Motion for Partial Summary Judgment. See Medeiros v. Haw. Dept. of Labor & Indus. Relations, 108 Hawai`i 258, 276, 118 P.3d 1201, 1219 (2005) ("[N]oncompliance with an established statutory standard is not necessarily conclusive proof on the issue of negligence, . . . but is merely evidence of negligence[.]" (citation signals omitted)).
[11] "Under the doctrine of respondeat superior, an employer is held vicariously liable for the negligent acts of an employee committed while the employee was acting within the scope of the employer's business." Yamane v. Pohlson, 111 Hawai`i 74, 78 n. 7, 137 P.3d 980, 984 n. 7 (2006); State v. Hoshijo ex rel. White, 102 Hawai`i 307, 319, 76 P.3d 550, 562 (2003).
[12] For example, it is of no consequence whether a nurse incorrectly sent the remains to the wrong mortuary or a cleaning person failed to recognize the remains and improperly disposed of them because any possible scenario requires that Defendant's employee violated Wahiawa General's policiesthereby either "doing something that a reasonable person would not do or failing to do something a reasonable person would do" under the circumstances. See Moyle v. Y & Y Hyup Shin, Corp., 118 Hawai`i 385, 389, 191 P.3d 1062, 1066 (2008) ("Negligence is doing something which a reasonable person would not do or failing to do something which a reasonable person would do.").
[13] While Defendant's expert may opine on whether Defendant acted within industry standards, Defendant cannot rely on Dr. Killeen's legal opinion to establish the ultimate issue of law (i.e., whether Defendant breached its duty of care in handling Gregory's remains). See Mukhtar v. Cal. State Univ., Hayward, 299 F.3d 1053, 1065 n. 10 (9th Cir. 2002) ("[A]n expert witness cannot give an opinion as to her legal conclusion, i.e., an opinion on an ultimate issue of law."); see also United States v. Scholl, 166 F.3d 964, 973 (9th Cir. 1999) ("Experts interpret and analyze factual evidence. They do not testify about the law because the judge's special legal knowledge is presumed to be sufficient, and it is the judge's duty to inform the jury about the law that is relevant to their deliberations." (citation and quotation signals omitted)); Aguilar v. Int'l Longshoremen's Union Local No. 10, 966 F.2d 443, 447 (9th Cir.1992) (stating that matters of law are "inappropriate subjects for expert testimony").
[14] The court's decision on liability is limited to breach and proximate cause (i.e., that Defendant breached its duty to care for Gregory's remains which proximately caused the loss of the remains) and does not make any determination as to damages.
[15] HRS § 338-8 provides that:
[a] certificate of every death or fetal death shall be filed with the department of health in Honolulu or with the local agent of the department of health in the district in which the death or fetal death occurred or a dead body was found within three days after the death or fetal death occurred or the dead body was found. In every instance, a certificate shall be filed prior to interment or other disposition of the body.
(Emphasis added).
[16] Defendant's policies contain provisions that require Wahiawa General to issue a death certificate for a "neonatal death" of a live-born infant after the first seven days after birth and for fetal death. See Pls.' Exs. 14-15.
[17] HRS § 338-5 requires registration of all births. It states that:
a certificate of every birth shall be substantially completed and filed with the local agent of the department in the district in which the birth occurred, by the administrator or designated representative of the birthing facility, or physician, or midwife, or other legally authorized person in attendance at the birth; or if not so attended, by one of the parents.
[18] Defendant's assertion that "it is generally understood that a showing of physical injury is required for proof of severe emotional distress for IIED claims" utterly misstates the law. See Def.'s Mot. 9. To the contrary, "bodily injury, while compensable, is not necessary to establish severe emotional distress" in an IIED claim. Hac v. Univ. of Haw., 102 Hawai`i 92, 106, 73 P.3d 46, 60 (2003). Severe emotional distress "is not . . . limited to cases where there has been bodily harm; and if the conduct is sufficiently extreme and outrageous there may be liability for the emotional distress alone without such harm." See id. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2447770/ | 219 F. Supp. 2d 390 (2002)
AFFYMETRIX, INC., Plaintiff,
v.
PE CORPORATION (N.Y.); Competitive Technologies, Inc.; Applera Corporation; Perseptive Biosystems, Inc., Defendants.
No. 01 Civ. 0634(NRB).
United States District Court, S.D. New York.
May 24, 2002.
*391 Ralph C. Dawson, Fulbright & Jaworski, L.L.P., New York City, for plaintiff.
David A. Kalow, David S. Brafman, Kalow & Springut, L.L.P., New york City, for defendants.
MEMORANDUM AND ORDER
BUCHWALD, District Judge.
Plaintiff, Affymetrix, Inc. ("Affymetrix"), brings this action for declaratory, injunctive, and monetary relief against defendants PE Corp. (N.Y.) ("PE (N.Y.)"), Competitive Technologies, Inc. ("Competitive Technologies"), Applera Corp. ("Applera"), and PerSeptive Biosystems, Inc. ("PerSeptive"). Affymetrix seeks a declaration that it has not infringed certain patents here at issue and/or that these patents are invalid and unenforceable. Further, Affymetrix asserts claims for breach of contract, attempt and conspiracy to monopolize, and unfair competition. Presently before the Court is defendants' motion to dismiss certain of plaintiff's patent unenforceability claims and contract claims, and to sever and stay the remaining contract-related claims. Further, defendants move to bifurcate and stay the antitrust-related claims pending resolution of the patent claims. For the following reasons, defendants' motion to dismiss is denied and defendants' motion to bifurcate and stay the antitrust-related claims is granted in part and denied in part.
BACKGROUND
As described in Affymetrix's Amended Complaint, the facts are as follows. In September of 1997, Affymetrix entered into a written Purchase Agreement ("the Agreement") with PerSeptive, in which PerSeptive agreed to sell a certain amount of custom amidite products to Affymetrix during each year of the Agreement until December 31, 2005. By its terms, the *392 Agreement is fully assignable, is governed and interpreted under California law, and provides that with the exception of disputes relating to intellectual property rights, all disputes are to be resolved by arbitration. Under the Agreement, PerSeptive represented that at the time of contracting, PerSeptive knew of no reason that Affymetrix could not use the delivered amidite products to manufacture oligonucleotides using any method contained in Patent No. RE 34,069 ("the '069 patent" or "the Koster patent"). The Agreement further provided that "[i]f for any reason PerSeptive is not able to make or have made the amidites" for a period exceeding 60 days, PerSeptive was to negotiate in good faith with Affymetrix for licensing rights to the '069 patent. Further, PerSeptive represented that at the time of the sale, it knew of no violations of any patents or other intellectual property rights that would prevent Affymetrix from so using the amidite products. PerSeptive was also obligated under the Agreement to indemnify and defend Affymetrix from infringement claims based on use of the amidite products in accordance with the '069 patent.
Shortly before the Agreement was entered, in August of 1997, the Perkin-Elmer Corp., which was later renamed PE Corporation (N.Y.), acquired PerSeptive. Affymetrix received shipments of amidite products from Perseptive until April 15, 1998. Then, PerSeptive failed to deliver the amidite products in response to purchase orders placed in May and June. On one occasion, PerSeptive allegedly shipped the amidite products with improper packaging, which constituted nonconforming goods under the Agreement. This failure to provide conforming goods was never cured. Affymetrix was notified by representatives of PerSeptive that PerSeptive did not intend to fill the orders. Later, in August of 1999, a PE (N.Y.) representative indicated that a PE (N.Y.) affiliate intended to assert a claim that Affymetrix's use of the amidite products to synthesize DNA infringed PE (N.Y.)'s process patents. Affymetrix notified PerSeptive of PE (N.Y.)'s patent infringement allegations in September of 1999 pursuant to the indemnification provisions of the Agreement. However, when Applera, of which PE (N.Y.) is a wholly owned subsidiary, sued Affymetrix for infringement including the use of amidite products sold to Affymetrix by PerSeptive, Perseptive and PE (N.Y.) failed to take up the defense of Affymetrix. Applera, along with Competitive Technologies, sued Affymetrix in early July of 2000 in the District Court of Delaware alleging infringement of five patents: U.S. Patent Nos. 4,458,066 ("the '066 patent"); 4,500,707 ("the '707 patent"); 5,132,418 ("the '418 patent"); 5,153,319 ("the '319 patent"); and 4,973,679 ("the '679 patent") (collectively, "patents in suit" or "Carruthers patents"). According to Affymetrix's Amended Complaint, PE (N.Y.) purports to have sole and exclusive rights to enforce the patents in suit and Competitive Technologies purports to hold title to each of the patents in suit. When the Delaware action was dismissed in September for lack of subject matter jurisdiction, the parties determined to proceed here with this case, which was filed in January of 2001.
In its Amended Complaint, Affymetrix asserts five causes of action. In Count One, against PE (N.Y.) and Competitive Technologies only, Affymetrix seeks a declaratory judgment that (1) it has not infringed the patents in suit; (2) the patents in suit are invalid for failing to satisfy the requirements set forth in 35 U.S.C. §§ 101, 102, 103 and/or 112 and/or under the doctrine of obviousness-type double patenting; and (3) the patents in suit are unenforceable. In Count Two of the Amended Complaint, Affymetrix asserts a breach of contract claim against PerSeptive and PE (N.Y.) based on breach of warranty, PerSeptive's failure to defend *393 and indemnify Affymetrix from claims resulting from use of the amidite products, and PerSeptive's failure to negotiate in good faith for licensing rights to the '069 patent as required by the Agreement if PerSeptive became unable to deliver amidite products for a period exceeding 60 days. In Count Three, asserted against PE (N.Y.) and Applera, Affymetrix alleges that past legal action taken by these companies against Affymetrix and the fraudulent obtaining and licensing of patents constitute attempts to monopolize by preventing Affymetrix from competing with PE (N.Y.) in the manufacture and sale of DNA probes and other products involving the synthesis of oligonucleotides in violation of the Sherman Act, 15 U.S.C. § 2. Further, in Count Four, Affymetrix asserts that PE (N.Y.), Applera, and Competitive Technologies have conspired to engage in such illegal and exclusionary conduct, in violation of the Sherman Act, 15 U.S.C. § 2, Cal. Bus. & Prof.Code §§ 16722 and 16726, and N.Y. Gen. Bus. Law § 340. Finally, Count Five asserts a cause of action against PE (N.Y.), Applera, and Competitive Technologies pursuant to Cal. Bus. & Prof.Code § 17200 for unfair competition.
Since the patent unenforceability allegations contained in Count One are directly challenged in defendants' motion to dismiss, we describe them in some detail. Affymetrix alleges that PE (N.Y.) and Competitive Technologies intentionally failed to disclose prior art to the Patent and Trademark Office ("PTO"), namely a 1980 article entitled "The Synthesis of Oli-godeoxypyrimidines on a Polymer Support" ("the Article") that was material to the examination of the '066 and '679 patents. Further, Affymetrix alleges that defendants enforced and licensed the '679 patent beyond the date of its expiration while failing to inform the PTO of its error in failing to print a terminal disclaimer notice on the face of the '679 patent.[1] With respect to the '066 patent application, Affymetrix charges that the applicants intentionally concealed the best mode of practicing their invention, as evidenced by the filing of another patent application shortly thereafter in which applicants disclose the use of a saturated secondary amino group as the preferred embodiment. Affymetrix further points to an article published by applicants just prior to filing the '066 application that describes the actual best mode. With respect to the '707,-'418, and '319 patents, Affymetrix alleges that these as well are unenforceable for inequitable conduct in failing to inform the PTO of the best mode. Finally, Affymetrix asserts that the failure to disclose the Article and/or best mode during the '066 patent prosecution also renders the '707,-'418, and '319 patents unenforceable because the '707 patent is a continuation-in-part of the '066 patent, and the '418 and '319 patents are continuations of the '066 patent.
DISCUSSION
Defendants move pursuant to Fed. R.Civ.P. 12(b)(6) to dismiss certain of Affymetrix's claims. First, defendants argue that several of Affymetrix's contract-based *394 claims are not legally cognizable and should be dismissed, and that the remainder of Affymetrix's contract claims should be severed, stayed, and submitted to arbitration pursuant to the mandatory arbitration clause. With respect to Affymetrix's allegations that the patents in suit are unenforceable, defendants argue that plaintiff's allegations that defendants failed to disclose prior art and best mode to the PTO do not support a claim for inequitable conduct, and are therefore insufficient as a matter of law. Finally, defendants move to bifurcate and stay discovery and trial of the antitrust-related claims pending resolution of the patent issues raised in this case.
A. Legal Standard
In considering a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), we accept as true all material factual allegations in the complaint, Atlantic Mutual Ins. Co. v. Balfour Maclaine Int'l, Ltd., 968 F.2d 196, 198 (2d Cir.1992), and may grant the motion only where "it appears beyond doubt that the plaintiff can prove no set of facts in support of [its] claim which would entitle [it] to relief." Still v. DeBuono, 101 F.3d 888, 891 (2d Cir.1996); see Conley v. Gibson, 355 U.S. 41, 48, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957). In addition to the facts set forth in the complaint, we may also consider documents attached thereto and incorporated by reference therein, Automated Salvage Transp., Inc. v. Wheelabrator Envtl. Sys., Inc., 155 F.3d 59, 67 (2nd Cir.1998), as well as matters of public record, Pani v. Empire Blue Cross Blue Shield, 152 F.3d 67, 75 (2d. Cir.1998).
B. Contract-Related Claims
The Agreement between Affymetrix and PerSeptive for the sale of the amidite products[2] states in relevant part,
PerSeptive warrants and represents ... that at the time of the sale it has not received actual notice of violation of any patents or patent applications ... which, in PerSeptive's opinion, would prevent Affymetrix from purchasing the Products or using them to manufacture oligonucleotides using any method claimed in Patent No. U.S. RE 34,069. Subject to the limitations set forth below, PerSeptive shall defend, indemnify and hold harmless Affymetrix from any suit, claim or proceeding brought against Affymetrix alleging that (i) the structure of any phosphoramidite manufactured by PerSeptive which constitutes a Product, exclusive of any MeNOPC protecting group added thereto, that is purchased by Affymetrix from PerSeptive pursuant to this Agreement, or (ii) the use of any Product in implementing any method of manufacturing oligonucleotides claimed in Patent No. U.S. RE 34,069, infringes any Intellectual Property Rights of others.[3]
As discussed earlier, plaintiff alleges that PerSeptive and PE (N.Y.) violated these provisions of the Agreement by breaching *395 the express warranty in the Agreement and by failing to defend and indemnify Affymetrix in intellectual property litigation surrounding the use of the amidite products. In their motion to dismiss, defendants argue that Affymetrix's contract claims against PerSeptive and PE (N.Y.) for indemnity and breach of warranty should be dismissed as falling outside the scope of the patent infringement claims raised in the Delaware and current action.[4] Defendants assert that the use of the amidite products sold under the Agreement is not the basis for their claim of patent infringement.[5] Defendants also raise the mandatory arbitration clause in the Agreement as a partial defense to plaintiff's contract claim.[6]
We find defendants' arguments unavailing for several reasons. First, at Oral Argument on April 17, 2002, defendants were unable to articulate any further explanation for their assertion that the underlying claims of infringement of the Carruthers patents are unrelated to the purchase and use of the amidite products in accordance with the Koster patent.[7] Moreover, defendants' assertion that the amidite products sold and used pursuant to the Agreement are unrelated to the patent infringement action directly contradicts plaintiff's carefully-pleaded allegations that subsequent to deliveries of amidite products from PerSeptive to Affymetrix, "Affymetrix was sued by Appelera [sic] and others in the District of Delaware for alleged infringement, including use of amidite Products sold to Affymetrix by PerSeptive." See Am. Compl. ¶¶ 34-37.[8] Finally, since the warranty *396 and indemnity allegations clearly relate to intellectual property rights, these legal questions are exempted from arbitration under the Agreement. Therefore, given that these claims are properly brought in this forum and taking plaintiff's allegations as true, as we must on a 12(b)(6) motion, plaintiff has clearly stated a claim under the indemnity and warranty provisions of the contract. Defendants' motion to dismiss these aspects of plaintiff's contract claim is denied.
C. Unenforceability Claims
As discussed earlier, plaintiff has alleged that the patents in suit are unenforceable based on defendants' inequitable conduct in the prosecution of the patents before the PTO. In their motion, defendants argue that plaintiff's unenforceability claims with respect to the '066 patent and its progeny are insufficient as a matter of law. For the following reasons, we find defendants argument unpersuasive and sustain plaintiff's patent unenforceability claims.
1. Failure to Disclose Prior Art
Patent applicants are required to prosecute patent applications in the PTO with candor, good faith, and honesty. Molins v. Textron, Inc., 48 F.3d 1172, 1178 (Fed.Cir.1995) (citing Precision Instrument Mfg. Co. v. Automotive Maintenance Mach. Co., 324 U.S. 806, 818, 65 S. Ct. 993, 89 L. Ed. 1381 (1945)). Inequitable conduct occurs when there has been a breach of this duty, including an applicant's failure to disclose material information coupled with an intent to deceive. Molins, 48 F.3d at 1178 (citing J.P. Stevens & Co. v. Lex Tex, Ltd., 747 F.2d 1553, 1559 (Fed.Cir. 1984)). To establish inequitable conduct resulting from the failure to disclose prior art, Affymetrix must offer clear and convincing proof of the materiality of the prior art, knowledge chargeable to the applicant of that prior art and its materiality, and the applicant's failure to disclose the prior art, coupled with the intent to mislead the PTO. Molins, 48 F.3d at 1178.
In its Amended Complaint, Affymetrix alleges that PE (N.Y.) and Competitive Technologies intentionally failed to disclose prior art to the Patent and Trademark Office ("PTO"), namely a 1980 article entitled "The Synthesis of Oligodeoxypyrimidines on a Polymer Support" ("the Article") that was material to the examination of the '066 and '679 patents. More specifically, Affymetrix alleges that the Article was not submitted in either a prior art statement or an information disclosure statement using the 1449 form approved by the PTO, as it should have been. In their motion, defendants argue that the applicants did disclose the Article to the PTO by mentioning the Article both in a motion to dissolve filed during an interference proceeding[9] brought over the '066 patent application, and in a list of references submitted in connection with the '418 patent prosecution. Defendants argue that the disclosure at the interference was done in such a way as to require the Primary Examiner to consider it, and that because the applicant's disclosures are "inconsistent with an intent to conceal prior art", plaintiff's claim for failure to disclose the Article should be dismissed.[10]See Deft.'s Mot. at 12.
*397 Defendants' argument contains two substantial flaws. First, it requires the Court to look beyond the pleadings to determine the extent of effective disclosure, and weigh whether such disclosure is "consistent" with an intent to deceive. Clearly, such an inquiry is inappropriately made on a motion to dismiss under Rule 12(b)(6). Second, as a matter of law, defendants cannot support the proposition that disclosure of prior art to the Board of Appeals and Interferences during an interference proceeding is effectively the same as disclosure to the PTO during the patent prosecution. In A.B. Dick Co. v. Burroughs Corp., 798 F.2d 1392, 1399 (Fed.Cir.1986), in upholding a district court's finding of inequitable conduct for failure to disclose prior art to the Examiner, the Federal Circuit specifically rejected the argument that disclosure during an interference proceeding necessarily rebuts an allegation of concealment. Rather, the Court notes with approval the inference drawn by the district court, namely, that the applicant's citation to the prior art at the interference shows that the applicant understood the materiality of the article to his invention.[11] For these reasons, defendants' motion to dismiss plaintiff's claims for unenforceability based on failure to disclose prior art is denied.
2. Patent Misuse and Unenforceability Allegations Regarding the '679 Patent
Affymetrix alleges that defendants knowingly took advantage of the PTO's error of failing to print a terminal disclaimer notice on the face of the '679 patent, by enforcing and licensing the '679 patent beyond the date of its expiration. Defendants' argument with respect to this claim is that the duty of candor to the PTO applies only during the examination of patents, that there is no independent duty to inform the PTO of its clerical errors, and that plaintiff therefore has not stated a claim for inequitable conduct. Defendants' argument clearly mischaracterizes plaintiff's claim, which rests on a theory of patent misuse, and not on the position that there exists an independent duty to notify the PTO of its errors.[12]See C.R. Bard, Inc. v. M3 Systems, Inc., 157 F.3d 1340, 1373 (Fed.Cir.1998) (stating that a patent is "unenforceable for misuse when a patent owner attempts to use the patent to exclude competitors from their marketplace knowing that the patent was invalid or unenforceable"); Windsurfing Int'l, Inc. v. AMF, Inc., 782 F.2d 995, 1001 (Fed.Cir. 1986) (citing Blonder-Tongue Lab., Inc. v. Univ. of Ill. Found., 402 U.S. 313, 343, 91 S. Ct. 1434, 28 L. Ed. 2d 788 (1971), for the proposition that patent misuse arises when the patentee has impermissibly broadened *398 the "physical or temporal scope" of the patent grant with anti-competitive effect). Accordingly, defendants' motion to dismiss plaintiff's patent misuse claim is denied.
3. Concealment of Best Mode
With respect to the '066 patent application, Affymetrix charges that the applicants intentionally concealed the best mode of practicing their invention. Specific evidence cited by Affymetrix to support this argument includes the subsequent filing of another patent application in which applicants disclose the use of a saturated secondary amino group as the preferred embodiment, and the publication by applicants of an article just prior to filing the '066 application that describes the actual best mode. Defendants' objection to the best mode allegations is that the facts described by Affymetrix in its own amended complaint, namely the applicants' actions in publishing an article and filing a second patent application, demonstrate a lack of intent to conceal the true best mode. Defendants argue that the amended complaint therefore fails to satisfy the requirement of pleading an intent to deceive. We find this argument without merit. Rather than disproving an intent to conceal the best mode, Affymetrix's factual allegations go towards establishing a knowing intent to deceive; Affymetrix's specific allegations, if proven, would show that the applicants both failed to disclose the best mode in the prosecution of the patent, yet had explicit knowledge of the best mode. Such facts go towards proving intentional concealment. See Consolidated Aluminum Corp. v. Foseco Int'l Ltd., 910 F.2d 804, 807-08 (Fed.Cir.1990) (describing factual basis for finding of intentional failure to disclose best mode). Defendants' motion with respect to plaintiff's allegations of failure to disclose best mode in the prosecution of the '066 patent is denied.
D. Motion to Bifurcate
Defendants move to bifurcate discovery and trial of the antitrust-related claims pending resolution of the patent infringement claims. In considering such a motion, we consider a number of factors including: (1) economy; (2) the convenience of trying the less complex patent issues first; (3) the expedition served because the patent issues are trial-ready earlier than the antitrust claims; and (4) the avoidance of prejudice and confusion of the issues. See In re Innotron Diagnostics, 800 F.2d 1077, 1085 (Fed.Cir.1986). In this case, defendants argue that because a finding that the Carruthers patents are valid and enforceable would render moot plaintiff's antitrust claims, the patent validity and enforceability issues should be resolved first. Plaintiff, on the other hand, argues that even if it did not prevail on the patent claims, it could still prove a violation of the antitrust laws by showing that the defendants enforced the patents beyond their proper scope and term. Affymetrix further asserts that the patent and antitrust claims are so interrelated that bifurcation of discovery and trial would serve neither the interests of economy nor minimizing confusion.
We resolve this debate in the following way. As argued by Affymetrix, it would be premature at this early stage in discovery to decide the question of bifurcation in the trial context. Accordingly, defendants' motion to bifurcate trial is denied. However, given the presence of both contract and patent claims, we agree with defendants that full discovery of the antitrust claims would significantly slow the discovery process and impede the progress of this case. Therefore, the parties are at this time limited to discovery relating to the following claims: (1) Affymetrix's claim that it has not infringed defendants' patents and that the patents are invalid *399 and/or unenforceable (Count One); (2) Affymetrix's contract-related claims (Count Two); and (3) those aspects of Affymetrix's antitrust and unfair competition claims (Counts Three, Four, and Five) directly related to defendants' alleged inequitable conduct and patent misuse. We are specifically carving out for future discovery issues of damages on the patent and antitrust-related claims. Therefore, discovery on such questions as sales and market share, relevant to plaintiff's Sherman Act and related claims, is stayed pending completion of discovery on the contract claims and questions of patent infringement, validity, and unenforceability.
CONCLUSION
For the foregoing reasons, defendants' motion to dismiss is denied and defendants' motion to bifurcate discovery and trial is granted in part and denied in part. With respect to the pending motion for partial summary judgment, filed by Affymetrix on April 26, 2002, the schedule proposed in the joint status report dated May 9, 2002, is acceptable to the Court. Accordingly, PE's opposition should be submitted by June 7, 2002, and Affymetrix's reply should be submitted by June 21, 2002.
IT IS SO ORDERED.
NOTES
[1] Plaintiff asserts that during prosecution of the '679 patent, the Examiner rejected the application under an obviousness-type double patenting rejection. In response, applicants submitted a terminal disclaimer, stating that the '679 patent term would not extend beyond the expiration date of the patent granted on Patent No. 4,415,732. However, although the file jacket of the '679 patent application indicates the existence of a terminal disclaimer, the PTO failed to print the terminal disclaimer notice on the face of the '679 patent. PE (N.Y.) and Competitive Technologies never notified the PTO of the mistake, and have sought to enjoin others from practicing the subject matter of the '679 patent beyond the date of its expiration. See Am. Compl. ¶¶ 52-62.
[2] The amidite products, referred to in the Agreement as "Products," are defined as follows: "the five custom amidites which are described in Exhibit A, manufactured by or for PerSeptive or its affiliates and which will be made under ISO `9002' quality systems." Exhibit A is simply a list of the five specific products. See Kalow Decl. Ex. 8.
[3] The Agreement also limits PerSeptive's liability for intellectual property claims to the purchase price of products purchased under the Agreement. Further, the Agreement states,
PerSeptive shall have no liability for any suit, claim or proceeding brought against Affymetrix or PerSeptive in which and to the extent the alleged infringement arises from the combination of PerSeptive's products ... with products manufactured, included or supplied by Affymetrix or others, or the combination of methods claimed in U.S. RE 34,069 with other methods.
See Kalow Decl. Ex. 8, ¶ 10.1.
[4] Defendants also challenged allegations in plaintiff's Amended Complaint directed towards the Agreement provision requiring PerSeptive to negotiate in good faith with Affymetrix a license to the Koster patent if PerSeptive should for any reason become unable to provide the amidite products. Clearly, whether or not this provision was triggered by PerSeptive's actions is, at least in part, a question of fact. Because Affymetrix's contention that PerSeptive has a continuing obligation under the Agreement to negotiate licensing rights states a claim as a matter of law, it is therefore sustained.
[5] As defendants argue, for example, "PerSeptive merely has a duty to indemnify Affymetrix in infringement suits arising out of the sale of amidite `Products' manufactured by PerSeptive. PE Corp. is not suing Affymetrix based on these `Products.'" See Mem. in Supp. of Defs.' Mot. at 5.
[6] While the Agreement makes arbitration of disputes mandatory, it specifically exempts from arbitration those disputes regarding the "validity, construction, interpretation or performance of ... provisions ... relating to any Intellectual Property Rights." See Kalow Decl. Ex. 8 ¶ 12.7.
[7] In fact, when asked at oral argument whether Affymetrix would be infringing the Carruthers patents in producing and using amidites in accordance with a license to the Koster patent, defendants' counsel responded, "My understanding is it would infringe from a technological perspective and the question is whether we would be precluded from asserting the patentee rights." Tr. of Oral Argt. at 6-7.
[8] Further, the complaint filed in the Delaware District Court in which defendants alleged infringement of the current patents in suit does not, on its face, exempt from suit Affymetrix's use of PerSeptive's amidite products to manufacture oligonucleotides using methods claimed in Patent No. U.S. RE 34,069. Rather, the complaint (which is only five pages long) generally challenges Affymetrix's manufacture of certain products requiring the synthesis of numerous oligonucleotides, using products and processes protected by the patents in suit, and neither supports nor contradicts defendants' argument that this patent dispute is in no way based on use of the amidite products supplied by PerSeptive. It does seek damages for past infringement, however, which would presumably cover the period during which PerSeptive was selling the amidite products to Affymetrix. See Kalow Decl. Ex. 11.
[9] When the Director determines that an application for a patent interferes with any pending application or unexpired patent, an interference is declared. During the interference proceeding, the Board of Patent Appeals and Interferences determines questions of the priority of the inventions and may determine patentability. 35 U.S.C. § 135(a).
[10] In fact, defendants argue that the applicants' motion to dissolve in connection with the interference proceeding on the '066 patent relied heavily on the Article to show that the opposing patent's claimed subject matter was unpatentable in light of the Article. See Kalow Decl. Ex. 1; Deft.'s Mot. at 12.
[11] Defendants endeavor to distinguish A.B. Dick on the grounds that the prior art disclosed in the interference proceeding in that case was disclosed in a way that did not necessarily make it available to the Primary Examiner. Here, defendants contend, the disclosure was made in a motion to dissolve, which is accessible by the Primary Examiner. A.B. Dick, 798 F.2d at 1399 & n. 7 (citing the district court's observation that the PTO "cannot realistically be thought of as the equivalent (say) of a small law office, in which notice to one person may fairly be deemed notice to all"). Defendants' distinction is unpersuasive, however. They cite no case for the proposition that disclosure in an ancillary proceeding precludes a finding of inequitable conduct for failure to disclose to the Primary Examiner. Moreover, if burying especially pertinent prior art in a long list of other references can be probative of bad faith, see Molins, 48 F.3d at 1184, disclosure in an ancillary proceeding alone may be similarly probative.
[12] It appears that defendants may have realized this error and abandonded this argument, for there is no mention of it in their reply papers. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2447148/ | 570 F. Supp. 2d 881 (2005)
Pedro ANAYA, Norma L. Anaya and Bible Christian Church, Inc., Plaintiff,
v.
SOUTH-WEST DISTRICT OF THE BIBLE MISSIONARY CHURCH, INC., Bible Missionary Church, Inc., Paul Eversole, Bobby G. Dyal, Jr., and Daniel Benitez Defendants.
No. 4:04-CV-373.
United States District Court, E.D. Texas, Sherman Division.
September 15, 2005.
*882 Clyde Moody Siebman, Siebman Reynolds Burg & Phillips LLP, Sherman, TX, Homer Baskin Reynolds, III, Siebman Reynolds & Burg, Plano, TX, for Plaintiffs.
Marc A. Sheiness, Sheiness Scott Grossman & Cohn, Houston, TX, for Defendants.
ORDER DENYING BIBLE MISSIONARY CHURCH, INC.'S RULE 12(b)(6) MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM AND/OR FOR LACK OF SUBJECT MATTER JURISDICTION, MOTION TO DISMISS OR TO TRANSFER BASED UPON VENUE
RICHARD A. SCHELL, District Judge.
This matter is before the court on Defendant Bible Missionary Church, Inc.'s Rule 12(b) Motion to Dismiss for Failure to State a Claim and/or for Lack of Subject Matter Jurisdiction, Motion to Dismiss or to Transfer Based Upon Venue [Dkt. # 6], Plaintiffs' Response, filed on December 3, 2004 [Dkt. # 11], Defendant's Reply, filed on December 10, 2004 [Dkt. # 14], and Plaintiffs' Sur-reply, filed on December 22, 2004 [Dkt. # 19]. Upon consideration of the parties' written submissions and the applicable law, the court is of the opinion that Defendant Bible Missionary Church, Inc.'s Rule 12(b) Motion to Dismiss for Failure to State a Claim and/or for Lack of Subject Matter Jurisdiction, Motion to Dismiss or to Transfer Based Upon Venue should be DENIED in its entirety.
I. BACKGROUND
Since December of 2002, Pedro Anaya has been the Pastor of a congregation of Christians who have worshiped at 318 E. Oakenwald, Dallas in Dallas County, Texas. Pls.' Third Am. Compl. at 3. According to Plaintiffs Pedro and Norma Anaya, (the "Anaya Plaintiffs"), the congregation was affiliated with the Bible Missionary Church, Inc. (the "Bible Missionary Church") from sometime after December 2002 until July 16, 2004, when the congregation *883 withdrew its membership from the Bible Missionary Church. Id. On July 18, 2004, the congregation, including Plaintiffs Pedro and Norman Anaya, affiliated with the Pilgrim Nazarene Church. Id.
Paul Eversole and Bobby G. Dyal, Jr. were involved with the Bible Missionary Church, Inc. and the South-West District of the Bible Missionary Church by serving on various committees. Id. at 4. Eversole and Dyal also served as officers of the Bible Missionary Church. Id. Daniel Benitez was a pastor affiliated with the Bible Missionary Church. Id.
According to the Anaya Plaintiffs, Eversole, Dyal and Benitez sought to discredit Pedro Anaya in the eyes of his congregation. Id. According to the Anaya Plaintiffs, Eversole, Dyal and Benitez made false and misleading allegations against Pedro Anaya and brought allegedly unfair ethical complaints regarding Pedro Anaya to the church's District Board of Discipline. Id. at 4-5. Following the Anaya Plaintiffs' disaffiliation from the Bible Missionary Church, Eversole allegedly wrote misleading and defamatory letters to the "Department of U.S. Citizenship and Immigration Services" about Pedro Anaya's employment and character. Id. at 7, 8. The Anaya Plaintiffs also allege that on July 18, 2004, Eversole called the Dallas Police to their congregation's meeting site and that the South-West District of the Bible Missionary Church filed a Petition to Quiet Title, both as means to retaliate against and discredit Pedro Anaya. Id. at 8-9.
Plaintiff Bible Christian Church, voted to disaffiliate from the Bible Missionary Church on October 3, 2003. Id. at 9. According to Bible Christian Church, after Bible Christian Church withdrew its membership from Bible Missionary Church, Bible Missionary Church demanded Bible Christian Church reimburse a debt that Bible Missionary Church previously represented had been satisfied. Id. at 9-10.
According to all Plaintiffs, Bible Missionary Church "is engaged in an orchestrated effort across the United States to maliciously retaliate against persons who choose to disaffiliate from their fellowship." Id. at 10.
II. SUBJECT MATTER JURISDICTION
District courts may dismiss a complaint if it lacks jurisdiction over the subject matter. Fed.R.Civ.P. 12(b)(1). "Lack of subject matter jurisdiction may be found in the complaint alone, the complaint supplemented by undisputed facts evidenced in the record, or the complaint supplemented by undisputed facts plus the Court's resolution of disputed facts." Elizondo v. University of Texas at San Antonio, 2005 WL 823353 at *1 (W.D.Tex. April 7, 2005), citing Ramming v. United States, 281 F.3d 158, 161 (5th Cir.2001). "The burden of proof for a Rule 12(b)(1) motion is on the party asserting jurisdiction." Id. "`Ultimately, a motion to dismiss for lack of subject matter jurisdiction should be granted only if it appears certain that the plaintiff cannot prove any set of facts in support of his claim that would entitle plaintiff to relief.'" Id., citing Ramming, supra. (citing Home Builders Ass'n of Miss., Inc. v. City of Madison, Miss., 143 F.3d 1006, 1010 (5th Cir.1998)).
Defendants argue the Plaintiffs' claims are barred by the Free Exercise Clause of the First Amendment. Defs.' Mot. to Dismiss at 2. In support of their argument, Defendants cite to cases where the First Amendment bars subject matter jurisdiction in ecclesiastical disputes between a church and its pastor or members. Id. However, the instant case appears to be a dispute between Bible Missionary Church and a former pastor and member. Therefore, *884 any bar the First Amendment would arguably provide in an ecclesiastical dispute between and church and its current pastor or members is inapplicable in this case. The court has subject matter over this dispute.
III. VENUE
According to 28 U.S.C. § 1391, in a civil action based either on diversity or federal question jurisdiction (see Plaintiffs' claim for declaratory judgment), venue is proper in "a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred." 28 U.S.C. §§ 1391(a)(2) and 1391(b)(2). Plaintiffs assert Defendant Daniel Benitez, a resident of McKinney, Texas, located in the Eastern District of Texas, was active in the alleged conspiracy to retaliate against those who disaffiliated from the Bible Missionary Church. Pls.' Third Am. Original Compl. at 10, 20-22. Because the causes of action set forth in Plaintiffs' complaint arose in part in the Eastern District of Texas, venue is proper in the Eastern District of Texas, Sherman Division.
IV. MOTION TO TRANSFER VENUE
Title 28, U.S.C. § 1404(a) provides: "For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where [the case] might have been brought." 28 U.S.C. § 1404(a). For a section 1404(a) transfer to be proper, two initial conditions must be met. First, venue must be proper in the transferor court. Houston Trial Reports, Inc. v. LRP Publ'ns, Inc., 85 F. Supp. 2d 663, 667 n. 1 (S.D.Tex.1999). Second, the transferee court must be a "district or division where [the case to be transferred] might have been brought." Id. Venue must be proper in the transferee court, and the transferee court must have personal jurisdiction over the defendant. Id.
Before granting such a motion, courts consider certain factors relevant to determining the convenience of the parties and witnesses, which may include:
(1) the plaintiffs choice of forum;, (2) the convenience of parties and witnesses; (3) the place of the alleged wrong; (4) the location of counsel; (5) the cost of obtaining the attendance of witnesses; (6) the accessibility and location of sources of proof; and (7) the possibility of delay and prejudice if transfer is granted.
See LeDoux v. Isle of Capri Casinos, Inc., 218 F. Supp. 2d 835, 836-37 (E.D.Tex.2002). Additionally, courts consider certain factors relevant to the public interest, including: (1) the administrative difficulties caused by court congestion; (2) the local interest in adjudicating local disputes; (3) the unfairness of burdening citizens in an unrelated forum with jury duty; and (4) the avoidance of unnecessary problems in conflict of laws. See Id.
The party who files a motion to change venue under section 1404(a) bears the burden of proving why venue should be changed. See Peteet v. Dow Chem. Co., 868 F.2d 1428, 1436 (5th Cir.1989). "To prevail, the litigant must demonstrate that the balance of convenience and justice substantially weighs in favor of transfer." Mohamed v. Mazda Motor Corp., 90 F. Supp. 2d 757, 768 (E.D.Tex.2000) (citation omitted). "The court should not transfer venue where the result will be merely to shift the expense and inconvenience from one party to the other." Enserch Int'l Exploration, Inc. v. Attock Oil Co., Ltd., 656 F. Supp. 1162, 1167 n. 15 (N.D.Tex.1987) (citation omitted).
Convenience Factors
1. The Plaintiffs Choice of Forum
The plaintiffs "right to choose a forum is `well-established,' and the choice *885 is usually highly esteemed." Z-Tel Communications, Inc. v. SBC Communications, Inc., 331 F. Supp. 2d 567, 571 (E.D.Tex.2004); In re Triton Ltd. Sec. Litig., 70 F. Supp. 2d 678, 688 (E.D.Tex.1999)(quoting Texas Instruments, Inc. v. Micron Semiconductor, 815 F. Supp. 994, 996 (E.D.Tex.1993)). A plaintiffs choice of an inconvenient forum may not inflict upon defendant "expense or trouble not necessary to [plaintiff's] own right to pursue his remedy." Z-Tel, 331 F.Supp.2d at 572 (quoting Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508, 67 S. Ct. 839, 91 L. Ed. 1055 (1947)). Nonetheless, the plaintiffs choice of forum will rarely be disturbed "unless the balance is strongly in favor of the defendant." Id. Therefore this court will not disturb Plaintiffs' choice of forum in the Eastern District of Texas, Sherman Division, without a showing that the balance of factors strongly favors transfer.
2. Convenience of the Parties and Witnesses
Along with stating that the Anaya Plaintiffs and Defendant Dyal reside in Dallas, Bible Missionary Church has only broadly asserted that "many of the potential witnesses are located in Dallas." Def.'s Reply at 11. Without more, Bible Missionary Church has not established what inconvenience these witnesses and parties will suffer if this case is tried in the Eastern District of Texas. Bible Missionary Church's motion to transfer does not include a list of potential witnesses and their addresses, and as a result, the court cannot discern what greater convenience could be achieved in the Northern District of Texas. Without a factual showing favoring convenience, this factor does not weigh in favor of transfer.
3. The Place of the Alleged Wrong
Defendant appears to argue that the church at 318 E. Oakenwald, Dallas, in Dallas County, Texas, is the place of the alleged wrong. Def.'s Reply at 10. However, it is unclear where the place of the alleged wrong is located, and with allegations that defamation and civil conspiracy partly took place in the Eastern District, this factor does not weigh in favor of transfer.
4. Location of Counsel
The U.S. Court of Appeals for the Fifth Circuit considers location of counsel "irrelevant and improper" when determining whether or not to transfer venue. In re Horseshoe Entertainment, 337 F.3d 429, 434 (5th Cir.2003). The court will disregard this factor.
5. The Cost of Obtaining the Attendance of Witnesses
Bible Missionary Church has not made a showing of how costly it would be to obtain the attendance of witnesses.
6. The Accessibility and Location of Sources of Proof
Bible Missionary Church has not made a showing regarding the accessibility and location of sources of proof.
7. The Possibility of Delay and Prejudice if Transfer is Granted
This case is in the later stages of discovery. To transfer the action now would cause delay and prejudice to the Plaintiffs. This factor weighs against transfer.
Public Interest Factors
1. Administrative Difficulties Caused by Court Congestion
Bible Missionary Church has not made a showing that court congestion weighs in favor of transfer.
*886 2. Local Interest in Adjudicating Local Disputes
According to the Plaintiffs, defamatory statements directed at Pedro Anaya were communicated and published in the Eastern District of Texas. Pls.' Reply at 17. Also, according to Plaintiffs, Defendant Daniel Benitez, a resident of McKinney, Texas, located in the Eastern District of Texas, was active in the alleged conspiracy to retaliate against those who disaffiliated from the Bible Missionary Church. Id. Acts giving rise to Plaintiffs claims took place locally, and this court has an interest in adjudicating local disputes.
3. Unfairness of Burdening Citizens in an Unrelated Forum with Jury Duty
The Eastern District of Texas, Sherman Division, is not an unrelated forum. Acts giving rise to Plaintiffs' claims, such as the publication of defamatory statements by the Defendants, allegedly took place in the Eastern District of Texas. Citizens in the Eastern District of Texas would not be unfairly burdened with jury duty in this case.
4. Avoidance of Unnecessary Problems in Conflict of Laws
Neither party has addressed this factor, and at present, the court cannot foresee any problems arising with conflict of laws. This is a neutral factor.
Because Bible Missionary Church has not carried its burden of establishing what inconvenience it would suffer should this case remain in the Eastern District of Texas and because several of the factors weigh against transfer, the court DENIES Bible Missionary Church's Motion to Transfer Venue.
V. MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM
An order granting a Rule 12(b)(6) motion to dismiss is "appropriate where `it appears beyond doubt that the plaintiff can provide no set of facts in support of his claim which would entitle him to relief.'" Bauer v. Texas, 341 F.3d 352, 356 (5th Cir.2003) (citing Conley v. Gibson, 355 U.S. 41, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957)). "In making this determination, the court accepts as true all allegations contained in the plaintiff's complaint and all reasonable inferences are to be drawn in favor of the plaintiffs claims." Id. (citing Kaiser Aluminum & Chem. Sales Inc. v. Avondale Shipyards, Inc., 677 F.2d 1045, 1050 (5th Cir.1982)).
The Plaintiffs have brought claims for intentional infliction of emotional distress, tortious interference with prospective relations, negligent supervision, defamation, negligence, gross negligence, civil conspiracy, slander to title, declaratory judgment and injunctive relief. See Pls.' Third Am. Compl. Accepting as true all the allegations set forth in the Plaintiffs' Third Amended Complaint and drawing all reasonable inferences in favor of the Plaintiffs, it appears to the court that Plaintiffs have set forth cognizable claims supported by fact. Therefore the court DENIES Defendant's Motion to Dismiss for Failure to State a Claim.
CONCLUSION
The court hereby DENIES Defendant Bible Missionary Church, Inc.'s Rule 12(b) Motion to Dismiss for Failure to State a Claim and/or For Lack of Subject Matter Jurisdiction, Motion to Dismiss or to Transfer Based Upon Venue in its entirety. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2447192/ | 597 F. Supp. 2d 443 (2009)
John S. SHIPLEY and Rochelle Shipley, Plaintiffs,
v.
NEW CASTLE COUNTY, Hershal Purohit, Sheriff Michael P. Walsh, and Sharon Agnew, Defendants.
Civ. Action No. 08-554-JJF.
United States District Court, D. Delaware.
February 12, 2009.
*445 John S. Shipley and Rochelle D. Shipley, New Castle, DE, pro se Plaintiffs.
Harshal Purohit and Megan Sanfrancesco, Esquires, Assistant County Attorneys, New Castle County Law Department, New Castle, DE, for Defendants New Castle County, Harshal Purohit, and Sheriff Michael P. Walsh.
Marc P. Niedzielski, Esquire, Deputy Attorney General, Delaware Department of Justice, for Defendant Sharon Agnew.
MEMORANDUM OPINION
FARNAN, District Judge.
Presently before the Court is the Motion To Dismiss of Defendants New Castle County, Delaware ("New Castle County"), Michael P. Walsh ("Sheriff Walsh"), and Harshal Purohit ("Attorney Purohit")[1] (collectively "Defendants"), Plaintiff John S. Shipley's Response, and Defendants' Reply. (D.I. 15, 22, 23.) Also before the Court is Plaintiffs' Motion For Leave And Extension Of Time To File Sur-Reply And For Entry Of Default Judgment. (D.I. *446 24.) For the reasons below, the Court will grant Defendants' Motion To Dismiss and will deny Plaintiffs' Motion.
I. BACKGROUND
The Complaint, filed pursuant to 28 U.S.C. §§ 1331, 1343, and 2201,[2] 42 U.S.C. §§ 1981, 1982, 1983, 1985(3), and 1986, Article Four, and the Fourteenth Amendment, alleges discriminatory practices based upon race and color, due process and Fourteenth Amendment violations, and conspiracy. (D.I. 1.) More specifically, Plaintiffs allege that on October 11, 2007, New Castle County caused entry of a judgment against them for unpaid taxes when no taxes were owed, Prothonotary Sharon Agnew ("Agnew")[3] entered judgment against them, Walsh, the New Castle County Sheriff, sold the property on June 10, 2008 at a sheriff's sale, and New Castle County Assistant County Attorney Purohit carried out the unconstitutional and discriminatory practices. The Complaint does not indicate whether the individual Defendants are sued in their official capacity, individual capacity, or both.
In Plaintiffs' Response, they indicate that the judgment at issue was not for unpaid taxes, but for monies owed to New Castle County for removing items and cleaning the property at issue. The Complaint states that Plaintiff John Shipley does not "recognize any law that allows the County to take anyone's property for doing work on their property and for removing cars off their property without their permission." (D.I. 1, ¶ 2.) Attached to the Complaint is a Monition signed by Sheriff Walsh, posted October 18, 2007, that the property at issue will be sold if, within twenty days, the judgment amount is not paid.
Plaintiffs seek a termination of the State proceedings and request the Court to preclude transfer of the deed of title. Plaintiffs asked this Court to stay the proceedings in the "Superior Court of the State of Delaware," a request that was denied on September 5, 2008, 2008 WL 4146180. (D.I. 9.) Plaintiffs seek three million dollars in compensatory damages.
The Court takes judicial notice of the following: On August 27, 2008, Plaintiffs filed a Petition To Open Judgment in the Superior Court of the State of Delaware in and for New Castle County, and the Petition was denied a few days later. (D.I. 10, ex.; D.I. 12, ex.) On September 12, 2008, Plaintiffs filed a Motion To Reconsider. (D.I. 12, ex.) The purchaser of the real estate at issue has filed a Petition For Deed. (D.I. 12, ex.) Plaintiffs filed an appeal to the Delaware Supreme Court from the Delaware Superior Court's denial of their Motion To Set Aside the sheriff's sale after their former property was sold in June 2008. (D.I. 26, ex. C.) Plaintiffs requested the Delaware Supreme Court to stay execution of an Order Of Possession until the appeal is heard. (Id. at ex. C.) The Delaware Supreme Court found that Plaintiffs did not timely file the Motion To Set Aside, and did not request expedited consideration of their appeal. (Id.) In denying the Motion To Stay pending appeal, the Delaware Supreme Court found that the Delaware Superior Court did not abuse its discretion in denying the Motion To Stay Execution of the Order Of Possession. (Id.)
Defendants move to dismiss the Complaint pursuant to Fed.R.Civ.P. 12(b)(4), (5) and (6). More particularly, Defendants argue that Attorney Purohit must be dismissed *447 for insufficient process pursuant to Rule 12(b)(4), Sheriff Walsh must be dismissed for insufficient service of process pursuant to Rule 12(b)(5), and the Complaint must be dismissed for failure to state a claim upon which relief may be granted pursuant to Rule 12(b)(6). Plaintiffs' response does not address the issues raised by Defendants, but reiterates the allegations in the Complaint.
II. STANDARD OF REVIEW
Rule 12(b)(6) permits a party to move to dismiss a complaint for failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). The Court must accept all factual allegations in a complaint as true and construe them in the light most favorable to Plaintiffs. Erickson v. Pardus, 551 U.S. 89, 127 S. Ct. 2197, 2200, 167 L. Ed. 2d 1081 (2007); Christopher v. Harbury, 536 U.S. 403, 406, 122 S. Ct. 2179, 153 L. Ed. 2d 413 (2002). A complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief," in order to "give the defendant fair notice of what the... claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 1964, 167 L. Ed. 2d 929 (2007). A complaint does not need detailed factual allegations, although, "a plaintiff's obligation to provide the `grounds' of his `entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. at 1965 (citations omitted). The "[f]actual allegations must be enough to raise a right to relief above the speculative level on the assumption that all of the complaint's allegations in the complaint are true (even if doubtful in fact)." Id. (citations omitted). Because Plaintiffs proceed pro se, their pleading is liberally construed and their Complaint, "however inartfully pleaded, must be held to less stringent standards than formal pleadings drafted by lawyers." Erickson v. Pardus, 127 S.Ct. at 2200 (citations omitted).
III. DISCUSSION
The Complaint makes passing reference to several statutes and constitutional provisions. The Complaint states that "the action is brought pursuant to the 14 Amendment of United States Constitution, 42 U.S.C. §§ 1981, 1982, 1983, 1985(3), 1986, and Article 4." (D.I. 1, ¶ 1.) While the allegations are sparse, it is evident that the claims arise out of a judgment lien entered against property owned by Plaintiffs, Plaintiffs contested the judgment and/or amount, and the property was sold at a sheriff's sale. Defendants contend that the Complaint makes no reference to any facts to support Plaintiffs' allegations that Defendants violated Plaintiffs' constitutional rights.[4] Accordingly, they move to dismiss all claims for failure to state a claim upon which relief may be granted.
A. § 1981 Claim
Plaintiffs raise claims against state actors and a governmental unit. The exclusive federal remedy against state actors for violation of rights guaranteed in 42 U.S.C. § 1981 is 42 U.S.C. § 1983. Jett v. Dallas Indep. Sch. Dist., 491 U.S. 701, 723, 725, 109 S. Ct. 2702, 105 L. Ed. 2d 598 (1989). While providing extensive rights, § 1981 does not itself provide a remedy against state actors. Id. at 731, 109 S. Ct. 2702. Very recently, the Third Circuit *448 held, with regard to governmental units, "the express cause of action for damages created by § 1983 constitutes the exclusive federal remedy for violations of the rights guaranteed in § 1981 by state governmental units." McGovern v. Philadelphia, 554 F.3d 114, 121 (3d Cir.2009). Inasmuch as § 1983 provides the exclusive remedy for § 1981 claims against state actors, the § 1981 claims fail.
B. § 1982 Claim
Section 1982 provides that "[a]ll citizens of the United States shall have the same right, in every State and Territory, as is enjoyed by white citizens thereof to inherit, purchase, lease, sell, hold, and convey real and personal property." 42 U.S.C. § 1982. The scope of a § 1982 claim is limited to cases of intentional race discrimination. See Shaare Tefila Congregation v. Cobb, 481 U.S. 615, 617, 107 S. Ct. 2019, 95 L. Ed. 2d 594 (1987). To state a claim under § 1982, Plaintiffs must allege that (1) they are members of a racial minority; (2) they applied for and were qualified to rent or purchase certain property or housing; (3) they were rejected because of their race; and (4) the opportunity to purchase or rent remained open. See Chauhan v. M. Alfieri Co., 707 F. Supp. 162, 165 (D.N.J.1988), rev'd on other grounds, 897 F.2d 123 (3d Cir.1990), and the cases cited therein; Gregory v. Hasara, Civ. A. No. 90-2289, 1991 WL 53671, at *2 (E.D.Pa. Apr. 3, 1991).
The allegations in the Complaint fail to establish a prima facie case under § 1982. Plaintiffs' allegations refer to an assessment of taxes and the sale of their property at a sheriff's sale for their failure to satisfy a judgment; not the purchase, sale, or rental of property. Additionally, the mere mention of discrimination based upon race and color does not apprise Defendants of their alleged discriminatory acts. No matter how liberally the Complaint is construed, Plaintiffs have failed to allege that Defendants deprived them of their property rights under § 1982. Accordingly, the Court will dismiss the § 1982 claim.
C. Municipal Liability/Official Capacity
New Castle County and Sheriff Walsh and Attorney Purohit, in their official capacities, seek dismissal of the § 1983 claims on the grounds that Plaintiffs failed to properly state a claim of municipal liability. A municipality can only be liable under § 1983 if the alleged injury is permitted under a specific policy or custom. Monell v. New York Dep't of Social Services, 436 U.S. 658, 694, 98 S. Ct. 2018, 56 L. Ed. 2d 611 (1978). To state a § 1983 claim against a municipality, Plaintiffs must: (1) identify a policy or custom that deprived them of a federally protected right, (2) demonstrate that the municipality, by its deliberate conduct, acted as the "moving force" behind the alleged deprivation, and (3) establish a direct causal link between the policy or custom and Plaintiffs' injury. Board of County Comm'rs v. Brown, 520 U.S. 397, 404, 117 S. Ct. 1382, 137 L. Ed. 2d 626 (1997). The threshold to municipal liability may be proved with evidence of knowledge and acquiescence by the relevant municipal entity. See Beck v. City of Pittsburgh, 89 F.3d 966, 971 (3d Cir.1996). Moreover, "[p]proof of a single incident of unconstitutional activity is not sufficient to impose liability under Monell." Oklahoma City v. Tuttle, 471 U.S. 808, 823-24, 105 S. Ct. 2427, 85 L. Ed. 2d 791 (1985).
The Complaint does not allege that the alleged constitutional violations were pursuant to an official policy or custom of New Castle County. As is wellknown, a municipality may not be held *449 vicariously liability for the federal constitutional or statutory violations of its employees. Monell v. New York Dep't of Social Services, 436 U.S. 658, 694, 98 S. Ct. 2018, 56 L. Ed. 2d 611 (1978). Nor does the Complaint allege that New Castle County's employees acted pursuant to an official policy or custom. Accordingly, the Court concludes that the Complaint fails to state a § 1983 claim against which relief may be granted against New Castle County.
Finally, "[o]fficial capacity suits ... generally represent only another way of pleading an action against an entity of which an officer is an agent." Kentucky v. Graham, 473 U.S. 159, 165, 105 S. Ct. 3099, 87 L. Ed. 2d 114 (1985); see also Id. at 169 n. 14, 105 S. Ct. 3099 ("There is no longer a need to bring official-capacity actions against local government officials, for under Monell, ... local government units can be sued directly for damages and injunctive or declaratory relief."). Therefore, the Court will dismiss the § 1983 claims against Sheriff Walsh and Attorney Purohit in their official capacities.
D. § 1983 Claim
Liberally construing Plaintiffs' Complaint, they claim that Sheriff Walsh and Attorney Purohit violated their constitutional rights by denying their right to procedural due process as guaranteed by the Fourteenth Amendment. Plaintiffs essentially contest the lawfulness of a judicially ordered sheriffs sale of property previously owned, by them.
The specific allegations against Sheriff Walsh are that on June 10, 2008, Sheriff Walsh sold their property at a sheriffs sale, either personally or through his servants, agents, employees, or deputies. (D.I. 1, ¶ 5.) The allegations against Attorney Purohit are that he carried out all of the unconstitutional practices and discriminatory procedures. (Id. at ¶ 7.) Attached to the Complaint is a Monition, posted August 18, 2007, warning that the property at issue will be sold if there is no payment of the judgment lien. Also attached is a tax bill and receipts for payment taxes. As previously discussed, the Court takes judicial notice that Plaintiffs sought relief from Delaware State Courts subsequent to the sale of the property at issue.
To state a claim under § 1983, Plaintiffs must allege a deprivation of a right guaranteed by the Constitution or the laws of the United States by a defendant acting under color of law. West v. Atkins, 487 U.S. 42, 48, 108 S. Ct. 2250, 101 L. Ed. 2d 40 (1988). Under the Fourteenth Amendment, a state may not deprive a citizen of his property without affording him due process of law. Brown v. Muhlenberg Twp., 269 F.3d 205, 213 (3d Cir. 2001). When a plaintiff alleges that state actors have failed to provide procedural due process, the Court determines whether the asserted individual interests are encompassed within the Fourteenth Amendment's protection of "life, liberty, or property." Gardner v. McGroarty, 68 Fed.Appx. 307, 310-11 (3d Cir.2003) (citations omitted) (unpublished opinion). If protected interests are implicated, the Court determines what procedures constitute "due process of law." Id. In general, due process must be afforded before the deprivation occurs, meaning the state must provide pre-deprivation process. Brown, 269 F.3d at 213. Where pre-deprivation process is made impossible, post-deprivation process is all that is due. Id.
It is evident from the allegations, that Sheriff Walsh and Attorney Purohit are state actors. It is further evident from the allegations that Plaintiffs were given some type of pre-deprivation process. They attached a copy of the Monition warning that the property at issue would be sold if there was no payment of the judgment for taxes *450 or assessment against the property. The notice is dated October 11, 2007, and was posted October 18, 2007. The property was not sold until June 10, 2008. The allegations and exhibits indicate that Plaintiffs were afforded pre-deprivation process in the form of a state court proceeding prior to the actions taken by Defendants. Although post-deprivation process is not required because pre-deprivation process was practicable and afforded to Plaintiffs, it appears that the State also provided Plaintiffs a post-deprivation process. Throughout the course of this litigation Plaintiffs have submitted state court documents. The documents indicate that Plaintiffs had the opportunity to, and in fact did, contest the sheriffs sale in the Delaware courts. They filed a Motion To Set aside the sale, and requested a Stay Of Execution. Finally, not satisfied with lower court rulings, appealed to the Delaware Supreme Court. Plaintiffs were given notice of State court proceedings prior to the judicially ordered foreclosure sale, and after that sale occurred, Plaintiffs attempted to set aside that sale. Accordingly, due process was provided to Plaintiffs. For these reasons, the Court concludes that Plaintiffs have not stated a cognizable § 1983 claim against Sheriff Walsh and Attorney Purohit, and will grant the Motion To Dismiss.[5]
E. § 1985 Claim
Section 1985 was enacted to combat conspiracies motivated by-racial or class-based invidiously discriminatory animus. Plaintiffs' sole allegations under § 1985(3) is that "the alleged discriminatory practice is conspiracy." (D.I. 1., ¶ 5.) To state a claim under 42 U.S.C. § 1985(3), a plaintiff must allege: (1) a conspiracy; (2) that the conspiracy is motivated by a racial or class based discriminatory animus designed to deprive, directly or indirectly, any person or class of persons to the equal protection of the laws; (3) an act in furtherance of the conspiracy; and (4) an injury to person or property or the deprivation of any right or privilege of a citizen of the United States. See Lake v. Arnold, 112 F.3d 682, 685 (3d Cir.1997).
While the Complaint contains allegations of individual acts taken by each Defendant, other than to invoke the word "conspiracy", it fails to allege any facts from which one could infer an agreement or understanding among Defendants to violate Plaintiffs' constitutional rights, or to discriminate against them under § 1985. For the above reasons, the Court will grant the Motion To Dismiss the § 1985 claim.
F. § 1986 Claim
Plaintiffs fail to state a claim under § 1986. A cognizable 42 U.S.C. § 1985 claim is a prerequisite to stating a claim under § 1986. Robison v. Canterbury Vill., Inc., 848 F.2d 424, 431 n. 10 (3d Cir.1988); Brawer v. Horowitz, 535 F.2d 830, 841 (3d Cir.1976). Because Plaintiffs have not properly pled a § 1985 violation under any viable legal theory, the Court will also dismiss their § 1986 claim.
IV. CONCLUSION
Even liberally construing the Complaint, as the Court must, the Court concludes that the Complaint must be dismissed. The Court will grant the Motion To Dismiss of Defendants New Castle County, Attorney Purohit, and Sheriff Walsh. (15.) *451 The Court will deny Plaintiffs' Motion For Leave And Extension Of Time And For Entry Of Default Judgment. (D.I. 24.) The only claim that remains is that against Defendant Sharon Agnew. An appropriate Order will be entered.
ORDER
At Wilmington, for the reasons set forth in the Memorandum Opinion issued this date;
IT IS HEREBY ORDERED that:
1. The Motion To Dismiss of Defendants New Castle County, Delaware, Michael P. Walsh, and Harshal Purohit is GRANTED. (D.I. 15.)
2. Plaintiffs' Motion For Leave And Extension Of Time To File Sur-Reply And For Entry Of Default Judgment is DENIED. (D.I. 24.)
NOTES
[1] Incorrectly spelled by Plaintiffs as "Hershal" Purohit.
[2] Sections 1331 and 1343 are jurisdictional statutes and § 2201 is a declaratory judgment statute.
[3] Agnew is not a party to Defendants' Motion.
[4] Defendants' Motion To Dismiss contains of recitation of facts not included or mentioned in the Complaint. The Court considers only the Complaint, its exhibits, matters of public record, and authentic documents for claims based upon those documents. See Pension Benefit Guar. Corp. v. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir.1993).
[5] Inasmuch as Plaintiffs fail to state a claim upon which relief may be granted, the Court will not consider their qualified immunity argument. Additionally, the Court will not discuss dismissal based upon service insufficiencies as dismissal is appropriate pursuant to Rule 12(b)(6). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2448639/ | 704 F. Supp. 2d 918 (2010)
Charles A. MARTORELLO, Plaintiff,
v.
SUN LIFE ASSURANCE CO., et al., Defendants.
No. C 09-0912 PJH.
United States District Court, N.D. California.
April 9, 2010.
*919 Terrence J. Coleman, Brian Henry Kim, Arnold Ross Levinson, Pillsbury & Levinson LLP, San Francisco, CA, for Plaintiff.
Julie Schwartz, Robert James Guite, Daniel T. Balmat, Squire, Sanders & Dempsey, L.L.P., San Francisco, CA, for Defendants.
ORDER GRANTING SUMMARY JUDGMENT IN PART AND DENYING SUMMARY JUDGMENT IN PART
PHYLLIS J. HAMILTON, District Judge.
The parties' cross-motions for summary judgment came on for hearing before the court on February 10, 2010. Plaintiff Charles Martorello ("Martorello" or "plaintiff"), appeared through his counsel, Terrence J. Coleman. Defendant Sun Life Assurance Company ("Sun Life" or "defendant"), appeared through its counsel, Julie Schwartz and Robert J. Guite. Having read all the papers submitted and carefully considered the relevant legal authority, the court hereby GRANTS plaintiff's motion and DENIES defendant's motion, for the reasons stated at the hearing, and summarized as follows.
The heart of the parties' dispute here boils down to whether, under the terms and definitions of the Sun Life Policy, bonuses are to be included in the calculation of "disability earnings." Because standard rules of contract interpretation apply to insurance contracts, the court looks to the terms of the Policy for resolution. According to its terms, an employee's entitlement to partial disability benefits is determined based upon a comparison of that employee's "Disability Earnings," and his "Indexed Total Monthly Earnings." See Administrative Record ("AR") at 001026. "Disability Earnings" are defined as "the employment income an employee receives while partially disabled ...". AR 001024. "Indexed Total Monthly Earnings," by contrast, depend upon the definition of "Total Monthly Earnings," which is in turn defined as "the employee's basic monthly earnings as reported by the employer immediately prior to the first date total or partial disability begins." Significantly, the "Total Monthly Earnings" definition also expressly states that "it does not include bonuses, commissions, overtime pay or any other extra compensation." AR 001028.
Defendant interprets these provisions and in particular, the "disability earnings" provision's reference to "employment income"to refer to all income derived from employment, regardless of source characterization (e.g., bonuses, direct salary draw, etc.). Plaintiff, however, argues that, because the "Total Monthly Earnings" definition expressly does not include bonuses, it is inconsistent to construe "disability earnings" as including bonusesparticularly because the definition for "disability benefits" is silent as to whether a bonus is expressly included as "employment income" or not.
In the court's view, both parties advance reasonable interpretations of the policy language, and thereby disclose an ambiguity within the terms of the policy with respect to the inclusion of bonus amounts *920 in the calculation of "disability earnings," and by extension, partial disability benefits. This conclusion is consistent with general Ninth Circuit authority, which construes policy terms in accordance with the context of the surrounding disability plan, tends to generally infer ambiguities whenever plan language is susceptible of two reasonable interpretations, and will impose upon insurers the requirement to set forth any relied upon definitions with particularity. See, e.g., Blankenship v. Liberty Life Assur. Co. of Boston, 486 F.3d at 624; Lang v. Long-Term Disability Plan of Sponsor Applied Remote Technology, Inc., 125 F.3d 794, 799 (9th Cir.1997).
Indeed, because of this, defendant's contrary reliance on Riddell v. Unum Life Ins. Co. of Am., 457 F.3d 861 (8th Cir. 2006), while at first blush compelling, is inapposite. In Riddell, the Fourth Circuit dealt with the very same issue advanced by the parties here: whether an ERISA plan that includes a "monthly earnings" definition that excludes bonuses, when compared with a "disability earnings" definition that defines such earnings as those received "while disabled and working" and is silent as to bonuses, creates an ambiguity. The Riddell court found no ambiguity, noting that each phrase was separate, with its own definition, each capable of being construed under an ordinary meaning that resulted in bonuses being excluded from a "monthly earnings" definition but included in the "disability earnings" definition. Critically, however, the Fourth Circuit also notes the dispositive principle that where plan fiduciaries "have offered a `reasonable interpretation' of disputed provisions, courts may not replace it with an interpretation of their own." See id. at 865. To that end, as long as the insurer in Riddell came forward with a reasonable interpretation of the two seemingly at-odds definitions, the court was bound to accept it. The Ninth Circuit, by contrastand as noted aboveholds that an ambiguity exists wherever two reasonable interpretations of a disputed provision that are possible.
And where there is an ambiguity, the Ninth Circuit has also held that such ambiguity must be interpreted in favor of the employee. See Patterson v. Hughes Aircraft Co., 11 F.3d 948, 950 (9th Cir.1993); Blankenship v. Liberty Life Assur. Co. of Boston, 486 F.3d 620, 625 (9th Cir.2007) ("if, after applying the normal principles of contractual construction, the insurance contract is fairly susceptible of two different interpretations, another rule of construction will be applied: the interpretation that is most favorable to the insured will be adopted").
Applying the foregoing reasoning to the primary issue in dispute here, therefore, the court concludes that because the Sun Life Policy discloses an ambiguity with respect to the inclusion of bonus amounts in the calculation of "disability earnings," and by extension, partial disability benefits, the phrase "disability earnings" must be construed in favor of plaintiff employee. As such, it cannot be construed to include bonus income, and as a result, Sun Life's inclusion of such as part of the calculation of plaintiff's disability earnings was improper.
Adding weight to the fairness of this conclusion, moreover, is the observation that, viewing the course of conduct between the parties from October 2006 through August 2007, it is undisputed that plaintiff never hid the bonus amount from Sun Life. See, e.g., AR 000014 (Sun Life representative noting as early as 9/7/2006 that documentation received from Hilti "shows that [plaintiff's] bonus for 2006 will be $56,882"). Sun Life therefore had the opportunity and occasion to construe the Policy benefits with reference to plaintiff's earlier bonuses numerous times along the way.
*921 Having ruled in plaintiff's favor on the foregoing, it is unnecessary for the court to consider the remaining arguments raised by the partiesi.e., whether Sun Life is equitably estopped from including plaintiff's bonus as part of the disability earnings calculation, or whether Sun Life correctly calculated the amount of plaintiff's bonus as part of the disability earnings. Rather, plaintiff's motion for summary judgment is GRANTED, and defendant's cross-motion for summary judgment is DENIED, based on the foregoing reasoning.
Judgment shall be entered in plaintiff's favor, and the matter is remanded to the insurer to calculate the amount of benefits due and owing to the plaintiff. The parties are furthermore instructed to meet and confer, once the amount of outstanding benefits owing to the plaintiff is calculated, and to thereafter submit a stipulated proposed judgment to the court reflecting the final disposition of the matter.
IT IS SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2448654/ | 704 F. Supp. 2d 470 (2010)
Ren JUDKINS, Plaintiff,
v.
HT WINDOW FASHIONS CORP., Defendant.
Civil Action No. 07-0251.
United States District Court, W.D. Pennsylvania.
March 31, 2010.
Opinion Modifying Permanent Injunction Pending Appeal July 8, 2010.
*474 Bryan H. Opalko, Lynn J. Alstadt, Ralph G. Fischer, Samuel W. Braver, Buchanan Ingersoll & Rooney PC, Pittsburgh, PA, for Plaintiff.
Arne M. Olson, Joseph M. Kuo, Matthew D. Kellam, Olson & Cepuritis, Chicago, IL, Timothy P. Ryan, Wendy West Feinstein, Eckert, Seamans, Cherin & Mellott, Pittsburgh, PA, for Defendant.
MEMORANDUM
GARY L. LANCASTER, Chief Judge.
This is an action in patent infringement. On November 12, 2009, a jury found that HT willfully infringed one of Judkins's patents and awarded him $154,776.04 in damages. The jury also found that HT would infringe another of Judkins's patents if it began selling a different product. The jury rejected HT's contentions that both of Judkins's patents were invalid and/or unenforceable.
Before the court are various post-trial motions:
(1) Judkins's Motion for a Permanent Injunction [doc. no. 220] and HT's Motion to Strike the Declarations that Judkins filed in support of that motion [doc. no. 234];
(2) Judkins's Motion for Prejudgment Interest [doc. no. 224];
(3) Judkins's Motion for Attorney Fees and Enhanced Damages [doc. no. 226];
(4) Judkins's Motion for Reconsideration of Decision Under Rule 50 that Claims 1 and 24 of the '634 Patent are Invalid [doc, no. 227]; and
*475 (5) HT's Motion for Judgment as a Matter of Law or for a New Trial [doc. no. 230].
I. FACTUAL BACKGROUND
The parties are familiar with the relevant facts. Previous opinions of this court contain detailed factual and technological summaries for readers in need of such background information [see doc. nos. 28, 50, 55, 109, and 117]. Simply put, Judkins is an individual inventor who owns many patents in the field of window blinds. Two of his patents are at issue in this case. Judkins accused HT of infringing the '120 Patent by selling its Polaris brand double-celled honeycomb blind. Judkins also claimed that HT would infringe the '634 Patent if it began to sell its first generation Polaris brand single-celled honeycomb blind.
The jury found that HT's products infringed the '120 Patent and would infringe the '634 Patent. The jury also found that HT's infringement of the '120 Patent was willful. The jury rejected HT's contentions that both patents were invalid and unenforceable. The jury awarded Judkins more than $154,000.00 in damages.
II. POST-TRIAL MOTIONS
There are numerous post-trial motions pending. The court will address each below. However, to summarize, we find that a permanent injunction is warranted, but that the declarations filed in support of Judkins's motion should be stricken. We award prejudgment interest, but at a lower rate than that requested by Judkins. We deny Judkins's motions for attorney fees and enhanced damages and to reconsider the Rule 50 decision made during trial.
Finally, we find that there is insufficient evidence to support the jury's findings of infringement of both patents under the doctrine of equivalents, and of literal infringement of the '634 Patent. Therefore, we enter judgment as a matter of law on those issues. All other aspects of the jury's verdict are supported by sufficient evidence, are not against the great weight of the evidence, and do not result in a miscarriage of justice, and will remain undisturbed by the court.
A. Judkins's Motion for a Permanent Injunction and HT's Motion to Strike the Supporting Declarations
Judkins seeks a permanent injunction enjoining HT's manufacture and sale of the Polaris double-celled product and the first generation Polaris single-celled product. Judkins contends that he has been irreparably harmed by HT's willful infringement of the '120 Patent and will continue to suffer such harm if HT is not enjoined. HT argues that Judkins has not established that he is entitled to such relief under the appropriate legal standard.
We conclude that Judkins is entitled to permanent injunctive relief. However, given the court's entry of judgment as a matter of law that the '634 Patent is not infringed, such relief shall apply only to the Polaris brand double-celled product.
1. Motion to Strike Declarations
As an initial matter, we must resolve HT's motion to strike the declarations that Judkins attached to his motion for a permanent injunction. HT claims that these declarations should be stricken because they introduce new evidence that was not disclosed during discovery, nor admitted into evidence at trial. The declarations contain statements regarding the potential for harm to Mr. Judkins's reputation and licensing business in the absence of a permanent injunction. They also refer to Mr. Judkins's alleged oral promises to refrain from licensing his patented technology to HT.
Judkins did not respond to HT's objection that the declarations contradict, or *476 improperly supplement, the trial record by adding reputational harms to the list of injuries suffered by Judkins as a result of HT's infringement. Instead, Judkins argues only that the declarations are proper because they do no more than explain and expand upon the terms of Judkins's licensing agreement with Nien Made, According to Judkins, because this agreement is complicated, with many amendments spanning a period of several years, further explanation is required. While we agree that the terms of the Nien Made licensing agreement are critical to determining whether to enter a permanent injunction, we find nothing so complex about its structure or terms that testimony, by way of post-trial declarations, is needed in order to proceed.
The court will not consider newly disclosed testimony regarding how certain terms of the agreement were arrived at, or understood, by the parties. To do so is both unnecessary, because the agreement speaks for itself, and unfair because Judkins had the opportunity to develop and disclose that evidence prior to trial, but failed to do so. It would be similarly unfair for the court to consider Judkins's newly disclosed evidence regarding the alleged harms to his reputation and business interests in deciding whether to grant a permanent injunction.
HT's motion to strike [doc. no. 234] is granted.
2. Motion for a Permanent Injunction
Without considering Judkins's now stricken declarations, we must determine whether a permanent injunction is warranted in this case. We conclude that it is.
In a patent case a district court must determine, in accordance with traditional equitable considerations, whether permanent injunctive relief is appropriate based on the particular facts and circumstances of the case before it. eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 390-94, 126 S. Ct. 1837, 164 L. Ed. 2d 641 (2006). In doing so, a district court must not categorically grant, nor categorically deny, injunctive relief simply because there has been a finding of patent infringement. Id. at 392-93, 126 S. Ct. 1837. Rather, the court must apply the well-established four-factor test to requests for injunctive relief in patent cases, just as in all other types of cases. Id. at 391, 126 S. Ct. 1837.
Under that test, in order to be awarded injunctive relief, Judkins must demonstrate: (1) that he has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between Judkins and HT, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction. Id. Upon application of those factors to the facts and circumstances of this case, we conclude that permanent injunctive relief is warranted in this case.
a. Irreparable Harm and Inadequate Remedy at Law
Judkins alleges that he has suffered irreparable harm due to HT's infringement in two ways: (1) by effectively requiring a compulsory license on unfavorable terms; and (2) by harming his reputation and future licensing activities in the window coverings industry. Judkins claims that these harms cannot be adequately remedied with monetary damages.
According to HT, infringement of Judkins's right to exclude is not irreparable harm under controlling precedent and any allegations of harm to reputation are speculative and now unsupported because we have stricken Judkins's declarations. HT also contends that even if Judkins could establish those harms, Judkins can be made whole with monetary damages, making a permanent injunction unnecessary.
*477 We find that Judkins has established irreparable injury in this case and that monetary damages are inadequate to compensate him for that injury. In doing so we do not conclude that irreparable harm must always follow a finding of willful patent infringement. Rather, we have considered the facts and circumstances of this case.
According to the plain terms of the Nien Made license agreement,[1] Judkins promised that he would not license the technology at issue to any other third party. Failure to enter a permanent injunction in this case would result in Judkins's unwilling violation of that promise, which would have an unavoidable and undeniable effect on Judkins's future licensing negotiations. If a licensee specifically negotiates for exclusivity and Judkins cannot deliver it, Judkins's bargaining power and standing in the industry will be diminished. This is not speculation. It is logic. The court finds that in this case, where Judkins specifically promised that he would not further license the technology, failure to grant a permanent injunction will result in irreparable harm.
We also find that monetary damages would not fully compensate Judkins for this harm. Although one could describe Judkins's only commodity as patents and his only concern as being paid royalties for their use, that focus is too narrow. Judkins does more than collect royalty checks in arms length transactions with random licensees. Instead, Judkins is in the business of building long term relationships with leaders in the window blinds industry. The evidence at trial demonstrated that Mr. Judkins's licensing relationships span many years with the same companies. The evidence at trial was also that he took an ownership interest in one licensing partner in the past, and has obtained financing for patent applications and litigation costs from his licensees. Harm to those relationships, and the resulting loss of these, and other, tangential benefits, cannot be quantified and remedied completely with money. As such, Judkins cannot be fully compensated with monetary damages.
Therefore, the first two factors weigh in favor of entering a permanent injunction.
b. Balance of Hardships
The balance of hardships favors an equitable remedy in this case. As an initial matter, in assessing this balance, we must consider the proper scope of any potential injunction. Given that we will enter judgment as a matter of law finding no infringement of the '634 Patent, a permanent injunction would only apply to HT's Polaris brand double-celled honeycomb blinds.
There is no evidence that such an injunction would have a serious effect on HT's business. HT could continue to sell *478 its remaining products. It could also sell a different double-celled product by either purchasing cellular fabric from a Judkins licensee, or by using a completely different double-celled product that does not practice Judkins's invention. This may result in higher costs to HT. However, when compared to the harm to Judkins in the absence of a permanent injunction, which we have detailed in the section immediately above and incorporate herein, the balance of harms tips in Judkins's favor.
As such, the third factor weighs in favor of entering a permanent injunction.
c. Public Interest
The final factor also weighs in favor of granting permanent injunctive relief. There has been no showing that the public will be severely impacted if HT is not permitted to sell double-celled honeycomb window blinds with a pleat on the front and a tab in the back. Although these products are important to these two parties, as evidenced by their pursuit of this case, window blinds are not of serious importance to the public's health, welfare, or safety. Furthermore, there are many alternative window coverings in the marketplace.
In comparison, were an injunction not issued, there would be harm to the public's interest in having patent rights enforced and protected in the courts.
Therefore, this final factor also weighs in favor of entering a permanent injunction.
d. Summary
Upon consideration of each of the four factors as applied to the facts and circumstances of this case, we find that the equities weigh in favor of granting Judkins permanent injunctive relief against HT's continued infringement of the '120 Patent.
Judkins's motion for a permanent injunction [doc. no. 322] is granted. The court will enter an appropriate order in conjunction with this memorandum.
B. Judkins's Motion for Prejudgment Interest
The jury awarded Judkins damages of $154,776.04 for infringing sales of HT's Polaris brand double-celled honeycomb window blinds between 2007 and 2009. Judkins has now filed a motion seeking prejudgment interest in the amount of $50,620.80, or roughly 33% of the damages award. HT agrees that an award of prejudgment interest is warranted, but claims that the amount requested by Judkins is excessive.
We conclude that although prejudgment interest is appropriate in this case, the amount proposed by Judkins is inappropriate because it would be punitive, rather than compensatory. As such, we will award Judkins prejudgment interest using HT's proposed calculations, resulting in an award in the amount of $14,195.68.
There is no dispute that we can, and should, award prejudgment interest in this case. 35 U.S.C. § 284; Allen Archery, Inc. v. Browning Mfg. Co., 898 F.2d 787, 791 (Fed.Cir.1990). Prejudgment interest is awarded ". . . to make the patent owner whole, since his damages consist not only of the value of the royalty payments but also of the foregone use of the money between the time of infringement and the date of the judgment." General Motors Corp. v. Devex Corp., 461 U.S. 648, 655-56, 103 S. Ct. 2058, 76 L. Ed. 2d 211 (1983). Prejudgment interest is awarded to compensate the patent owner, not to punish the infringer. Underwater Devices, Inc. v. Morrison-Knudsen Co., 717 F.2d 1380, 1389 (Fed.Cir.1983) (overruled on other grounds in In re Seagate Technology, LLC, 497 F.3d 1360 (Fed.Cir.2007)). The district court is charged with setting the appropriate rate at which such interest *479 should be awarded, and determining the appropriate method of compounding. Allen Archery, 898 F.2d at 791.
Judkins contends that interest on the $154,776.04 damages award should be calculated based on the 16.07% per year interest rate applied to late royalty payments under the Nien Made licensing agreement. Using this rate, and compounding the interest yearly, Judkins asks this court to award him $50,620.80 in prejudgment interest. Although Judkins refers generally to various alternative methods of computing prejudgment interest in his reply brief, he never sets forth an actual alternative computation or award.
HT contends that using a late payment interest rate as the basis for an award of prejudgment interest is, by definition, punitive. Instead, HT suggests that prejudgment interest should be based on the interest rate Judkins would have paid had he borrowed money during the time of HT's infringement. According to HT, this rate should be the prevailing prime rate, compounded yearly according to the mid-year convention. Using this method, HT arrives at a prejudgment interest award of $14,195.68.
We find that HT's proposed prejudgment interest calculation most accurately reflects a full compensatory award to Judkins. Judkins's proposal is admittedly based on a punitive interest rate, which, as we have set forth above, is an improper basis for the awarding of prejudgment interest. Instead, awarding Judkins prejudgment interest at the rate Judkins would have paid to borrow money, as proposed by HT, compensates Judkins for what he lost as a result of HT's infringement, i.e., the use of the money the jury awarded to him as patent infringement damages.
As such, we award prejudgment interest on the $154,776.04 compensatory damages award at the prime rate, compounded yearly according to the mid-year convention. Thus, we grant Judkins's motion for prejudgment interest [doc. no. 224] and award him prejudgment interest in the amount of $14,195.68.
C. Plaintiff's Motion for Attorney Fees and Enhanced Damages
Judkins has filed a motion seeking both enhanced damages, pursuant to 35 U.S.C. § 284, and attorney fees, pursuant to 35 U.S.C. § 285. Judkins alleges that both remedies are warranted in this case because the jury found HT's infringement to be willful. Although Judkins's motion collapses the two inquiries, enhanced damages and attorney fees are separate considerations. We will address them individually below. In summary, we conclude that neither enhanced damages, nor attorney fees are appropriate in this case.
1. Enhanced Damages
Section 284 of the Patent Act states that ". . . the court may increase the damages up to three times the amount found or assessed." 35 U.S.C. § 284. Enhanced damages are discretionary. Jurgens v. CBK, Ltd., 80 F.3d 1566, 1570 (Fed.Cir.1996). Although a finding of willful infringement authorizes the award of enhanced damages, it does not mandate it. Group One, Ltd. v. Hallmark Cards, Inc., 407 F.3d 1297, 1308 (Fed.Cir.2005) (citing Modine Mfg. Co. v. Allen Group, Inc., 917 F.2d 538, 543 (Fed.Cir.1990)); Cybor Corp. v. FAS Technologies, Inc., 138 F.3d 1448, 1461 (Fed.Cir.1998). Instead, we must look to the totality of the circumstances of the case, considering both aggravating and mitigating facts, before reaching a determination of whether, and to what extent, we should exercise our discretion and award enhanced damages. Odetics, Inc. v. Storage Technology Corp., 185 F.3d 1259, 1274 (Fed.Cir.1999); Read Corp. v. Portec, Inc., 970 F.2d 816, 826 (Fed.Cir.1992) *480 ("[t]he paramount determination . . . is the egregiousness of the defendant's conduct based on all the facts and circumstances").
Judkins claims that the jury's compensatory damages award should be trebled to $464,328.12 for the following reasons: (1) HT made no investigation into Judkins's claims of potential patent infringement; (2) HT arranged for Blinds-To-Go to directly import infringing product from Taiwan while this case was pending; (3) HT pursued its state law claims even after the court denied its motion for a preliminary injunction; and (4) the jury found that HT willfully infringed. Judkins does not address the Read factors in his motion.
The Court of Appeals for the Federal Circuit has provided district courts with several factors to consider when determining whether damages should be enhanced. These are commonly referred to as the Read factors. The Read factors include: (1) whether the infringer deliberately copied the ideas or design of another; (2) whether the infringer, when he knew of the other's patent protection, investigated the scope of the patent and formed a good-faith belief that the patent was invalid or not infringed; (3) the infringer's behavior as a party to the litigation; (4) the infringer's size and financial condition; (5) closeness of the case; (6) duration of the infringer's misconduct; (7) remedial action by the infringer; (8) the infringer's motivation for harm; and (9) whether the infringer attempted to conceal its misconduct. i4i Ltd. Partnership v. Microsoft Corp., 589 F.3d 1246, 1273-74 (Fed.Cir. 2009); Liquid Dynamics Corp. v. Vaughan Co., Inc., 449 F.3d 1209, 1225 (Fed.Cir.2006); Read Corp. v. Portec, Inc., 970 F.2d 816, 826-27 (Fed.Cir.1992) (superseded on other grounds as recognized in Hoechst Celanese Corp. v. BP Chemicals Ltd., 78 F.3d 1575, 1578 (Fed.Cir. 1996)).
An evaluation of the above factors assists us in deciding whether to exercise our discretion and award enhanced damages. Upon consideration of each of these factors, and the aggravating and mitigating circumstances unique to this case, we conclude that it is not appropriate to enhance the jury's damage award.
Deliberate CopyingJudkins does not allege in his motion that HT engaged in deliberate copying. In his reply brief Judkins alleges that copying can be inferred due to the similarity of HT's products to Judkins's licensees' products and the lack of evidence of independent creation. We disagree that such an inference must be made on either basis. The fact remains that Judkins has failed to identify any evidence that HT copied his inventions.
Therefore, this factor weighs against enhancing damages.
Good Faith Belief in Invalidity and UnenforceabilityJudkins contends in his motion that HT could have had no good faith belief in its defenses for the sole reason that Mr. Miles admitted at trial that "HT made no investigation" into the allegations made in Judkins's January 28, 2007 letter. Mr. Miles's oft-quoted alleged admission that HT ignored Judkins's threat letter is belied by the undisputed facts surrounding this case.
Mr. Miles's statement must be read in the context of his entire testimony. He told the jury that he was a salesman. There was no evidence that he was involved in the technical aspects of patent infringement analysis, nor had the skills and ability to participate in the same. Instead, Mr. Miles testified that he was advised that HT was proceeding in accordance with third party patents and that he conveyed that information to his customer base when asked. That a salesman was not privy to detailed discussions engaged in by patent attorneys in arriving at an *481 ultimate legal conclusion does not alone prove that HT had no good faith belief in its defenses.
Rather, the evidence proves that HT did not ignore the Judkins patents. Had it done so, HT could not have corresponded with Judkins in 2005 and 2006 regarding its single-celled product, nor filed a lawsuit in federal court in California within two weeks of receiving Judkins's January 28, 2007 letter regarding its double-celled product.
Judkins presents no other evidence, other than the Miles testimony, that this factor favors enhancing damages. Considering the background facts of this case and the context of that testimony, it does not, alone, indicate that HT had no good faith belief in its invalidity, unenforceability, or non-infringement positions.
Thus, this factor does not weigh in favor of enhancing damages in this case.
Litigation BehaviorIn his motion, Judkins faults HT for pressing its state law claims even after the court denied its motion for a preliminary injunction based on them. As Judkins correctly notes, the court also disposed of those claims as a matter of law during trial.
In order to succeed on its state law claims, HT was required to prove that Judkins made the accusations of patent infringement against it in bad faith; or that the accusations were objectively baseless, and if so, then also subjectively baseless. Globetrotter Software v. Elan Computer Group, Inc. 362 F.3d 1367, 1375, 1377 (Fed.Cir.2004); GP Industries, Inc. v. Eran Industries, Inc., 500 F.3d 1369, 1374-75, 1376 (Fed.Cir.2007); Zenith Electronics Corp. v. Exzec, Inc., 182 F.3d 1340, 1353 (Fed.Cir.1999). The court was unable to dispose of any infringement, validity, or enforceability issues via summary judgment. As such, it was not improper for HT to pursue its business tort claims at trial. That the court ultimately was able to dispose of HT's claims as a matter of law, after evidence was admitted, and key witnesses testified, at trial, does not prove that HT acted improperly by pressing its claims.
Moreover, before we award enhanced damages based on this factor, we must look to all the circumstances of this case. Those circumstances include consideration of Judkins's litigation conduct as mitigating circumstances. It is inappropriate to punish HT for its litigation conduct when Judkins's conduct was itself egregious. This conduct included Judkins's request to extend the discovery deadline three months after it had passed by way of motion for third party discovery, his refusal to accept and litigate according to the court's claim construction ruling, including in his case in chief before the jury, his motion alleging that an industry recipient of the February 7, 2007 threat letter was an indispensable party, and his use of filings from this case in the patent prosecution process before notifying the patent examiner of this litigation, among other things.
Therefore, we will not punish HT with enhanced damages for pressing its business tort claims at trial, which survived summary judgment, when Judkins's conduct throughout this case was itself inappropriate and disruptive.
This factor weighs against enhancing damages.
Size and Financial ConditionJudkins made no allegations in his motion for enhanced damages regarding the size and financial condition of HT. In his reply brief, he notes that HT is being indemnified by Teh Yor, its vendor partner in Taiwan. However, Judkins fails to explain how that fact affects our analysis. The record does not contain any evidence regarding the effect that a nearly half million *482 dollar verdict would have on Teh Yor, or HT for that matter.
As such, this factor does not weigh in favor of enhancing damages.
Closeness of the CaseJudkins made no allegations regarding this factor in his motion. In his reply brief, he claims that the jury's verdict, which was in Judkins's favor on all issues, and the Court of Appeals for the Federal Circuit's statement that "HT faced slim odds of prevailing" support the conclusion that this was not a close case. We disagree.
As an initial matter, we must clarify the context of the court of appeals's quotation relied upon by Judkins. The appellate court was referring not to HT's potential ultimate success in defending the patent infringement case, or proving its business tort claims, but to HT's likelihood of prevailing on an appeal from the denial of a motion for a preliminary injunction, where the standard of review is clear error. The court of appeals did not indicate in its opinion, as Judkins suggests, that HT's business tort counterclaims, or patent defenses were weak.
Instead, substantial questions remained regarding infringement, validity, and enforceability, as well as HT's business tort counterclaims, as the parties went into trial of this matter. Despite extensive briefing, the court could not resolve any of these issues through summary judgment. The mere fact that Judkins won is not a sufficient basis for awarding enhanced damages, as Judkins contends. That the jury sided with Judkins cannot be used as a hindsight justification to find that this was not a close case. It was.
On balance, we find that this factor weighs against enhancing damages.
Duration of InfringementJudkins made no allegations regarding this factor in his motion. In his reply brief he argues that this factor weighs in favor of enhancing damages because HT continues to sell its Polaris brand products to this day. Judkins sued HT the day the '120 Patent issued. Judkins did not seek a preliminary injunction to stop HT's infringement during the pendency of this case.
He did timely file a motion for a permanent injunction following entry of the jury's verdict. However, entry of a permanent injunction no longer automatically follows a finding of even willful patent infringement. eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 390-94, 126 S. Ct. 1837, 164 L. Ed. 2d 641 (2006). Therefore we cannot fault HT, and punish it with enhanced damages, for continuing to sell its product in the absence of a preliminary injunction and while the court considered Judkins's motion for a permanent injunction.
This factor weighs against enhancing damages.
Remedial ActionJudkins made no allegations regarding this factor in his motion. In his reply brief, he claims that this factor weighs in favor of enhancing damages because HT continued to sell the Polaris products during trial even though it had no good faith belief in its defenses. We have already dispensed with Judkins's contentions in our discussion of the good faith belief and duration of infringement factors above.
This factor weighs against enhancing damages.
Motivation to HarmJudkins made no allegations regarding this factor in his motion. In his reply brief, he claims that this factor weighs in favor of enhancing damages because HT intended to drive up Judkins's litigation costs by filing suit in California and appealing this court's denial of a preliminary injunction. As we did in considering the litigation behavior factor above, we must look to the totality of the *483 circumstances to determine whether HT should be punished by the imposition of enhanced damages.
In this case, even if we were to take Judkins's allegations against HT as true, we would also have to consider as mitigating factors that Judkins attempted to extend the discovery deadline three months after it had passed, filed a seemingly unnecessary motion to join an indispensable party, attempted to ignore the court's claim construction through most of the post claim construction proceedings, including trial, and used litigation documents from this case in the patent prosecution process before informing the examiner that this action was pending.
Therefore, when viewed in the totality of the case, this factor weighs against enhancing damages.
Concealing MisconductJudkins asserted in his motion, and reasserts in his reply brief that HT's role in arranging sales directly from Teh Yor to Blinds-To-Go warrants enhanced damages. Although HT has offered evidence to show that Blinds-To-Go requested this arrangement, there is also evidence that the arrangement was not readily revealed to Judkins in discovery. As such, it can be interpreted as an attempt to conceal sales.
This factor weighs in favor of enhancing damages.
In conclusion, exercising our discretion, and considering the totality of the circumstances that have occurred both during trial and throughout the three years that we have presided over this case, we find that an award of enhanced damages is unwarranted. While we recognize that the jury found HT to have willfully infringed Judkins's patent, the Read factors weigh almost universally against awarding enhanced damages in this case.
As such, Judkins's motion for enhanced damages [doc. no. 226] is denied.
2. Attorney Fees
Section 285 of the Patent Act states that "[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party," 35 U.S.C. § 285. As the statute makes clear, before exercising its discretion to determine whether attorney fees should be awarded, a court must determine whether a case is exceptional. Enzo Biochem, Inc. v. Calgene, Inc., 188 F.3d 1362, 1370 (Fed.Cir.1999). The party requesting attorney fees must prove exceptional circumstances by clear and convincing evidence. Digeo, Inc. v. Audible, Inc., 505 F.3d 1362, 1366-67 (Fed.Cir. 2007). Even if a court determines that a case is exceptional, it does not necessarily follow that attorney fees will be awarded. National Presto Indus., Inc. v. West Bend Co., 76 F.3d 1185, 1197 (Fed.Cir.1996). The award of attorney fees is left to the discretion of the district court.
The criteria for declaring a case exceptional include willful infringement, bad faith, litigation misconduct, inequitable conduct, unprofessional behavior, or similar circumstances. Imonex Services, Inc. v. W.H. Munzprufer Dietmar Trenner GmbH, 408 F.3d 1374, 1378 (Fed.Cir.2005); Pharmacia & Upjohn Co. v. Mylan Pharms., Inc., 182 F.3d 1356, 1359-60 (Fed.Cir.1999). Judkins's only contention in support of an award of attorney fees is that the "willfulness finding made by the jury makes this an exceptional case" [doc. no. 226 at 2]. Judkins has presented no other facts or circumstances warranting a finding that this case is exceptional.
Although a jury finding of willfulness is among the circumstances that can support an exceptional case finding, it does not necessitate a finding of an exceptional case. Electro Scientific Industries, Inc. v. General Scanning Inc., 247 F.3d 1341, 1353-54 (Fed.Cir.2001). In this case, we find that the jury's willfulness finding, *484 standing alone, is insufficient to satisfy Judkins's burden of establishing that this case is exceptional by clear and convincing evidence. Even though we find sufficient evidence in the record to support the jury's willfulness verdict, we do not find that the circumstances justifying the jury's finding are so egregious that they, alone, can satisfy Judkins's burden.
Even putting aside that it is Judkins who must satisfy this high burden, and reviewing the record independently, we find no instance of bad faith, litigation misconduct, unprofessional behavior, or similar circumstances on the part of HT that would warrant deeming this case to be exceptional.
Regardless, even were we to determine that the willfulness finding alone warrants deeming this case to be exceptional, after considering all the facts and circumstances of this case, as discussed above, we would exercise our discretion and not award attorney fees in this case. Group One, 407 F.3d at 1308.
As such, Judkins's motion for attorney fees [doc. no. 226] is denied.
D. Plaintiff's Motion for Reconsideration
During the trial of this matter, HT sought judgment as a matter of law that claims 1 and 24 of the '634 Patent were invalid as anticipated by the '180 Ford Canadian Patent Application. The '180 Ford Canadian Patent Application was published on September 11, 1995, and issued on December 2, 1997. The application for the '634 Patent, which was a continuation in part, or CIP, of an original parent application filed on March 29, 1995, was filed on February 2, 1998. We will address this motion even though we find below that there was insufficient evidence to support the jury's verdict of infringement of the '634 Patent.
Judkins opposed HT's Rule 50 motion at trial on the ground that all claims of the '634 Patent should be afforded the March 29, 1995 priority date of its parent application. Judkins argued during trial that even though the court had already ruled in its claim construction and summary judgment opinions that the '634 Patent claimed new matter elements consisting of head rails, bottom rails, and pull cords, these same elements were inherent in the parent application. Judkins now states in his motion for reconsideration that the court's Rule 50 ruling was "based upon the [incorrect] premise that to be entitled to a claim of priority the bottom rail, head rail, and cords must be specifically disclosed in the parent application" [doc. no. 228 at 3].
Judkins has misstated the issue. Our ruling on HT's motion was not based on general rules regarding when the disclosure in a parent application can support a claim made in a continuation in part application. Our ruling was instead based explicitly on previous rulings we made in this case.
These prior rulings included that: (1) the '634 Patent was filed as a CIP because it added new matter of head rails, bottom rails, and pull cords; (2) the parent application does not include any teachings regarding how the fabric would be attached to the window; and (3) the term "shade for covering a window" has multiple meanings in the window coverings industry, but has been given a particular meaning in this family of patents [doc. no. 55 at 2, 8, 10 and doc. no. 109 at 4-5]. We found that it followed from these prior rulings that claims 1 and 24 of the '634 Patent, which claim the new matter elements, are afforded the later February 2, 1998 priority date. It further followed from this February 2, 1998 priority date that the '180 Ford Canadian Patent Application, which was published on September 11, 1995, predated *485 these claims. There was no dispute that if the Ford application predated the '634 Patent, it anticipated claims 1 and 24.
Judkins has provided no basis for the court to depart from any of its prior rulings, nor any explanation for his reversal of position before this court. Judkins has never explained why he now contends that the elements added to the CIP as new matter were actually inherent in the parent application. In particular, Judkins has never responded to the court's direct inquiry as to why, if he had a good faith belief that these elements were inherent in the parent application, he would have filed a CIP application to add them [doc. no. 255 at 140]. Judkins's counsel's vague references to "U.S. PTO regulations" being "the reason that would be done" does nothing to explain Judkins's change in position [Id.]. Judkins has never cited any specific regulations to the court, nor explained how they control in this case.
In short, Judkins has provided this court with no basis for disturbing its ruling on HT's Rule 50 motion, or any of the prior rulings on which it was based, other than his disagreement with the result. Disagreement is not a proper basis on which to obtain reconsideration of a court's ruling.
As such, Judkins's motion for reconsideration [doc. no. 227] is denied.
E. HT's Motion for Judgment as a Matter of Law or for a New Trial
HT has renewed the motion for judgment as a matter of law that it made at trial. Fed.R.Civ.P. 50(b). It has now also, in the alternative, moved for a new trial under Federal Rule of Civil Procedure 59. HT challenges six aspects of the jury's verdict, and/or this court's rulings: (1) infringement, both literal and under the doctrine of equivalents, of both asserted patents; (2) willfulness; (3) invalidity (obviousness, anticipation, and best mode); (4) inequitable conduct; (5) damages; and (6) internal inconsistencies in the jury's verdict.
We find insufficient evidence to support the jury's verdict that HT's first generation Polaris brand single-celled product would literally infringe the '634 Patent. Therefore, we enter judgment as a matter of law in HT's favor on that issue. We also find insufficient evidence to support the jury's finding of infringement under the doctrine of equivalents of both patents, and enter judgment as a matter of law in favor of HT on that issue as well. As a result, we have removed the internal inconsistencies from the jury's infringement verdict and need not address that aspect of HT's motion. In all other respects we find sufficient evidence to support the jury's verdicts, that the verdicts are not against the great weight of the evidence, that no miscarriage of justice would result if the verdicts were to stand, and that no errors of law occurred. As such, we deny the remainder of HT's motion for judgment as a matter of law and for a new trial.
1. Applicable Legal Standards
(a) Motion for Judgment as a Matter of Law
Whenever a motion for judgment as a matter of law under Rule 50(a)(1) is not granted at trial, the moving party may renew the motion after judgment has been entered. Fed.R.Civ.P. 50(b). A motion for judgment as a matter of law will be granted only if, "viewing the evidence in the light most favorable to the nonmovant and giving it the advantage of every fair and reasonable inference, there is insufficient evidence from which a jury reasonably could" have reached its verdict. Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1166 (3d Cir.1993). In determining whether the evidence is sufficient to sustain the jury's verdict, the court must review the record as a whole, but *486 cannot reweigh the evidence, determine the credibility of witnesses, or substitute its version of the facts for the jury's version. Id. (citing Fineman v. Armstrong World Indus., Inc., 980 F.2d 171, 190 (3d Cir.1992)); Reeves v. Sanderson Plumbing Products, Inc., 530 U.S. 133, 150-51, 120 S. Ct. 2097, 147 L. Ed. 2d 105 (2000).
(b) Motion for a New Trial
A new trial may be granted even when judgment as a matter of law is inappropriate. Roebuck v. Drexel Univ., 852 F.2d 715, 735 (3d Cir.1988). However, a new trial should be granted only when the verdict is contrary to the great weight of the evidence, or when a miscarriage of justice would result if the verdict were to stand. Id. at 735-36; Sheridan v. E.I. DuPont de Nemours and Co., 100 F.3d 1061, 1076 (3d Cir.1996). A new trial because the verdict is against the great weight of the evidence should be granted "only when the record shows that the jury's verdict resulted in a miscarriage of justice or where the verdict, on the record, cries out to be overturned or shocks our conscience." Williamson v. Consolidated Rail Corp., 926 F.2d 1344, 1353 (3d Cir.1991).
2. Discussion
HT objects to six categories of the court's rulings and the jury's verdict. We will address each category separately and determine, for each, whether either judgment as a matter of law, or a new trial, is warranted.
(a) Infringement
i. Literal Infringement
HT alleges that the evidence at trial was insufficient to support the jury's finding of literal infringement of the '120 Patent and the '634 Patent. According to HT, Judkins failed to prove that the accused Polaris products utilize a "single sheet of material" as construed by the court. In fact, according to HT, "[Judkins] deliberately omitted any reference to the Court's `single sheet' construction when providing testimony and evidence to the jury" [doc. no. 233 at 5].
We must address each of Judkins's patents separately as the evidence submitted and our conclusion on each is different. In short, we find sufficient evidence to support the jury's literal infringement finding as to the '120 Patent, but not as to the '634 Patent.
(a) The '120 Patent
HT is correct that Judkins avoided the single sheet of material limitation imposed by this court's claim construction during much of his presentation of evidence to the jury. However, both Mr. Corey and Mr. Judkins did ultimately address the limitation as it related to the Polaris double-celled product [see e.g., doc. nos. 253 at 119-121; 255 at 66-76]. Their testimony was in accord with the court's finding that the single sheet of material could be cut after it was folded and before it was glued and still meet the limitations of the claims [doc. no. 109 at 24].
Of course, HT also submitted evidence that it was not using a single sheet of material, relying heavily on a figure from the Yu Patent. That the jury chose to believe Judkins and not HT is not grounds for entry of judgment as a matter of law or a new trial. We are not to reweigh the evidence or substitute our judgment for that of the jury's.
There is sufficient evidence for the jury to have reasonably concluded that HT's Polaris brand double-celled product uses a single sheet of material, and infringes Judkins's patents in all other respects. As such, we will not enter judgment as a matter of law on the issue of literal infringement of the '120 Patent, nor order a new trial on the same.
*487 (b) The '634 Patent
As with the double-celled product, Judkins avoided the single sheet of material limitation imposed by this court's claim construction of the '634 Patent in his case in chief. Upon reviewing the record, and Judkins's brief in opposition to HT's motion, we conclude that unlike with respect to the '120 Patent, Judkins never presented the jury with any evidence that the upper and lower cell walls of the first generation Polaris brand single-celled product were formed from a single sheet of material.
By Judkins's own admission, the only evidence submitted to the jury regarding literal infringement of the '634 Patent was the testimony of his expert, Mr. Corey [doc. no. 248 at 8]. Mr. Corey's comparison of the claims of the '634 Patent to a photograph of HT's product wholly ignored the court's claim construction. That claim construction required that the upper and lower cell walls of the single-celled product be formed from a single sheet of material being folded over itself and connected at the opposite end. Mr. Corey never uttered the words "single sheet" or "folded over" in his discussion of the upper and lower cell walls [doc. no. 253 at 112, Ins. 4-16].
Judkins identifies no other evidence admitted at trial to prove that this claim limitation, as construed, was found in the first generation Polaris brand single-celled product. The court has been unable to independently locate any such evidence. Notably, the testimony identified above in which Mr. Judkins and Mr. Corey ultimately recognize and address the court's single sheet of material claim construction addressed only the '120 Patent and HT's double-celled product [see e.g., doc. nos. 253 at 119-121; 255 at 66-76].
Even viewing the evidence in the light most favorable to Judkins, there is insufficient evidence from which a jury reasonably could have concluded that HT would literally infringe the asserted claims, as construed, of the '634 Patent. As such, we will enter judgment as a matter of law regarding literal infringement of the '634 Patent by the first generation Polaris brand single-celled honeycomb window blind.
ii. Doctrine of Equivalents Infringement
HT next argues that Judkins's evidence of infringement of both the '120 and '634 Patents under the doctrine of equivalents is insufficient to support the jury's verdict. We agree, and enter judgment as a matter of law on this issue. As such, we have removed the internal inconsistency from the jury's infringement verdict, and need not order a new trial on this basis. Mycogen Plant Science, Inc. v. Monsanto Co., 243 F.3d 1316, 1325-26 (Fed.Cir.2001) (noting that the law of the regional circuit applied to the issue of inconsistent verdicts because it is a procedural issue that is not unique to patent law; and applying Third Circuit law).
Even if an accused device does not infringe literally, it may still be found to infringe under the doctrine of equivalents. Warner-Jenkinson Co. v. Hilton Davis Chemical Co., 520 U.S. 17, 117 S. Ct. 1040, 137 L. Ed. 2d 146 (1997). Judkins must prove infringement under the doctrine of equivalents on a limitation-by-limitation basis. Hewlett-Packard Co. v. Mustek Systems, Inc., 340 F.3d 1314, 1322-23 (Fed.Cir.2003); see also Network Commerce, Inc. v. Microsoft Corp., 422 F.3d 1353, 1363 (Fed.Cir.2005), Texas Instruments Inc. v. Cypress Semiconductor Corp., 90 F.3d 1558, 1566-67 (Fed.Cir. 1996). "That evidence must have included `particularized testimony and linking argument.'" Hewlett-Packard, 340 F.3d at 1323 (citing cases). Such proof is necessary to prevent the jury from determining infringement by simply comparing the *488 claimed invention and the accused device as to overall similarity. Malta v. Schulmerich Carillons, Inc., 952 F.2d 1320, 1327 (Fed.Cir.1991).
Moreover, in this case, the jury was instructed that the doctrine of equivalents was limited by clear and unmistakable statements of surrender that Judkins made during prosecution of his patents [doc. no. 256 at 43-46]; see also Cordis Corp. v. Medtronic Ave, Inc., 511 F.3d 1157, 1177 (Fed.Cir.2008) (citing cases).
Judkins's evidence on doctrine of equivalents infringement was insufficient to support a reasonable jury's verdict both because it was too generalized and because it did not account for the specific statements of surrender Judkins made during prosecution of his patents. As such, it is appropriate to grant HT's motion for judgment as a matter of law on the issue of infringement under the doctrine of equivalents as to both the '120 and '634 Patents.
Mr. Corey's testimony regarding doctrine of equivalents infringement was too generalized to satisfy the standards set forth by the Court of Appeals for the Federal Circuit. Hewlett-Packard, 340 F.3d at 1322-23; [doc. no. 253 at 101-102, 113-114]. For instance, when asked to explain the basis for his opinion that the '634 Patent was infringed under the doctrine of equivalents, Mr. Corey stated that "I've compared the product to the claims and I've looked at the product and see that it does the same thing. It does it the same way, produces the same thing. There are no substantial differences that I can see between the product and the claims, so it seems equivalent to me." [doc. no. 253 at 113-114]. His testimony explaining the basis for his opinion regarding infringement under the doctrine of equivalents of the '120 Patent is similarly vague and general; "So if I see no substantial difference and if I see that the product does the same thing and in the same way and produces the same result, then I would say that's an equivalent product. And my understanding of the doctrine of equivalence [sic] is that that product would still infringe under those conditions." [doc. no. 253 at 101-102].
Not only did Mr. Corey's testimony fail to prove infringement under the doctrine of equivalents on a limitation-by-limitation basis or include particularized testimony and linking argument, it also wholly ignored the court's ruling that the doctrine of equivalents was limited in this case by statements made by Judkins during prosecution of his patents. Under that ruling, a piece of material that was not a single sheet of material could not be found to be the equivalent of a single sheet of material in this case. Mr. Corey never acknowledged this limitation in his testimony.
The same shortcomings are found in Mr, Judkins's testimony on this issue[2] [doc. no. 253 at 48-49].
As such, the jury had absolutely no proper evidence on which to base its finding that HT infringed the '120 and '634 Patents under the doctrine of equivalents. Therefore, we must grant HT's motion for judgment as a matter of law on this issue.
(b) Willfulness
HT alleges that Judkins failed to prove, by clear and convincing evidence, that HT willfully infringed the '120 Patent. According to HT, Judkins cannot prove that HT willfully infringed because: (1) Judkins failed to seek a preliminary injunction; (2) HT began producing the accused *489 products before the '120 Patent issued; (3) HT relied upon its supplier's assurances that it was practicing the Yu patents; (4) HT had a good faith belief in its defenses; and (5) HT did not arrange for Blinds-To-Go to purchase directly from Teh Yor in order to avoid liability in this case [doc. no. 233 at 24-26].
According to Judkins, many of these factors are not relevant to a jury's deliberations on the issue of willfulness. Judkins further contends that HT's failure to investigate Judkins's accusations of patent infringement and its involvement in arranging direct sales to Blinds-To-Go while this case was pending are alone sufficient to support the jury's verdict.
In order to establish willful infringement, ". . . a patentee must show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent. . . . If this threshold objective standard is satisfied, the patentee must also demonstrate that this objectively-defined risk . . . was either known or so obvious that it should have been known to the accused infringer." In re Seagate Technology, LLC, 497 F.3d 1360, 1371 (Fed.Cir.2007) (en banc).
We find the jury's verdict to be supported by sufficient evidence and made in accordance with the appropriate legal standards. Each of the points raised by HT could be relevant to a jury's deliberations and its ultimate determination on the issue of willfulness. However, it was the jury's province to believe, or disbelieve, HT's explanations and interpretations of the evidence, and to assign them such weight as it deemed appropriate. Viewing the evidence in the light most favorable to Judkins and giving him the advantage of every fair and reasonable inference, we conclude that there was sufficient evidence from which a jury could reasonably have concluded that HT willfully infringed the '120 Patent.
In summary, we cannot say that there was insufficient evidence to support the jury's willfulness verdict, or that it was contrary to the great weight of the evidence or resulted in a miscarriage of justice. Therefore, we deny HT's motion for judgment as a matter of law, and for a new trial on the issue of willfulness.
(c) Invalidity
HT contends that it is entitled to judgment as a matter of law, or a new trial, on its defenses and counterclaims of patent invalidity. According to HT all of the asserted claims of both the '120 Patent and the '634 Patent are obvious over the combination of Corey '601 and Judkins '656. HT also contends that the Ford Patents should have been deemed prior art, and as such, would have rendered the '120 Patent obvious and anticipated. HT also argues that the '120 Patent is invalid because it failed to disclose the best mode of practicing the invention. HT had the burden to prove invalidity on any of these grounds by clear and convincing evidence. Eli Lilly & Co. v. Barr Labs., 251 F.3d 955, 962 (Fed.Cir.2001).
The court concludes that the jury's verdict on invalidity was proper in all respects. Therefore, we will not grant judgment as a matter of law or order a new trial on any of these validity issues.
i. The Ford Patents
Foundational to several of HT's challenges to the jury's invalidity verdicts is its contention that the Ford Patents should have been deemed prior art to the Judkins Patents. The Ford patents (U.S. Patent No. 5,692,550, U.S. Patent No. 5,701,940 and U.S. Design Patent No. 352, 856) claim priority to an application filed on March 10, 1994. The '120 Patent and the claims of the '634 Patent not including *490 new matter have a priority date of March 29, 1995. As such, it would appear that the Ford Patents are prior art.
However, Judkins produced evidence that he invented this technology as early as 1990, thus beating Ford's 1994 priority date, and that Ford derived (or stole) the idea from him. In turn, HT produced evidence that Judkins had abandoned, suppressed, or concealed his invention, thus losing his 1990 invention date, and argued that Judkins had no corroboration for his derivation theory.
We know that the jury sided with Judkins on these issues because had it found the Ford Patents to be prior art, then it would necessarily have followed that the '624 Patent was invalid as anticipated because claim 10 of the Ford '550 Patent is identical to claim 10 of the '634 patent. We see no error in the jury's conclusion. Although it may have been a close case on each of these issues, as reflected by the fact that the court could not dispose of any of them on summary judgment, viewing the evidence in the light most favorable to Judkins and giving Judkins the benefit of all reasonable inferences, the jury's verdict is supported by sufficient evidence, and is not so contrary to the weight of the evidence or so shocking that the court must enter judgment as a matter of law or order a new trial.
ii. Obviousness
Obviousness must be proven by clear and convincing evidence. Procter & Gamble Co. v. Teva Pharmaceuticals USA, Inc., 566 F.3d 989, 994 (Fed.Cir. 2009). The ultimate judgment of obviousness is a legal question, although it is based on factual determinations. Graham v. John Deere Co., 383 U.S. 1, 17, 86 S. Ct. 684, 15 L. Ed. 2d 545 (1966). We submitted the ultimate question of obviousness to the jury. The jury found that neither the '120 Patent, nor the '634 Patent were obvious. We have reviewed the evidence, and considered the appropriate standards to apply to an obviousness determination, and find no error, or miscarriage of justice, in the jury's verdict.
A ruling on an obviousness defense or counterclaim is made after considering: (1) the scope and content of the prior art; (2) the differences between the prior art and the claims at issue; and (3) the level of ordinary skill in the pertinent art. Graham, 383 U.S. at 17-18, 86 S. Ct. 684. Evidence of secondary considerations may be used to shed light on the question of obviousness. Id. Until recently, when an invention was allegedly made obvious by the combination of two, or more, pieces of prior art, a court, or jury, was next required to apply the "teaching, suggestion, or motivation" test. Under that test, a patent claim could be found obvious only if there was some motivation or suggestion to combine the pieces of prior art in the prior art, the nature of the problem, or the knowledge of a person having ordinary skill in the art. KSR Int'l Co. v. Teleflex Inc., 550 U.S. 398, 407, 127 S. Ct. 1727, 167 L. Ed. 2d 705 (2007).
In KSR the Supreme Court unanimously found that the teaching, suggestion, or motivation test was "incompatible with our precedents" when applied as a rigid and mandatory formula. Id. at 419, 127 S. Ct. 1727. However, recognizing that most modern inventions "rely upon building blocks long since uncovered," the Court still found it "important to identify a reason that would have prompted a person of ordinary skill in the relevant art to combine the elements in the way the claimed new invention does." Id. at 418-19, 127 S. Ct. 1727 Generally in determining obviousness, the Court directed us to ask whether the invention was a result of innovation, or of ordinary skill and common sense, because "the results of ordinary innovation are not the subject of exclusive *491 rights under the patent laws." Id. at 406-07, 427, 427, 127 S. Ct. 1727.
With those directives in mind, we turn to the jury's verdict and our ultimate determination on the legal issue of obviousness in this case. We have reexamined the record and find no basis on which to depart from the jury's verdict.
(a.) Combination of Corey '601 and Judkins '656
HT contends that the combination of Corey '601 and Judkins '656 renders all claims of both the '120 Patent and the '634 Patent obvious. According to HT, it was obvious to try combining pleats and tabs to resolve a known problem in the art. According to Judkins, the solution was not obvious. This was a close issue; one which the court was unable to resolve on summary judgment.
Both HT and Judkins provided evidence in support of their positions. Notably, Mr. Corey, the inventor of the Corey '601 Patent, told the jury that combining pleats and tabs was not obvious at the time, and that, in fact, it would have been considered a bad idea. The jury again sided with Judkins, and not HT. However, the jury's decision was supported by sufficient evidence, was not against the great weight of the evidence, and results in no miscarriage of justice. And as such, there is no basis on which to enter judgment as a matter of law, or order a new trial on this issue. Nor does the court have any reason to reach a conclusion on this issue that is different than the jury's verdict.
(b.) Combination of Corey '601 and Ford Patents
HT contends that the combination of Corey '601 with either Ford '550 or Ford '940 renders the asserted claims of the '120 Patent obvious. According to HT, Judkins's patents do nothing more than add an additional glue line to the inventions disclosed in these Ford patents.
Of course, the foundation of this argument is that the Ford Patents are prior art to the '120 Patent. Because we have declined to disturb the jury's implicit finding that they were not, this objection becomes moot.
Given all of these considerations, we see no insufficiency, error, or injustice, in the jury's finding that HT failed to prove by clear and convincing evidence that the asserted claims of the patents in suit were obvious. We will neither enter judgment as a matter of law, nor hold a new trial, on the issue of obviousness. Nor do we find any reason to reach a conclusion on this issue than the jury's verdict.
iii. Best Mode
Finally, we find no merit in HT's contention that the '120 Patent is invalid because Judkins knew of, but concealed, a better way of carrying out the invention than that set forth in the specification. Teleflex, Inc. v. Ficosa N. Amer. Corp., 299 F.3d 1313, 1330-31 (Fed.Cir. 2002). Compliance with the best mode requirement is a question of fact which involves a two-pronged inquiry. N. Telecom Ltd. v. Samsung Electronics Co., 215 F.3d 1281, 1286 (Fed.Cir.2000). The first prong is subjective, focusing on the inventor's state of mind at the time he filed the patent application, and asks whether the inventor considered a particular mode of practicing the invention to be superior to all other modes at the time of filing. Id. The second prong is objective and asks whether the inventor adequately disclosed the mode he considered to be superior. See Amgen, Inc. v. Chugai Pharm. Co., 927 F.2d 1200, 1212 (Fed.Cir.1991).
HT asserted that Judkins violated this best mode requirement by failing to disclose the use of a cross-linking urethane adhesive. According to HT, the adhesive was not known to one of ordinary skill in the art, but was important to practicing *492 the invention, and therefore, should have been disclosed.
Judkins, on the other hand, claimed that the fact that such an adhesive was used in a prototype and disclosed in a later patent failed to establish that when he filed the instant patent application he concealed the best way to bind the sheets. Although not determinative, we note that the inventor himself testified on this exact point at trial and denied having concealed a better way to make the invention.
Again it was within the jury's province to decide who to believe. It obviously, again, sided with Judkins. We can assign no error or insufficiency in its decision to do so, and find no need to disturb the jury's verdict on this issue.
(d) Inequitable Conduct
Inequitable conduct is an equitable issue committed to the discretion of the district court. Flex-Rest, LLC v. Steelcase, Inc., 455 F.3d 1351, 1357 (Fed. Cir.2006). The jury returned a verdict that the '120 Patent and the '634 Patent were not unenforceable due to inequitable conduct. We have reexamined the record and find no basis on which to depart from the jury's verdict.
HT asserted at trial that the '120 Patent and the '634 Patent were unenforceable because Judkins engaged in misconduct before the PTO and this court. According to HT, Judkins failed to timely disclose documents to the PTO and this court, and entered into a improper settlement agreement in prior federal court litigation before this judge. This has been HT's theory of the case since it filed suit in California. But that HT earnestly and consistently advanced this theory does not mean that a jury, or this court, must agree with it.
Sufficient evidence was submitted to the jury (and is collected in Judkins's opposition brief [doc. no. 248 at 17-19]) demonstrating that Judkins did disclose the documents in question, and did not enter into the settlement agreement improperly. Judkins produced evidence from his attorney, as well as Mr. Judkins himself, disavowing any deceptive intent [doc. no. 251 at 162].
The jury accepted Judkins's explanations, and disbelieved HT's (or found them to fall short of satisfying HT's high burden of proof). We, exercising our equitable powers to ultimately decide this issue, cannot find that the evidence requires us to disagree with the jury. We agree that HT failed to prove, by clear and convincing evidence, that Judkins engaged in inequitable conduct. Fox Industries, Inc. v. Structural Preservation Systems, Inc., 922 F.2d 801, 803 (Fed.Cir.1990); FMC Corp. v. Manitowoc Co., Inc., 835 F.2d 1411, 1415 (Fed.Cir.1987).
(e) Damages
HT challenges the jury's damages award on the ground that it is excessive when compared to the royalty rates admitted into evidence at trial. According to HT's calculations, the jury's damages award amounts to an 8.75% royalty rate on infringing sales, whereas the evidence at trial provided for, at most, a 3% royalty rate. Judkins argues that the award is not excessive and is based on evidence of record.
While the court recognizes that the award exceed any royalty that would be due under the agreements admitted at trial, we do not find it to exceed the bounds of reasonableness, or to have no basis in fact. The evidence at trial showed that Judkins's licensing agreements often included an up front fee, followed by a percentage based on sales. The jury was free to account for these lump sum payments and for the fact that they and the percentages increased over the years. The award is not so devoid of evidentiary support or so excessive that the court is compelled to *493 strike it and substitute its own damages award.
In doing so, we take note of HT's complaint that the jury's initial verdict did not include a numerical value. However, we do not deem the jury's failure to initially determine an amount of damages to require intervention by the court. Upon being recharged, the jury returned a verdict with an amount of damages, and as discussed above, we do not find it so excessive that it indicates jury confusion.
We also take note of HT's argument that the damages award was tainted by the jury's incorrect assumption that a product could infringe a patent both literally and under the doctrine of equivalents. In short, HT argues that the jury erroneously doubled its damages award, awarding approximately $77,000 for literal infringement of the '120 Patent and approximately $77,000 for doctrine of equivalents infringement of the '120 Patent. The court cannot speculate as to the jury's reasoning for its damages award. There is no indication on the verdict slip that the jury intended to split its award in this way. Nor is there any other basis on which the court could find that the jury engaged in such double counting. Having deemed the award to be reasonable and in accord with the evidence, the court will not disturb it on this basis.
(f) Summary
HT has objected to this court's rulings, and the jury's verdict, on the issues of infringement, willfulness, invalidity, unenforceability, and damages.[3] The court has entered judgment as a matter of law as to literal infringement of the '634 Patent and as to infringement under the doctrine of equivalents of both patents. The jury's verdict on each of the remaining issues was supported by sufficient evidence and does not result in a miscarriage of justice. Therefore, there is no basis for the court to enter judgment as a matter of law, or to order a new trial on those remaining issues. Where the jury decided legal or discretionary issues, we have reexamined the record and find no basis on which to depart from the jury's verdict.
III. CONCLUSION
The court has resolved all pending post-trial motions. An appropriate order, including an order for a permanent injunction, follows.
ORDER
AND NOW, this 30th day of March, 2010, IT IS HEREBY ORDERED as follows:
Judkins's Motion for a Permanent Injunction [doc. no. 220] is GRANTED. An order for permanent injunction is filed in conjunction with this order;
HT's Motion to Strike Declarations [doc. no. 234] is GRANTED;
Judkins's Motion for Prejudgment Interest [doc. no. 224] is GRANTED. Judkins shall be awarded prejudgment interest in the amount of $14,195.68;
Judkins's Motion for Attorney Fees and Enhanced Damages [doc. no. 226] is DENIED;
Judkins's Motion for Reconsideration of Decision Under Rule 50 that Claims 1 and 24 of the '634 Patent are Invalid [doc. no. 227] is DENIED; and
HT's Motion for Judgment as a Matter of Law or for a New Trial [doc. no. 230] is GRANTED, in part. Judgment as a matter of law is entered that HT's Polaris brand double-celled honeycomb window *494 blind does not infringe the '120 Patent under the doctrine of equivalents. Judgement as a matter of law is also entered that HT's first generation Polaris brand single-celled honeycomb window blind does not infringe the '634 Patent, either literally or under the doctrine of equivalents.
MEMORANDUM
This is an action in patent infringement. We entered orders ruling on various post-trial motions and issuing a permanent injunction on March 31, 2010. Before the court are three motions filed by HT seeking relief from those orders: (1) motion for stay, or modification, of the permanent injunction [doc. no. 273]; (2) motion to vacate the permanent injunction [doc. no. 274]; and (3) motion to vacate finding of literal infringement [doc. no. 275]. For the reasons set forth below, we will modify the permanent injunction pending appeal pursuant to Federal Rule of Civil Procedure 62(c) to exclude the recall of double-celled products sold by HT on or prior to October 8, 2009. In all other respects the motions will be denied.
A detailed summary of the factual, technical, and procedural background of this case can be found in prior opinions of this court, and the Court of Appeals for the Federal Circuit, should the reader require such background. [doc. nos. 28, 55, 60, 109, 117, and 269].
I. Rule 62(c): Motion to Stay or Modify Permanent Injunction
HT moves, pursuant to Federal Rule of Civil Procedure 62(c) for an order staying enforcement of the permanent injunction pending appeal, or, alternatively, modifying the injunction pending appeal to exclude the recall provision. Rule 62(c) permits a district court to "suspend, modify, restore, or grant" an injunction while an appeal is pending. Fed.R.Civ.P. 62(c). For the reasons that follow, we will deny the motion to stay enforcement of the injunction, but will grant the motion to modify the injunction as to infringing products sold on or before October 8, 2009.
We will consider each form of relief requested by HT pursuant to Rule 62(c) separately below.
A. Motion to Stay Injunction
In determining whether to stay enforcement of a permanent injunction, we must consider the four factors set forth in Hilton v. Braunskill, 481 U.S. 770, 107 S. Ct. 2113, 95 L. Ed. 2d 724 (1987). These factors are: (1) a likelihood of success on the merits; (2) irreparable harm to HT absent a stay; (3) substantial injury to Judkins if a stay were issued; and (4) the public interest. Id. at 776-77. The Court of Appeals for the Federal Circuit has stated that the Hilton factors "effectively merge" such that a court ". . . assesses movant's chances for success on appeal and weighs the equities as they affect the parties and the public." Standard Havens Products, Inc. v. Gencor Industries, Inc., 897 F.2d 511, 513 (Fed.Cir.1990). Upon consideration of those factors, we find that a stay of the injunction pending appeal is not warranted in this case.
HT contends that it has a strong chance of prevailing on appeal because the permanent injunction was not warranted under eBay Inc. v. MercExchange, LLC, 547 U.S. 388, 126 S. Ct. 1837, 164 L. Ed. 2d 641 (2006) and because the jury's verdict of literal infringement of the '120 Patent was not supported by sufficient evidence. [doc. no. 277 at pp. 10-13]. However, other than stating its disagreement with the conclusions reached by the court and the jury, HT has provided no support for its position. We find that, under the standards of review that will be applied by the court of appeals, there is no basis on which to find that HT has a particularly strong chance of succeeding on appeal on either of its *495 arguments as to why this court should not have issued a permanent injunction.
We also find that an assessment of the respective interests of the parties and the public in immediate enforcement of the injunction weighs against ordering a stay. According to HT, the permanent injunction should be stayed because its immediate enforcement will cause it irreparable harm in the form of lost sales of non-infringing products, and erosion of its customer base. HT also claims that the injunction should be stayed pending appeal because Hunter Douglas has issued press releases misrepresenting the scope of the injunction. However, HT has offered insufficient evidence in support of these allegations of harm.
Mr. Miles's declaration statements that the inability to sell the infringing double-celled products "will most likely hurt HT's ability to sell single-cell products as well" and that "it is generally very difficult" to get a potential customer to buy products from HT if he forms a relationship with another supplier fall short of establishing irreparable harm to HT should the injunction be enforced pending appeal. Other than making these generalized and conclusory predictions, Mr. Miles provides no evidence of lost sales to date of non-infringing products or of lost potential customers due to an inability to offer double-celled products. Moreover, Mr. Miles fails to address the possibility of offering a replacement double-celled product, which appears to be a viable option for alleviating the asserted harms. The declaration, standing alone, does not support HT's claims that it will suffer immediate and irreparable harm were the injunction not stayed pending appeal.
Hunter Douglas's press release likewise does not support HT's allegations of harm to its sales of non-infringing products or erosion of its customer base. Although carefully crafted, the press release does not state that the injunction applies to single-celled products, nor otherwise misrepresent its scope. HT has provided no other evidence that Hunter Douglas, as Judkins's licensee, has been informing members of the industry that the injunction applies to HT's single-celled products.
The fact that HT must educate its customer base on the exact scope of the injunction does not equate to irreparable harm to HT by immediate enforcement of the injunction pending appeal. Moreover, as Judkins appropriately points out, any harm to HT is as a result of the risks it bore by selling products adjudicated to infringe Judkins's patent.
In comparison, were the injunction stayed pending appeal, Judkins would suffer substantial injury. Contrary to HT's allegations, the jury's verdict does not establish a royalty rate that should be applied to HT's post-trial sales of infringing product. As such, allowing HT to sell infringing product while the cross-appeals are pending before the Court of Appeals for the Federal Circuit would cause Judkins to suffer financial harms because there is no royalty rate to apply to future sales of the infringing product. It would also cause injury to Judkins's reputation and standing in the industry, as we have discussed previously, [doc. no. 269 at pp. 7-9]. We have already considered HT's position on the issue of harm to Judkins, and find nothing in HT's reiteration of its position now that would warrant a departure from our previous findings.
Finally, we are not convinced by HT's argument that the public interest would be harmed were the injunction not stayed pending appeal due to Hunter Douglas's dominant market position and patent misuse. HT has offered no evidence to support its allegations, and regardless, HT never made such allegations in this case against Judkins, nor sought to add any of *496 his licensees as parties. We again find that the public interest favors enforcing the injunction against the continued sale of infringing products.
In conclusion, the Hilton factors weigh against staying enforcement of the permanent injunction pending appeal.
B. Motion to Modify Injunction
In the alternative, HT contends that the recall provision should be excised from the permanent injunction, at least for those products sold on or prior to October 8, 2009. Although not explicitly recognizing this distinction, HT is seeking relief pursuant to Rule 62(c), and, as such, can only obtain a modification to the recall provision pending appeal. [doc. no. 273 at p. 2; doc. no. 277 at pp. 6-7]. HT weaves its modification request among its argument seeking a stay of the permanent injunction in its entirety, but the analysis is different. Upon applying the Hilton factors to this request for relief, we reach a different conclusion and find that it is appropriate to modify that portion of the permanent injunction order that requires HT to recall product that was sold on or prior to October 8, 2009, pending appeal. In all other respects, the recall provisions of the permanent injunction entered on March 31, 2010 shall remain unaltered and in effect pending appeal.
As to the first Hilton factor, we find that HT has a strong likelihood of succeeding on its appeal challenging the requirement of recalling product sold prior to October 9, 2009. The jury was instructed to award monetary damages, if appropriate, for sales beginning on February 27, 2007. The parties agree that the evidence submitted to the jury accounted for sales up to and including October 8, 2009, The jury awarded Judkins $154,776.04.
HT now contends that the jury's verdict compensated Judkins for all infringing sales occurring between February 27, 2007 and October 8, 2009, and also established a royalty rate of 8.75% for all future infringing sales. Therefore, according to HT, Judkins is not entitled to a recall of any products sold by HT to date. Instead, according to HT, Judkins is entitled to payment of the jury's damages award for all sales occurring prior to October 9, 2009, and to an additional award equal to 8.75% of any sales occurring after that date.
While we conclude that HT has a reasonable likelihood of succeeding on its argument that the jury's damages award compensated Judkins for all sales occurring prior to October 9, 2009, making a recall order as to those products unwarranted, we do not conclude that HT is likely to prevail on its argument that the jury set a royalty rate of 8.75% for all sales made by HT after that date.
HT has now provided the court with some legal authority in support of the general statement it made in opposition to Judkins's motion for a permanent injunction that ordering the recall of products for which the jury has already awarded damages would result in a double recovery. [compare doc. no. 232 at pp. 16-17 with doc. no. 277 at p. 6]. In the single case now cited by HT, the Court of Appeals for the Federal Circuit stated that "[h]aving been awarded full compensation for the making and using of existing infringing thickeners, therefore, Amstar is not entitled to enjoin their use." Amstar Corp. v. Envirotech Corp., 823 F.2d 1538, 1549 (Fed.Cir.1987).
The court has independently located cases in which various courts have applied this general principle to avoid double recovery problems caused by awarding both damages and injunctive relief as to the same infringing product. See e.g., Innogenetics, N.V. v. Abbott Laboratories, 512 F.3d 1363, 1380 (Fed.Cir.2008) (finding the entry of an injunction against future sales *497 to be an abuse of discretion where reasonable royalties awarded by jury included ". . . an upfront entry fee . . . based upon future sales . . ."); Aero Products Int'l, Inc. v. Intex Recreation Corp., 2004 WL 2091996, *1 (N.D.Ill. Sept.16, 2004) (". . . any injunction entered will not preclude the resale of infringing products for which Intex has already paid damages . . ."); Odetics, Inc. v. Storage Technology Corp., 14 F. Supp. 2d 785, 788-89 (E.D.Va.1998) ("Once the jury required STK to pay damages for the sale of these thirty systems, there arose an implied license as to them."); compare Transamerica Life Ins. Co. v. Lincoln Nat. Life Ins. Co., 625 F. Supp. 2d 702, 717-18 (N.D.Ia.2009) (distinguishing application of double recovery rule to products that infringe an apparatus claim from products that continue to infringe, through continued practice, a method claim), reversed on other grounds, Lincoln Nat. Life Ins. Co. v. Transamerica Life Ins. Co., 2010 WL 2509909 (Fed.Cir. Jun.23, 2010).
This authority provides HT with a fairly strong likelihood that it will succeed on appeal in challenging this court's permanent injunction to the extent it requires HT to recall product that was sold prior to October 9, 2009 because the jury awarded damages for these sales already. However, this authority does not provide HT with a reasonable likelihood of success in challenging the recall provisions of this court's permanent injunction as applied to product sold by HT after October 8, 2009 because the jury did not award damages for those sales, nor set a royalty rate for future sales. This authority also does not provide HT with a reasonable likelihood of success in challenging this court's order requiring the recall of marketing materials and sample books.
Our conclusion regarding the likelihood of success factor informs our consideration of the remaining Hilton factors. HT would suffer irreparable harm pending appeal if required to recall the products sold prior to October 9, 2009 for which it is already obligated to pay damages. Judkins would suffer no injury in not obtaining an immediate of products for which the jury has already awarded him damages. Finally, the public interest weighs in favor of not awarding double recovery to patent owners.
However, HT would not suffer irreparable harm pending appeal if required to recall product sold after October 8, 2009, and related marketing and sales materials pending appeal; infringements for which HT has not already compensated Judkins. Regardless, any harm that HT would suffer in this instance would be a result of HT's decision to take a high risk in continuing to sell potentially, and then, actually, infringing products. Judkins would suffer financial and reputational injuries, as previously discussed, if he were unable to obtain a recall of those products for which the jury has not already awarded damages. Finally, the public interest weighs in favor of protecting patent owners from further infringements, for which they have not been previously compensated.
In conclusion, we find that the Hilton factors weigh in favor of granting HT's request that we modify the injunction pending appeal to remove the requirement that HT recall product it sold prior to October 9, 2009,[1] However, HT must still recall those products sold after October 8, 2009, and all sales and marketing materials in accordance with the March 31st permanent injunction order, and this court's *498 April 26th order granting an extension of time. [doc. no. 279].
HT shall direct its customers, sales staff, and distributors to segregate product purchased from it prior to October 9, 2009 and store it in an appropriate location pending appeal of this matter before the Court of Appeals for the Federal Circuit. HT shall direct its customers, sales staff, and distributors to return to it all product sold to them by HT after October 8, 2009. If the customer, sales agent, or distributor is unable to determine when it obtained particular product from HT, HT shall direct them to presume that the product was acquired after October 8, 2009 and return to it to HT. HT shall direct its customers, sales staff, and distributors to return all brochures, catalogues, price books, samples, and other materials in accordance with the March 31, 2010 permanent injunction order.
II. Rule 60(b): Motions to Vacate
HT also moves, pursuant to Federal Rule of Civil Procedure 60(b), for an order vacating the permanent injunction on the ground that Judkins cannot obtain equitable relief because he comes to court with unclean hands and on the ground that the jury's verdict of literal infringement was not supported by sufficient evidence. We find that HT is not entitled to relief on either basis.
As an initial matter, although neither party raises the issue, we must address the current procedural posture of these motions in light of the fact that both HT and Judkins have filed notices of appeal. The court entered its order disposing of post-trial motions and entering a permanent injunction on March 31, 2010. HT filed motions seeking relief under Federal Rule of Civil Procedure 60 on April 23, 2010. HT then filed its notice of appeal five days later on April 28, 2010. Judkins filed his notice of appeal on May 11, 2010. Under Federal Rules of Appellate Procedure 4(a)(4)(A)(vi) and 4(a)(4)(B)(i) these notices of appeal may not yet be effective.[2] If the notices of appeal are not yet effective, then this court has jurisdiction to rule on the pending Rule 60(b) motions.
If, however, the notices of appeal are effective, then this court can only deny the Rule 60(b) motions. Typically the filing of a notice of appeal automatically transfers jurisdiction from the district court to the appellate court. Main Line Fed. Savs. & Loan Assoc. v. Tri-Kell, Inc., 721 F.2d 904, 906 (3d Cir.1983); Venen v. Sweet, 758 F.2d 117, 120 (3d Cir.1985). However, in the case of a motion filed under Rule 60(b), the district court retains jurisdiction to consider and deny, but not grant, the motion. Fed.R.Civ.P. 62.1(a)(2); United States v. Contents of Accounts Numbers XXXXXXXXXX and XXX-XXXXX at Merrill Lynch, Pierce, Fenner and Smith, Inc., 971 F.2d 974, 988 (3d Cir.1992) (quoting Main Line); Venen, 758 F.2d at 123; Sea Star Line, LLC v. Emerald Equipment Leasing, Inc., 2009 WL 3805569, *4 (D.Del. Nov.12, 2009); see Ginsburg v. Birenbaum, 2008 WL 2073975 at *1-2 & n. 3 (W.D.Pa. May 14, 2008) (collecting cases). Because we find no basis on which we would grant HT the relief it requests, we can consider and deny both motions.
"The general purpose of Rule 60, which provides for relief from judgments for various reasons, is to strike a proper balance between the conflicting principles that litigation must be brought to an end and that justice must be done." Boughner v. Sec'y of Health, Educ. & Welfare, 572 F.2d 976, 977 (3d Cir.1978). The Court of Appeals for the Third Circuit "view[s] *499 Rule 60(b) motions as `extraordinary relief which should be granted only where extraordinary justifying circumstances are present.'" Bohus v. Beloff, 950 F.2d 919, 930 (3d Cir.1991) (quoting Plisco v. Union R.R. Co., 379 F.2d 15, 16 (3d Cir.1967)); see also Boughner, 572 F.2d at 977 ("[R]elief from a judgment under Rule 60 should be granted only in exceptional circumstances"). Thus, "[t]he movant under Rule 60(b) bears a heavy burden. . . ." Bohus, 950 F.2d at 930 (internal quotations marks and citations omitted).
Here, HT seeks to vacate the court's entry of a permanent injunction because Judkins had unclean hands and to vacate the jury's finding of literal infringement because it was not supported by sufficient evidence. We addressed the latter argument in post-trial motions and need not address it in detail again. Putting aside any analysis of the jury instructions, our claim construction itself accounted for the single sheet of material limitation. As we found in post-trial motions, the jury had sufficient evidence on which to base its finding of literal infringement.
As for the former argument, HT did not oppose entry of the injunction on the ground that Judkins had unclean hands, and to that extent has waived the argument. To the extent HT bases its unclean hands argument on statements made by this court in its March 31, 2010 opinion, nothing therein holds that Judkins is ineligible for equitable relief. This is evidenced by the fact that, in that opinion, we concluded that Judkins did not engage in inequitable conduct and granted Judkins equitable relief.
In conclusion, there is no basis on which this court would grant HT any relief under Rule 60(b), and therefore we deny the motions, regardless of any questions surrounding our authority to grant them due to the pending appeals. Fed.R.Civ.P. 62.1(a)(2).
III. Conclusion
For the foregoing reasons, we grant HT's request that we modify the recall provision of the permanent injunction pending appeal as to products sold prior to October 9, 2009. In all other respects we deny HT's motions.
An appropriate order will be entered contemporaneously with this opinion.
ORDER
AND NOW, this 8th day of July, 2010, IT IS HEREBY ORDERED as follows:
HT's Motion to Stay or Modify the Permanent Injunction Pending Appeal [doc. no. 273] is GRANTED, in part, in accordance with the opinion filed contemporaneously herewith;
HT's Motion to Vacate Permanent Injunction [doc. no. 274] is DENIED; and
HT's Motion to Vacate Finding of Literal Infringement [doc. no. 275] is DENIED.
NOTES
[1] HT, in a footnote to its opposition brief, objects to the relevancy of the Nien Made license agreement [doc. no. 232 at 8 n. 2]. At trial, we admitted royalty rates from that license into evidence [PX 159]. In doing so, we sustained HT's objection that it was improper to admit into evidence many of the agreement's other financial terms, in particular a $1 million lump sum payment, because those terms were related to machinery only [doc. nos. 253 at 50-51, 254 at 18-21]. At trial, HT originally argued that the Nien Made agreement was not relevant because the patents in suit were not listed among the Licensed Patents when the agreement was originally signed in 2003. However, HT ultimately acquiesced to Judkins showing the jury the royalty structures from the original June 9, 2003 agreement and the August 26, 2005 amendment provided the remainder of the agreement was not entered into evidence; which is exactly how the court proceeded [Id.]. Given that the royalty structures from the original agreement and amendment were entered into evidence, in the manner requested by HT, we will not revisit the relevance of the Nien Made licensing agreement at this stage of the proceedings.
[2] Mr. Judkins's testimony on November 10, 2009, to which Judkins cites in support of the jury's doctrine of equivalents infringement verdict, was actually directed to literal infringement. As such, that testimony cannot support the jury's verdict on infringement under the doctrine of equivalents.
[3] As noted above, any internal inconsistencies in the jury's verdicts on infringement have been removed by virtue of this court's entry of judgment as a matter law in HT's favor on the issue of doctrine of equivalents infringement.
[1] In order to obtain this modification, HT must either pay the $154,776.04 judgment, or seek relief pursuant to Federal Rule of Civil Procedure 62(d). Should HT chose to do neither, our modification of the injunction pending appeal shall be ineffective.
[2] However, we note that the appeals have been docketed at the Court of Appeals for the Federal Circuit, and a deadline for HT's "blue brief" has been set. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2413343/ | 192 F. Supp. 2d 641 (2002)
Clarence REED; and Lorine Buxton Plaintiffs
v.
AMERICAN GENERAL LIFE & ACCIDENT INSURANCE COMPANY; Richard W. Hill; Clyde Nix; John Oden; and Jerry Satcher; et al. Defendants
No. 4:01CV314-D-B.
United States District Court, N.D. Mississippi, Greenville Division.
February 25, 2002.
*642 *643 Precious Tyrone Martin, Byrd & Associates, Jackson, MS, for Clarence, Reed, Lorine Buxton, Frank Blunton, plaintiffs.
Robert M. Frey, Butler, Snow, O'Mara, Stevens & Cannada, Jackson, MS, for American General Life and Accident Insurance Company, Inc., defendant.
OPINION GRANTING MOTION TO REMAND
DAVIDSON, Chief Judge.
Presently before the court is the Plaintiffs' motion to remand this matter to the Circuit Court of Humphreys County, Mississippi. Upon due consideration, the court finds that the motion should be granted and this cause remanded to state court for ultimate resolution.
A. Factual Background
The Plaintiffs in this action are individuals who purchased various types of life and hospitalization insurance policies from the Defendant American General Life & Accident Insurance Company (American General) between 1969 and 1986.
The Plaintiffs filed suit in the Circuit Court of Humphreys County, Mississippi, on February 1, 2001, alleging that American General, as well as the four individual Defendant agentsRichard W. Hill, Clyde *644 Nix, John Oden and Jerry Satcherengaged in conduct that renders them liable under various Mississippi state law causes of action, including fraudulent misrepresentation and fraudulent concealment. The Defendants removed the action to this court on April 12, 2001, pursuant to 28 U.S.C. §§ 1332 and 1441, on the basis of diversity jurisdiction. Thereafter, on May 8, 2001, the Plaintiffs motioned the court to remand this matter to state court.
The court granted the Plaintiffs' motion on August 15, 2001, and this case was remanded. On December 20, 2001, the Defendants once again removed the case to this court, again asserting diversity of citizenship as the jurisdictional basis for removal. On January 11, 2002, the Plaintiffs motioned the court to remand this matter to the Circuit Court of Humphreys County.
B. Standard for Remand
The Judiciary Act of 1789 provides that "any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending." 28 U.S.C. § 1441(a). After removal of the case, the plaintiff may move for remand, and "[if] it appears that the district court lacks subject matter jurisdiction, the case shall be remanded." See 28 U.S.C. § 1447(c).
Original federal diversity jurisdiction exists "where the matter in controversy exceeds the sum or value of $75,000.00, exclusive of interest and costs, and is between ... citizens of different States." 28 U.S.C. § 1332(a); Sid Richardson Carbon & Gasoline Co. v. Interenergy Res., Ltd., 99 F.3d 746, 751 (5th Cir.1996). In this case, there is no dispute that the amount in controversy exceeds $75,000.00. The Plaintiffs, however, assert that the court does not possess diversity jurisdiction because this action is not between citizens of different states, as is required by 28 U.S.C. § 1332.
The Plaintiffs and the four individual Defendants are resident citizens of Mississippi. This fact, however, will not destroy federal diversity jurisdiction if the Plaintiffs fraudulently joined all of the individual Defendants in order to defeat diversity. Rodriguez v. Sabatino, 120 F.3d 589, 591 (5th Cir.1997). But, if the court finds that any one of the in-state individual Defendants has not been fraudulently joined, then federal diversity jurisdiction is lacking, and the court must remand this matter to state court. See Whalen v. Carter, 954 F.2d 1087, 1094 (5th Cir.1992) (federal diversity jurisdiction exists only if no plaintiff is a citizen of the same state as any defendant); Wright v. Combined Ins. Co. of America, 959 F. Supp. 356, 361 (N.D.Miss.1997).
The party alleging fraudulent joinder bears the burden of persuasion, and that burden is quite stringent. See Hart v. Bayer Corp., 199 F.3d 239, 246 (5th Cir.2000) ("The burden of persuasion placed upon those who cry `fraudulent joinder' is indeed a heavy one."). In order to prove that a non-diverse party has been fraudulently joined by a plaintiff hoping to defeat diversity, the removing party must demonstrate either "outright fraud in the plaintiff's recitation of jurisdictional facts," or that there is "absolutely no possibility that the plaintiff will be able to establish a cause of action against the in-state defendant[s] in state court." Hart, 199 F.3d at 246.
The Defendants here do not allege outright fraud, so the court must determine whether there is absolutely no possibility that the Plaintiffs will be able to establish a cause of action against any of *645 the individual Defendants in state court. In making this determination, the court evaluates all of the factual allegations in the Plaintiffs' state court pleadings in the light most favorable to the Plaintiffs, and the court examines relevant state law and resolves all uncertainties in favor of the Plaintiffs. Hart, 199 F.3d at 246.
Further, in evaluating a claim of fraudulent joinder, the court does not focus on whether the Plaintiffs will prevail on the merits of their claims. Instead, the court determines whether there is a possibility that the Plaintiffs will be able to state a claim against any of the allegedly fraudulently joined individual Defendants. Rodriguez, 120 F.3d at 591; see also B., Inc. v. Miller Brewing Co., 663 F.2d 545, 550 (5th Cir.1981) (holding that, to successfully move for remand, plaintiff's burden is "much lighter" than that required to survive motion for summary judgment; instead, there need only be "a reasonable basis for predicting that the state law might impose liability on the facts involved" in order for case to be remanded).
As set forth below, the court finds that the Defendants have not established that there is no possibility that the Plaintiffs will be able to state a claim against the individual Defendant Richard W. Hill. Accordingly, federal jurisdiction is not present, and this cause shall be remanded to state court pursuant to 28 U.S.C. § 1447(c).
C. Discussion
Whether a case states a cognizable claim against a defendant is determined by reference to the allegations made in the plaintiff's original pleadings, although the court may "pierce" those pleadings in making its determination. B, Inc., 663 F.2d at 549; Wheeler v. Frito-Lay, Inc., 743 F. Supp. 483, 485 (S.D.Miss.1990). In the case at bar, the Plaintiffs allege, inter alia, that the individual Defendants committed fraud in connection with their handling of the Plaintiffs' insurance policies.
Under Mississippi law, an agent for a disclosed principal can be held personally liable for his own tortious acts committed within the scope of his employment, and a tort claim can be maintained against that agent. Hart, 199 F.3d at 247. The agent is subject to personal liability when he "directly participates in or authorizes the commission of a tort." Hart, 199 F.3d at 247 (quoting Mississippi Printing Co., Inc. v. Maris, West & Baker, Inc., 492 So. 2d 977, 978 (Miss.1986)).
As has been previously stated, the Plaintiffs have alleged that the Defendant Richard W. Hill, as an agent of American General, directly participated in the commission of at least one tort, fraud, while within the scope of his employment. See Complaint pp. 5, para. 22-24.
The Defendants assert, however, that the Plaintiffs' claims against Hill are barred by: (i) the applicable statute of limitations, found at Section 15-1-49 of the Mississippi Code, which requires actions such as this to be commenced within three years after the causes of action accrue; (ii) the doctrine of accord and satisfaction; and (iii) the fact that Hill has not yet been served with service of process.
1. Statute of Limitations
In support of their argument regarding the statute of limitations, the Defendants point out that the policy sold by Hill was purchased more than three years prior to the filing of this suit, and that under Mississippi law, a cause of action for fraud or misrepresentation accrues upon completion of the sale induced by the false representations or upon consummation of the fraud or misrepresentation. Dunn v. Dent, 169 Miss. 574, 153 So. 798, 798-99 (1934).
In response, the Plaintiffs cite Section 15-1-67 of the Mississippi Code, which *646 tolls the statute of limitations in cases of fraudulent concealment. Specifically, it provides that
If a person liable to any personal action shall fraudulently conceal the cause of action from the knowledge of the person entitled thereto, the cause of action shall be deemed to have first accrued at, and not before, the time at which such fraud shall be, or with reasonable diligence might have been first known or discovered.
Miss.Code Ann. § 15-1-67 (1972).
In order to invoke Section 15-1-67, the Plaintiffs must allege that Hill engaged in an affirmative act of concealment, so as to prevent the Plaintiffs from discovering their claims against him. Reich v. Jesco, Inc., 526 So. 2d 550, 552 (Miss.1988). The Defendants assert that the Plaintiffs have not adequately alleged that Hill took affirmative acts of concealment, subsequent to the sale of the Plaintiffs' insurance policies, that prevented the Plaintiffs from discovering their claims against him.
The court finds, however, that the Plaintiffs have sufficiently alleged, in paragraphs 57 and 58 of their Complaint, that Hill engaged in affirmative acts of concealment that prevented the Plaintiffs from discovering this cause of action until such time as to render the filing of this suit untimely. See, e.g., Phillips v. New England Mut. Life Ins. Co., 36 F. Supp. 2d 345, 349-350 (S.D.Miss.1998) (similar allegations of fraudulent concealment by individual agent deemed sufficient to potentially toll statute of limitations). In other words, the court finds that the Plaintiffs have alleged specific facts that, if proven, make it reasonably possible for the state court to toll the statute of limitations pursuant to Section 15-1-67.
But the Defendants, in seeking to remove this case, cite deposition testimony by the Plaintiff Clarence Reed that purportedly establishes that Reed has abandoned his allegations that the Defendant Hill engaged in affirmative acts of fraudulent concealment. Thus, argues the Defendants, the Plaintiffs have fraudulently joined Hill as a defendant in this cause.
The court finds that the deposition testimony at issue, cited below, in no way indicates that the Plaintiffs have abandoned their allegations, contained in paragraphs 57 and 58 of the Complaint, that the Defendants engaged in affirmative acts of concealment that prevented the Plaintiffs from discovering this cause of action until such time as to render the filing of this suit untimely. In the deposition testimony at issue, the parties state:
Q. Tell me, sir, in your own words, who you are suing and why you are suing them?
A. Alright. I am suing American General Insurance; and the reason that I am suing them is because I was told that after 20 years my policy would be paid up, and it is not paid up. I found out later that it wasn't paid up. And I didn't know that the agent would lie to me like that, telling me one thing and it's going to be another.
Q. Alright, you have got some sort of insurance policy from American General, right?
A. Right.
Q. Is that a life policy?
A. Life policy.
Q. And it was your understanding, based on what the agent told you back when he sold it, that after 20 years it would be paid off?
A. Right.
Q. In other words, you wouldn't have to pay any more premiums.
A. Right.
Q. And it would continue in force even though you weren't paying more premiums.
*647 A. Right.
Q. Okay. And at some point you found out that it's not paid up; is that right?
A. That's right.
Q. And your lawsuit is the company ought to do what the agent said.
A. Yes.
Q. Okay. Have I got that straight?
A. Yeah, that's right.
Q. Okay. Anything else to add to that?
A. No.
Q. Okay. Let's go over the details of that. First of all, who is the agent?
A. The agent was Richard Hill at that time.
See Reed Deposition at 12-13.
Despite the Defendants' assertions to the contrary, the court finds that the Plaintiff Reed's statements in the above colloquy in no way indicate his intention to abandon his allegations of fraudulent concealment, which are specifically set forth in paragraphs 57 and 58 of the Plaintiffs' Complaint. Accordingly, the court finds that the Defendants' assertion of the statute of limitations as a ground for fraudulent joinder is without merit.
2. Accord and Satisfaction
The Defendants next assert that any claims the Plaintiff Reed may have against Hill are barred by the doctrine of accord and satisfaction. For the following reasons, the court disagrees.
An accord and satisfaction is "[a] method of discharging a claim whereby the parties agree to give and accept something in settlement of the claim and perform the agreement, the `accord' being the agreement and the `satisfaction' its execution or performance, and it is a new contract substituted for an old contract which is thereby discharged, or for an obligation or cause of action which is settled, and must have all of the elements of a valid contract." See Black's Law Dictionary 17 (6th ed.1990). In Mississippi, the elements of a valid accord and satisfaction are:
(1) Something of value offered in full satisfaction of demand;
(2) Accompanied by acts and declaration as amount to a condition that if the thing offered is accepted, it is accepted in satisfaction;
(3) The party offered the thing of value is bound to understand that if he takes it, he takes subject to such conditions; and
(4) The party actually does accept the item.
Austin v. Padgett, 678 So. 2d 1002, 1003 (Miss.1996); Cooper & Rock v. Yazoo & Mississippi Valley R.R. Co., 82 Miss. 634, 35 So. 162, 163 (1903).
Here, the Defendants have failed to establish that a valid accord and satisfaction took place between the Defendants and the Plaintiff Reed. The Defendants allege that Reed and an American General agent met in 1999, prior to the filing of this lawsuit, and discussed some of Reed's concerns. The Defendants do not even allege, however, that Reed understood that anything of value he accepted during the 1999 meetings would be accepted in satisfaction of any subsequent claim he might pursue against the Defendants. This is one of the elements of a valid accord and satisfaction, and has indisputably not been satisfied. Accordingly, the Defendants' assertion that the doctrine of accord and satisfaction bars the Plaintiffs' claims against Hill is without merit.
3. Service of Process
Finally, the Defendants assert that because Hill has not yet been served with process, he has been fraudulently joined. Both the Federal and the Mississippi Rules of Civil Procedure impose a 120 day deadline for the service of process on each defendant. See Fed.R.Civ.P. 4(m); Miss. *648 R. Civ. P. 4(h). Failure to do so, unless good cause can be shown, can result in a plaintiff's claims against the non-served defendants being dismissed without prejudice. Id.
Here, the Plaintiffs assert that good cause can be shown for their failure to serve Hill, and they have set forth the specific circumstances that they claim constitutes good cause. Accordingly, the court finds that, upon remand, the state court should determine whether the Plaintiffs' assertions of good cause are sufficient to warrant an extension of time in order to properly serve Hill with process. This asserted ground for fraudulent joinder, therefore, is without merit.
D. Conclusion
Accordingly, the court finds that the scenario set forth in the Plaintiffs' pleadings, if true, could possibly result in liability being imposed on Hill for his alleged tortious acts. See, e.g., Bank of Shaw v. Posey, 573 So. 2d 1355, 1361-62 (Miss.1990) (setting forth elements of fraud under Mississippi law). The Plaintiff has sufficiently set forth allegations, in paragraphs 22 through 24 of the Complaint, demonstrating that Hill may have participated in the commission of at least one tort, fraud. As such, Hill faces potential liability for his actions, and the court finds that the Defendants have not demonstrated that there is absolutely no possibility that the Plaintiffs will be able to establish a cause of action against Hill in state court.
Accordingly, Hill's citizenship cannot be ignored for the purposes of determining subject matter jurisdiction. His presence in this civil action means that the complete diversity of citizenship necessary to maintain federal jurisdiction over this case is absent. As such, this cause shall be remanded to the Circuit Court of Humphreys County for ultimate resolution.
A separate order in accordance with this opinion shall issue this day.
ORDER GRANTING MOTION TO REMAND
Pursuant to an opinion issued this day, it is hereby ORDERED that
(1) the Plaintiffs' motion to remand (docket entry 4) is GRANTED;
(2) the Plaintiffs' motion to expedite (docket entry 5) is DENIED AS MOOT; and
(3) this cause is hereby REMANDED to the Circuit Court of Humphreys County, Mississippi. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2413237/ | 243 F.Supp.2d 321 (2003)
Sharon Taylor BROWN, Plaintiff,
v.
CONTINENTAL CASUALTY COMPANY, Defendant.
No. 99-6124.
United States District Court, E.D. Pennsylvania.
February 11, 2003.
Carl N. Martin, II, Philadelphia, PA, for Plaintiff. *322 June A. Taima, Christie, Pabarue, Mortensen and Young, Richard S. Margulies, Philadelphia, PA, for Defendant.
OPINION
POLLAK, Judge.
Pending before this court are cross-motions for summary judgment filed by plaintiff Sharon Taylor-Brown and defendant Continental Casualty Company (the latter is a member of the CNA insurance group, and hereinafter will be referred to as "CNA"). The underlying claim, based on the Employee Retirement Income Security Act ("ERISA"), is that Ms. Taylor-Brown is suffering from "total disability" under the terms of a CNA insurance policya policy which was part of her benefits package as an employee of the Vanguard Group ("Vanguard")and so is entitled to receive monthly payments. Because this court finds that there are issues of fact with regard to Ms. Taylor-Brown's coverage under the policy, both summary judgment motions will be denied.
Ms. Taylor-Brown's policy
The policy under which Ms. Taylor-Brown seeks recompense commits CNA to "pay the Monthly Benefit for each month of Total Disability which continues after [180 days[1]]." Under the Long-Term Disability ("LTD") policy, "`Total Disability' means that because of Injury or Sickness, the Insured Employee is: (1) continuously unable to engage in any occupation for which [s]he is or becomes qualified by education, training or experience; and (2) under the regular care of a licensed physician other than [herself]."
References to how exactly one proves "total disability" are scarce indeed within the policy. One provision states: "Written notice of claim must be given to Us within 30 days after the loss begins or as soon as reasonably possible." Another states: "Written proof of loss must be furnished to Us within 90 days after the end of the period for which We are liable." As for CNA's method of verifying claims, the policy confers on the insurer "the right to have a physician examine the Insured Employee as often as reasonably necessary while the claim is pending."
Factual and procedural background
Ms. Taylor-Brown was an employee of Vanguard on September 6, 1996, the date she alleges she became unable to work. Initially, Ms. Taylor-Brown's incapacity was attributed to pneumonia and hypothyroidism; later, she was diagnosed with a condition known as fibromyalgia. In light of her medical condition, Ms. Taylor-Brown applied, pursuant to a Short-Term Disability ("STD") policy provided by Vanguard,[2] for disability benefits, and started receiving payments on or about September 16, 1996. The following list of events summarizes the various benefits determinations made by CNA, which culminated in the ultimate decision in March of 1999 to cease paying LTD benefits: (1) CNA, which administered the STD program, decided that Ms. Taylor-Brown was no longer eligible for benefits as of January 31, 1997. *323 CNA informed Ms. Taylor-Brown of this decision by letter of March 5, 1997.
(2) Ms. Taylor-Brown appealed the termination of the STD benefits. Her initial appeal was denied on June 12, 1997. However, on October 15, 1997, CNA, upon reconsidering its decision, granted Ms. Taylor-Brown retroactive benefits for the time period spanning April 9, 1997 to May 20, 1997 (the STD coverage ended by its terms on the latter date).
(3) CNA, on November 5, 1997, approved the payment of LTD benefits prospectively; in addition, Ms. Taylor-Brown received LTD payments for the time period spanning back to May 21, 1997 (the day after the STD benefits ended).
(4) By letter of March 26, 1999, CNA informed Ms. Taylor-Brown that it would terminate her LTD benefits on May 31,1999.
CNA explained that it would terminate the LTD benefits because it could "not identify sufficient significant medical and/or clinical findings to support your total disability or meet the criteria for impairment." The March 26, 1999 letter informing Ms. Taylor-Brown of the termination of her benefits went on to define the requisite medical evidence:
Medical evidence means medical signs and findings, established by medically acceptable diagnostic techniques, which show the existence of a medical impairment that results from anatomical or physiological abnormalities which could reasonably be expected to produce the alleged symptoms. Subjective complaints shall not alone be conclusive evidence of disability.
The medical evidence
CNA's insistence that the "medical evidence" required to establish disability constitute more than "subjective complaints," while not mentioned in the policy itself, had been voiced to Ms. Taylor-Brown previous to her receipt of the March 1999 benefits-termination letter. When CNA first learned of the diagnosis of fibromyalgia in November of 1996, Ms. Taylor-Brown was advised that she would receive "no further [STD] benefits without objective findings." Soon thereafter, CNA chose to terminate the STD payments. CNA advised by letter of March 5, 1997:
In order for us to determine if you are totally disabled, your doctors must be able to provide medical evidence of a physically disabling impairment that would prevent you from performing the substantial and material duties of your regular occupation.
As noted above, Ms. Taylor-Brown appealed the termination of her STD benefits to a CNA "Appeals Committee." The appeal was initially denied, and a June 12, 1997 letter from CNA to Ms. Taylor-Brown's attorney reported that the following medical records had been reviewed in reaching that decision:
Dr. Michael Warner, records of September 9, 1996September 26, 1996; Dr. Robert Promisloff, report of September 17, 1996; Dr. Lawrence Katin, report of September 5, 1996; Dr. Ronald Krauser, reports dated November 11, 1996May 1, 1997; Dr. Arnold Levinson, records dated September 26, 1996November 11, 1996; Bryn Mawr Rehab/Dr. John J. Kraus, records of January 21, 1997 March 17, 1997; Dr. June M. Fry, report dated May 6, 1997; and Dr. Sandra C. Gilmour, report dated March 24, 1997.
Vanguard's benefits manager, after learning of the benefits decision, wrote to CNA, informing the insurers that Ms. Taylor-Brown had recently been examined by Dr. Lawrence Leventhal, the Associate *324 Chief in the Graduate Hospital's Division of Rheumatology, who "feels that Ms. Brown is unable to work." The Appeals Committee "re-reviewed" Ms. Taylor-Brown's file along with certain additional medical documentation:
Dr. June M. Fry, reports dated May 7, 1997August 14, 1997; Dr. Sandra C. Gilmour, report dated August 7, 1997; Dr. Ronald E. Krauser, report of July 30, 1997; and Dr. Lawrence J. Leventhal, report of September 4, 1997.
CNA commissioned Dr. Albert Ziffer to conduct an independent review of Ms. Taylor-Brown's file. Dr. Ziffer wrote in his resultant report:
It was not until 4-9-97, with the visit to Dr. Krauser, that all the physicians began to make a clear case that the claimant was unable to return to her job. Since that time, multiple physicians, all specialists, have verified Ms. Brown's inability to do any type of work. There [sic] basis is only subjective symptoms of sleep deprivation and pain, as described by the claimant, and finding of tender FM points. I believe that the opinion of these specialists must be accepted for the period commencing 4-9-97.
Despite his conclusion that Ms. Taylor-Brown should be considered totally disabled, Dr. Ziffer listed "certain problems with this claimant's evaluations." He also observed that while many specialists had found the claimant unable to work, they all placed a temporal limitation on their prognoses by stating that she could not work "at this time." Dr. Ziffer also added a caveat to his conclusion: "[I]f it can be determined that Ms. Brown has continued to drive and do her [activities of daily living], then I would alter my opinion to state instead that she has been able to do her job all along."
By letter of October 15, 1997, Cheryl Sauerhoff of the CNA Appeals Committee informed Ms. Taylor-Brown that her STD benefits would be reinstated retroactive to April 9, 1997. The letter explained the shift in position as follows:
We have requested an independent review of your file by a Medical Consultant which had rendered the opinion that the medical records prior to April 9, 1997 did not provide substantive objective evidence of any condition or functional impairment that would have prevented you from performing the duties of your sedentary occupation. As of April 9, 1997 the medical documentation consistently supported the severity of your condition that verified your inability to do any type of work. Multiple specialists concluded that the subjective symptoms of sleep deprivation, pain and tender fibromyalgia trigger points clearly substantiated the severity of your condition as of April 9, 1997.
On November 5, 1997, soon after granting the retroactive STD benefits, CNA granted LTD benefits retroactive to May 21, 1997, and also expressed its intention to make payments prospectively. The LTD payments continued for some time, but a Dr. Eugene Truchelut, after reviewing the case for CNA in early 1999, reported that he did "not see any evidence of functional limitations that would preclude [Ms. Taylor-Brown] from performing her sedentary job based on the available current information." Dr. Truchelet based his conclusions largely on his interpretation of a Functional Capacities Evaluation ("FCE") conducted on Ms. Taylor-Brown in November of 1998, and stated that "there is insufficient medical evidence to assess her current physical status, other than the FCE.... There are no reports from her treating physicians describing physical examinations or results of other studies for nearly 18 months. The previous examinations were all fairly benign, but her physicians insisted that she was in a fully disabled status...." Soon after Dr. *325 Truchelet informed CNA of his assessment, Ms. Taylor-Brown was informed, by letter of March 26, 1999, that she no longer qualified for LTD benefits.
When the plaintiffs principal treating rheumatologist, Dr. Krauser, heard of the benefits cancellation, he wrote CNA to "state categorically that [he] disagree[d] with the findings summarized in [the letter of cancellation]." Specifically, he criticized CNA for failing to seek the counsel of a rheumatologist in evaluating the case. Dr. Leventhal (a rheumatologist) wrote separately to opine that "[FCEs] are of little value in chronic musculoskeletal pain syndromes" because Ms. Taylor-Brown's condition is not one "that gives her weakness but one in which she has pain," which may not be measured objectively. Nonetheless, Dr. Leventhal pointed to two objective findings supporting a disability diagnosis: (1) "marked paracervical and paralumbar spasm with loss of the cervical and lumbar lordosis" and (2) "classic fibromyalgia tender points."
Ms. Taylor-Brown appealed the latest termination of benefits to the Appeals Committee; the appeal was rejected by letter of August 27,1999.
While pursuing her action against CNA, Ms. Taylor-Brown applied for Social Security benefits. As part of her application process, she was examined on March 7, 2000 by Dr. Francis X. Burke, III, who concluded that "it would be very difficult for Mrs. Brown to perform any work activities at this time. I believe that her overriding depression and associated labile affect would make it difficult for her to be put in a work environment. Her chronic fatigue, polyarthralgias, [and] myalgias would restrict her from performing anything but light work with limited lifting and bending." The Social Security Administration ("SSA"), apparently after considering Dr. Burke's report, denied Ms. Taylor-Brown's application, opining that she was capable of returning to previous employment as a restaurant managera position CNA suggests is more strenuous than the plaintiffs previous position at Vanguard.[3]
Standard of review
As a general rule, a reviewing court applies a de novo standard of review to a plan administrator's denial of ERISA benefits. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989). However, when the plan grants discretionary authority to the administrator to determine eligibility for benefits, the reviewing court must confine its inquiry to determining whether a denial of benefits is "arbitrary and capricious." Orvosh v. Program of Group Ins. for Salaried Employees of Volkswagen of Am., 222 F.3d 123, 129 (3d Cir.2000). In the case at bar, CNA and Ms. Taylor-Brown have stipulated that de novo review is appropriate. The stipulation seems a reasonable one: there is no language in the policy specifically granting discretionary authority to CNAthe policy requires "written proof of loss," but does not specify that CNA is to be the sole arbiter of the sufficiency of that proof.[4] Pursuant to the *326 stipulation, this court will review CNA's decision to deny Ms. Taylor-Brown's disability benefits de novo.
Scope of materials considered by the court
CNA suggests that, in deciding this case, the scope of the court's review should be limited to those materials considered by CNA in reaching its coverage decision. However, it is the law of this circuit that "a district court exercising de novo review over an ERISA determination between beneficiary claimants is not limited to the evidence before the Fund's Administrator." Luby v. Teamsters Health, Welfare & Pension Trust Funds, 944 F.2d 1176, 1184-85 (3d Cir.1991). As explained below, the CNA claims file does not definitively establish either disability or non disability. Therefore, this court will look beyond the file to address the pending cross-motions.
Plaintiffs motion for summary judgment
One of CNA's actions of which Ms. Taylor-Brown complains is the company's reaction to its own reviewing physician's report. Dr. Truchelut, in 1999, found "insufficient medical evidence to assess [Ms. Taylor-Brown's] current physical status, other than the FCE." Ms. Taylor-Brown argues that at that point, CNA, rather than seeking further medical evidence, inappropriately jumped to the conclusion that plaintiff did not suffer from total disability. A more appropriate reaction to Dr. Truchelut's report, plaintiff suggests, would have been to ask the treating physicians *327 to update their previous reports. A further alleged shortcoming of CNA's review process was its failure to enlist the assistance of a rheumatologist to review the file (Dr. Truchelut is an internist).
Ms. Taylor-Brown's displeasure with CNA is not limited to the insurer's evaluation of the evidence available. She notes also that the standard of disability applied in her case appears nowhere in the policy. Rather, the requirement of objective medical evidence was set forth only in correspondence related to Ms. Taylor-Brown's claim. Further, according to the plaintiffs submission, CNA has impermissibly required Ms. Taylor-Brown to "provide clinical evidence of the etiology of the `condition' that renders [her] disabled," Mitchell v. Eastman Kodak Co., 113 F.3d 433, 443 (3d Cir.1997).
The argument that CNA has required a greater showing of disability than is required by the language of its policy is not without force. From this court's reading, no language in the policy itself demands "objective" proof of disablement. That the policy calls for something more than a treating doctor's conclusions on examination appears to be a proposition advanced only after Ms. Taylor-Brown filed her claim. To be sure, CNA (or any other insurer) must be given the opportunity to verify claims presented to it. However, there is no basis in the policy for CNA to claim that Ms. Taylor-Brown's claims have an inadequate prima facie foundation, considering the multiple specialists who have deemed her disabled after examining her or her file. CNA's correspondence questioning the persuasiveness of subjective complaints of pain is in tension with the Third Circuit's discussion of the issue in a Supplemental Security Income case: "Pain itself may constitute a disabling impairment. Complaints of pain must be seriously considered, even where not fully supported by objective medical evidence. Where such complaints are supported by medical evidence, the ALJ may not discount them without contrary medical evidence." Chrupcala v. Heckler, 829 F.2d 1269, 1276 n. 10 (3d Cir.1987) (citations omitted). Notably, a number of licensed physicians have found Ms. Taylor-Brown's complaints of pain compelling after examining her directly. The vetting process of impartial doctors' examinations lends credence to what CNA has discounted as Ms. Taylor-Brown's mere subjective complaints.
While CNA does seem overly resistant to the opinions of Ms. Taylor-Brown's treating physicians, see Cohen v. Standard Ins. Co., 155 F.Supp.2d 346, 352 (E.D.Pa. 2001) ("[T]hat defendant relied upon the opinion of its non treating physicians over plaintiffs treating physicians is suspect."), the plaintiffs assertion that CNA is improperly requiring proof of the etiology of fibromyalgia appears misplaced. CNA concedes that Ms. Taylor-Brown does indeed have fibromyalgia, and so the causal mechanism of her disease is not at issue here. Rather, CNA questions whether the fibromyalgia has rendered Ms. Taylor-Brown totally disabled within the meaning of the policy.
While a number of physicians have opined that Ms. Taylor-Brown is disabled to the point of being unable to work, there is some evidence-not a great deal, but somecutting in the opposite direction to raise an issue of fact. For example, the 1998 FCE cited by Dr. Truchelut found Ms. Taylor-Brown capable of "LIGHT DUTY work on an occasional basis."[5]*328 And Dr. Burke, after evaluating Ms. Taylor-Brown to determine eligibility for Social Security benefits, seemed to imply that, notwithstanding her several ailments, the plaintiff might be able to perform "light work with limited lifting and bending." And in Ms. Taylor-Brown's deposition of August 23, 2000, she acknowledged that she can do some laundry, help with cooking, empty a dishwasher, and occasionally drive on short trips. There are factual questions here that require further sifting.[6]
Defendant's motion for summary judgment
Soon after Ms. Taylor-Brown moved for summary judgment, CNA reciprocated, seeking summary judgment that CNA's denial was reasonable and that the plaintiff had failed to state a claim. In the alternative, CNA suggests that any disability from which Ms. Taylor-Brown might suffer was caused by a mental or nervous condition, and so the maximum benefits period was twenty-four months.[7]
In support of the termination of benefits, CNA draws this court's attention to the contents of some of the medical records it reviewed: (1) the notation of one of the insurer's employees revealing that, when contacted by phone, Dr. Krauser one of Ms. Taylor-Brown's health-care providersacknowledged that Ms. Taylor-Brown was capable of returning to work as of January 8, 1997, assuming certain physical activities were avoided (Dr. Krauser denies saying this); (2) the report of Dr. John Kraus that, despite her symptoms, Ms. Taylor-Brown was capable of driving a car and undertaking the activities of daily living, except when symptoms were "particularly bad"; (3) Dr. Kraus's findings that certain of Ms. Taylor-Brown's physical capacities were not severely compromised; and (4) Dr. Burke's statement *329 that it would be "very difficult" (but, arguably, not impossible) for the plaintiff to work. It is important to note that CNA's assertion that its coverage decision was "reasonable" misses the point; as Ms. Taylor-Brown points out, the focus of this court's de novo review is to determine whether the denial of benefits was correct, not whether it was reasonable. Regardless, while the factors listed in CNA's motion for summary judgment are certainly considerations for this court, they do not, for purposes of summary judgment, come close to establishing that Ms. Taylor-Brown was not disabled.
The argument that Ms. Taylor-Brown's ills stem from a mental or nervous condition rather than a physical malady is based on certain statements from various professionals who evaluated the plaintiffs medical condition: (1) Dr. Kraus wrote that "she has multiple significant stressors from the past which are most likely contributing to her pain"; (2) Dr. Fry of the Sleep Disorder Centers at Allegheny University reported that "[i]t seems likely that Mrs. Brown's severe sleep disorders are contributing to the pain of her fibromyalgia"; (3) Dr. Gilmour observed that "[s]he is distressed and discouraged by her physical pain, exhaustion, and the consequence of physical limitations"; and (4) Diane K. White, Vanguard's benefits manager, related: "I believe one of the areas of concern regarding CNA is the secondary diagnosis of fibromyalgia. However, Ms. Brown specifies this is not the reason for her total disability."
It is clear from reviewing the record that Ms. Taylor-Brown is contending both with fibromyalgia and with ancillary ailments. But the record does not establish as a matter of law that all of those ancillary ailments are "mental or emotional disorders," let alone that Ms. Taylor-Brown's claimed disability "is due to" such disorders. Accordingly, defendant is not entitled to summary judgment.
Conclusion
After weighing the record and the arguments submitted by the parties, this court finds that there exist issues of material fact as to both the quantum of Ms. Taylor-Brown's disability and the primary source of that disability. Therefore, the motions for summary judgment filed by both the plaintiff and the defendant will be denied. An appropriate order accompanies this opinion.
ORDER
For the reasons stated in the accompanying Opinion, it is hereby ORDERED that:
(1) Plaintiff Sharon Taylor-Brown's Motion for Summary Judgment (Docket # 14) is DENIED.
(2) Defendant Continental Casualty Company's Motion for Summary Judgment (Docket # 15) is DENIED.
NOTES
[1] The policy provides for payment after the "Elimination Period," which is defined as the "period[ ] shown in the Schedule of Benefits which appl[ies] to the Insured Employee." The Schedule of Benefits, in turn, refers to Addendum 3, which lists the elimination period as 180 days for covered individuals in Class Iemployees other than those in the upper management of Vanguard.
[2] It appears that, with regard to the STD program, benefits were to be paid by Vanguard but eligibility determinations were to be made by CNA. With respect to the LTD program, however, CNA was responsible for both determining eligibility and making benefits payments.
[3] While the record is not entirely clear on the matter, it appears that Ms. Taylor-Brown has submitted three separate applications to the SSA. The first was denied, seemingly due to a procedural failure: sufficient medical records had not been provided to the SSA. The second application (described in the text) was that in which Dr. Burke was called upon to evaluate Ms. Taylor-Brown. The most recent application process (during which yet another doctor Dr. A. Cuozzoevaluated the plaintiff), like the previous two attempts, was unavailing for Ms. Taylor-Brown; she was again denied benefits.
[4] See Starita v. NYLCare Health Plans, Inc., No. CIV. A. 98-5375, 2000 WL 330038, at *3 (E.D.Pa. Mar.29, 2000) ("[T]he mere fact that a plan requires proof or satisfactory proof of the applicant's claim ... does not give the employee adequate notice that the plan administrator is to make a judgment largely insulated from judicial review by reason of being discretionary."); McBride v. Cont'l Cas. Co., No. CIV. A. 97-4625, 1999 WL 301811, at *4 (E.D.Pa. May 11, 1999) ("Simply requiring written proof is not a grant of discretion to the plan administrator."); see also Norris v. Cont'l Cas. Co., No. CIV. A. 00-1723, 2000 WL 1428681, at *1 (E.D.Pa. Sept.27, 2000) (noting conflicting results in this district's courts but permitting de novo discovery while the decision on the standard of review was pending). But see Murphy v. Metro. Life Ins. Co., No. CIV. A. 01-1351,'2001 WL 1167489, at *3 (E.D.Pa. Sept. 14, 2001); Kutner v. UNUM Life Ins. Co. of Am., No. CIV. A. 99-800, 2000 WL 295104, at *5 (E.D.Pa. Mar.20, 2000) (both applying arbitrary and capricious review to a policy, like that at issue in Starita, that required "proof" of disability).
In a case decided subsequent to Starita and Kutner, the Third Circuit had before it an insurance policy that required applicants to submit "satisfactory proof" of "Total Disability" before benefits would be paid. Pinto v. Reliance Standard Life. Ins. Co., 214 F.3d 377, 379 (3d Cir.2000). The court stated that "[i]t is undisputed that [the insurer] had discretion to interpret the plan." Id. (In a prior phase of the same litigation, an unpublished panel opinion found that "the provision of the Plan requiring that a claimant provide `satisfactory proof of disability provides the necessary discretion" to an insurer such that a reviewing court should apply the arbitrary and capricious standard. See Pinto v. Reliance Standard Life Ins. Co., No. 97-5297, 1998 WL 334448, slip. op. at 7 (3d Cir. May 28, 1998) (quoted in Landau v. Reliance Standard Life Ins. Co., 1999 WL 46585, at *3 n. 2).)
My colleague Judge Reed, subsequent to the unpublished Pinto, but prior to the published Pinto, suggested that the adjective accompanying the word "proof" might play a role in the determination of the standard of review; before deciding to apply the de novo standard, Judge Reed noted that the policy before him required "written proof," not "satisfactory proof" (as in the Pinto policy) or "due proof." McBride, 1999 WL 301811, at *4. Judge Reed acknowledged the 1998 Pinto opinion, but opined that it was distinguishable from the case before him because of, inter alia, the differences in policy language. Id. at *4 n. 2. Parsing the exact state of the adjectival jurisprudence is unnecessary here. There being no controlling appellate authority to the effect that the phrase "written proof," utilized in the Vanguard plan, necessarily connotes the vesting of discretion in the plan administrator, the parties' stipulation that de novo is the proper standard of review seems unexceptionable.
[5] The FCE report hinted that Ms. Taylor-Brown might be capable of even more demanding work, but because the effort expended by the plaintiff during testing was allegedly "inconsistent," the report emphasized that its assessment was limited to "what Ms. Taylor-Brown was willing to demonstrate to us at this time."
[6] The plaintiff has urged this court to reach a conclusion similar to that of my colleague Judge Katz in Dorsey v. Provident Life & Accident Ins. Co., 167 F.Supp.2d 846 (E.D.Pa. 2001). Cheryl Dorsey, the plaintiff in that case, also sought LTD benefits for fibromyalgia. Judge Katz granted summary judgment for Ms. Dorsey, finding that Provident's decision to deny benefits was arbitrary and capricious. The case at bar shares a number of characteristics with Dorsey. In both cases: (1) an FCE exam showed some ability to perform basic physical tasks; (2) the insurer denied benefits based on reports of doctors who had not actually examined the claimant; and (3) the claimant provided evidence that FCEs are unreliable when determining fibromyalgia disability. There are, however, a few differences between Ms. Dorsey's and Ms. Taylor-Brown's cases that dissuade this court from granting summary judgment here: (1) Ms. Dorsey was granted Social Security benefits, while Ms. Taylor-Brown was turned down; (2) there are a number of ailments other than fibromyalgia from which Ms. Taylor-Brown suffers-some of which would not qualify for continued benefits but have been cited by her doctors as contributing to her disability; and (3) Ms. Taylor-Brown is only to receive LTD payments if she is unable to perform any occupation, while Ms. Dorsey's policy required only that she be unable to perform her own occupation.
In resisting application of the Dorsey rationale to this case, the defendants have urged that if that case is to be considered by this court, then all of its underpinnings should be adopted, and so the arbitrary and capricious standard should supplant the de novo standard to which the parties have stipulated. As just discussed, this court has arrived at a conclusion different from that in Dorsey for the instant summary judgment motion. I consider the parties' stipulation to the de novo standard (discussed supra in footnote 4 and accompanying text) to be effective and binding. See January 30, 2002 memorandum/order granting the plaintiff leave to file the Dorsey opinion in support of her motion for summary judgment.
[7] The policy language relied upon by CNA for this argument states: "This policy does not cover any loss caused by or resulting from ... [d]isability beyond 24 months after the Elimination Period if it is due to mental or emotional disorders of any type." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2412218/ | 501 F.Supp.2d 826 (2006)
David SNOW, Plaintiff,
v.
The CITY OF EL PASO, TEXAS, et al., Defendants.
No. EP-04-CA-460-PRM.
United States District Court, W.D. Texas, El Paso Division.
April 4, 2006.
*827 *828 William A. Elias, El Paso, TX, for Plaintiff.
ORDER GRANTING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT
MARTINEZ, District Judge.
On this day, the Court considered: (1) Defendants the City of El Paso and Chief of Police Richard Wiles's ("Defendants") "Motion for Summary Judgment" ("Motion"), filed on October 7, 2005; (2) Plaintiff David Snow's ("Plaintiff") "Opposition and Response to the Motion for Summary Judgment Filed by Defendant City of El Paso and Defendant Chief of Police Richard Wiles" ("Response"), filed on December 20, 2005 in the above-captioned cause. After due consideration, the Court is of the opinion that Defendants' Motion should be granted for the reasons set forth below.
I. FACTUAL AND PROCEDURAL BACKGROUND
Plaintiff alleges that on October 16, 2004 Officers Torres and Cisneros responded to a call to the Briar. Patch Bar in El Paso, *829 Texas regarding an individual breaking a window. Pl.'s Compl. ¶ 12. Plaintiff alleges that Officer Torres chased Plaintiff on foot, while Officer Cisneros remained in the patrol car. Pl.'s Compl., ¶ 15. There is a factual dispute about how Plaintiff ended up on the ground, with Plaintiff contending that he voluntarily laid himself down and Defendants asserting that Plaintiff fell or collapsed to the ground. Pl.'s Compl. ¶ 16. There is also a factual dispute concerning how Plaintiff sustained his injuries. Plaintiff maintains that Defendants used excessive force in effecting his arrest, thereby fracturing his neck, jaw, and rib cage as well as injuring his head and ear in violation of Plaintiff's constitutional rights. Pl.'s Compl. ¶¶ 17-18. Defendants contend that Plaintiff's injuries occurred when Plaintiff fell to the ground or prior to his arrest. Pl.'s Resp. ¶ 27. On December 13, 2004, Plaintiff filed a complaint in federal court claiming civil rights violations under the Fourth and Fourteenth Amendments of the United States Constitution as well as 42 U.S.C. § 1983. Pl.'s Compl.
On October 7, 2005, Defendants filed the Motion now before the Court wherein Defendants contend that Officers Torres and Cisneros did not act negligently in effecting Plaintiffs arrest. Defs.' Mot. ¶ 17. Defendants further maintain that, even if the officers acted wrongfully, Plaintiff has failed to produce evidence that a municipal policy or custom caused Plaintiffs injuries. Defs.' Mot. ¶ 17. Furthermore, Richard Wiles, in his individual capacity ("Wiles"), alleges that there is no genuine issue of material fact regarding his defense of qualified immunity. Defs.' Mot. ¶¶ 18-19. On December 20, 2005, Plaintiff filed his Response maintaining that a genuine issue of material fact exists regarding whether customs, policies, or practices promulgated by Defendants were a moving force behind Plaintiffs constitutional deprivations. Pl.'s Resp. ¶ 1. Plaintiff further contends that the Court should deny Wiles qualified immunity due to his toleration of the use of excessive force, or in the alternative, pursuant to Local Rule CV-12. Pl.'s Resp. ¶ 36.
II. SUMMARY JUDGMENT STANDARD
Federal Rule of Civil Procedure 56(c) mandates 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 a judgment as a matter of law." The party seeking summary judgment bears the initial burden of informing the court of the basis for his motion and identifying the parts of the record that demonstrate 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). Although the movant must "`demonstrate the absence of a genuine issue of material fact,' [it] need not negate the elements of the non-movant's case." Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc) (quoting Celotex, 477 U.S. at 323, 106 S.Ct. 2548). A fact is "material" if its resolution in favor of one party might affect the outcome of the suit under the governing law. Anderson v. Liberty Lobby, 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A dispute about a material fact is "genuine" if the evidence indicates that a reasonable fact-finder could find in favor of the non-moving party. Id.
Because the moving party has the burden of proof, evidence is construed in favor of the non-movant, and the non-movant is given the benefit of all favorable inferences. Reid v. State Farm Mut. Auto. Ins. Co., 784 F.2d 577, 578 (5th Cir.1986). When the moving party has properly supported its summary judgment motion, the *830 non-moving party must come forward with "significant probative evidence" showing that there is an issue regarding material facts. Ferguson v. Nat'l Broad. Co., 584 F.2d 111, 114 (5th Cir.1978). If the movant satisfies his initial burden, the non-movant must come forward with "specific facts showing that there is a genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (citing FED. R. CIV. P. 56(e)). In other words, "the non-movant must adduce evidence which creates a material fact issue concerning each of the essential elements of its case for which it will bear the burden of proof at trial." Abbott v. Equity Group, Inc., 2 F.3d 613, 619 (5th Cir.1993). A court must resolve factual controversies or disputes in the non-movant's favor, but "only when there is an actual controversy, that is, when both parties have submitted evidence of contradictory facts." Little, 37 F.3d at 1075 (emphasis added). A court should not, "in the absence of any proof, assume That the nonmoving party could or would prove the necessary facts." Id. (citing Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 888, 110 S.Ct. 3177, 111 L.Ed.2d 695 (1990)).
The non-movant must "go beyond the pleadings and by her own affidavits, or by the depositions, answers to interrogatories, and admissions on file," identify those facts establishing a genuine issue for trial. Celotex, 477 U.S. at 324, 106 S.Ct. 2548 (internal quotations omitted). "This burden is not satisfied with some metaphysical doubt as to the material facts, by conclusory allegations, by unsubstantiated assertions, or by only a scintilla of evidence." Little, 37 F.3d at 1075 (internal quotations and citations omitted). Likewise, "some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson, 477 U.S. at 247-48, 106 S.Ct. 2505 (emphasis omitted). The non-movant "is required to identify specific evidence in the record and to articulate the precise manner in which that evidence supports his or her claim." Ragas v. Tenn. Gas Pipeline Co., 136 F.3d 455, 458 (5th Cir.1998).
III. APPLICATION
A. Municipal Liability-City of El Paso & Richard Wiles in his Official Capacity[1]
Title 42 U.S.C. § 1983 ("§ 1983") provides in relevant part:
Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory or the District of Columbia, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress.
"[M]unicipal liability under § 1983 requires proof of three elements: a policymaker; an official policy; and a violation of constitutional rights whose `moving *831 force' is the policy or custom." Piotrowski v. City of Houston, 237 F.3d 567, 578 (5th Cir.2001) (citing Monell, 436 U.S. at 694, 98 S.Ct. 2018). A court will not hold a municipality liable for the constitutional violations of its employees under a theory of respondeat superior. Id.; see City of Canton, Ohio v. Harris, 489 U.S. 378, 385, 109 S.Ct. 1197, 103 L.Ed.2d 412 (1989) (noting that § 1983 liability attaches "only where that municipality itself causes the constitutional violation at issue"). "Consequently, the unconstitutional conduct must be directly attributable to the municipality through some sort of official action or imprimatur; isolated unconstitutional actions by municipal employees will almost never trigger liability." Piotrowski, 237 F.3d at 578. In other words, "there must be both municipal culpability and causation." Id. at 578 n. 17.
With respect to the second element, there are several methods for establishing municipal liability under § 1983. A plaintiff may demonstrate municipal liability based on: (1) a formally adopted municipal policy; (2) an informal custom or practice; (3) a custom or policy of inadequate training, supervision, discipline, screening, or hiring; or (4) a single act by an official with final policymaking authority. See Monell, 436 U.S. at 694, 98 S.Ct. 2018 (establishing that § 1983 municipal liability may be based on an officially adopted and promulgated policy); Johnson v. Moore, III, 958 F.2d 92, 94 (5th Cir.1992) (noting that municipal liability may be founded on a persistent or widespread practice of which actual or constructive knowledge is attributable to the policymaking authority); City of Canton, 489 U.S. at 385-87, 109 S.Ct. 1197 (providing that inadequacy of training may serve as a basis for municipal liability where the failure to train amounts to deliberate indifference to the rights of persons); Pembaur v. City of Cincinnati, 475 U.S. 469, 480-81, 106 S.Ct. 1292, 89 L.Ed.2d 452 (1986) (establishing that isolated actions or decisions by a municipal policymaker with "final policymaking authority" may create municipal liability).
In this case, Plaintiff's identification of the City's violative policies or customs is not the model of clarity.[2] Construing Plaintiff's complaint and Response together, the Court understands Plaintiff to complain that the City maintained the following policies: (1) failure to adequately train its officers; (2) failure to adequately supervise its officers; (3) failure to adequately discipline its officers; (4) failure to properly investigate unlawful police conduct; and (5) failure to adopt official policies to prevent the use of excessive force. Pl.'s Compl. ¶¶ 31, 33; Pl.'s Resp. ¶¶ 19-20. Clearly, Plaintiff is not alleging that the City officially adopted and promulgated any policy which directly resulted in his injuries. Furthermore, Plaintiff does not suggest that any isolated action or decision by a municipal policymaker deprived him of his constitutional rights. Rather, Plaintiff bases his municipal liability claim on the theories that the City maintained a custom or practice of allowing the use of excessive force and that the City failed to train, supervise, or discipline its officers.
1. Informal Custom
A plaintiff may base a § 1983 claim on "constitutional deprivations visited pursuant to governmental `custom' even though such custom has not received formal approval through the body's official decision making channels." Monell, 436 U.S. at 690-91, 98 S.Ct. 2018. Where a *832 plaintiff bases municipal liability on such a custom, the plaintiff must show that "the relevant practice is so widespread as to have the force of law." Bd. of County Comm'rs v. Brown, 520 U.S. 397, 404, 117 S.Ct. 1382, 137 L.Ed.2d 626 (1997). Evidence of an isolated incident is insufficient to establish a custom. Pineda v. City of Houston, 291 F.3d 325, 329 (5th Cir.2002). Rather, a plaintiff must demonstrate persistent, repeated, constant violations to establish an informal policy. Piotrowski, 237 F.3d at 581. Furthermore, "[w]here a plaintiff claims that the municipality has not directly inflicted an injury, but nonetheless has caused an employee to do so, rigorous standards of culpability and causation must be applied to ensure that the municipality is not held liable solely for the actions of its employee." Brown, 520 U.S. at 405, 117 S.Ct. 1382. Accordingly, in addition to establishing the existence of an informal custom, a plaintiff must also demonstrate that the municipal policymakers are actually or constructively aware of the custom. Pineda, 291 F.3d at 330-31. Additionally, a plaintiff must establish that the municipality promulgated the custom with "deliberate indifference to the `known or obvious consequences' that constitutional violations would result." Piotrowski, 237 F.3d at 579 (quoting Brown, 520 U.S. at 407, 117 S.Ct. 1382).
The only evidence offered by Plaintiff to demonstrate knowledge, deliberate indifference, or the widespread nature of the alleged custom of excessive force is evidence in support of the disputed facts surrounding his arrest and the 104 excessive force complaints filed against the El Paso Police Department ("EPPD") in 2004.[3] Unfortunately for Plaintiff, this evidence is insufficient to survive summary judgment. Evidence of Plaintiff's isolated incident will not support a finding of municipal liability based on informal custom. See Burge v. St. Tammany Parish, 336 *833 F.3d 363, 371 (5th Cir.2003) (noting that evidence of an isolated occurrence will not support municipal liability predicated on a widespread custom theory). Furthermore, the Court refuses to infer any widespread practice by the City based exclusively on the excessive force complaints filed in 2004.[4]
It is well established that a complaint does not amount to a committed act. Estate of Davis ex rel. McCully v. City of N. Richland Hills, 406 F.3d 375, 384 n. 45 (5th Cir.2005) (noting that the number of complaints does not bear any relation to their ultimate validity). Plaintiff completely fails to inform the Court of the number of claims, if any, which were ultimately substantiated. Plaintiff fails to explain how any one of the 104 complaints is similar to Plaintiff's. Plaintiff fails to provide evidence demonstrating that the number of complaints is disproportionately large for a police force the size of the EPPD. In short, Plaintiff fails to place the 104 complaints in any relevant context from which the Court could conclude that the City knowingly maintained any widespread custom or acted with deliberate indifference to "`known or obvious consequences' that constitutional violations would result" if it did not alter its conduct. Piotrowski, 237 F.3d at 579. Accordingly, the Court cannot infer a widespread custom, assign knowledge of such custom, or attribute deliberate indifference solely based on the circumstances of Plaintiff's arrest and 104 unsubstantiated excessive force complaints. See Piotrowski, 237 F.3d at 581 ("A customary municipal policy cannot ordinarily be inferred from single constitutional violations."); Pineda, 291 F.3d at 330 (refusing to impute knowledge to the municipality based on the numerous offense reports collects because this would amount to respondeat superior).
2. Failure to Train[5]
To prevail on a failure to train claim, a plaintiff must show "(1) the training or hiring procedures of the municipality's policymaker were inadequate, (2) the municipality's policymaker was deliberately indifferent in adopting the hiring or training policy, and (3) the inadequate hiring or training policy directly caused the plaintiff's injury." Baker v. Putnal, 75 F.3d 190, 200 (5th Cir.1996). Importantly, the Fifth Circuit has also stated "that proof of a single violent incident ordinarily is insufficient to hold a municipality liable for inadequate training." Snyder v. Trepagnier, 142 F.3d 791, 798 (5th Cir.1998) (citation omitted). Rather, a plaintiff "must demonstrate `at least a pattern of similar incidents in which the citizens were injured . . . to establish the official policy requisite to municipal liability under Section 1983.'" Id. (citation omitted). However, under the "single incident exception," a single violation of federal rights may be sufficient to hold a municipality liable for inadequate training where there is "proof of the possibility of recurring situations that present an obvious potential for violation of constitutional rights and the need *834 for additional or different police training." Gabriel v. City of Plano, 202 F.3d 741, 745 (5th Cir.2000).
Plaintiff's inadequate training allegation is wholly unsupported. Plaintiff has not referenced elements or components of the City's training procedures or policies in any meaningful way. He has not pointed out areas in which those policies are deficient or areas in which those policies need revision. If the basis of Plaintiff's claim is that the City failed to train or improperly trained the officers in question, Plaintiff would need to put forth some evidence directly implicating the training they received. "In resolving the issue of a city's liability, the focus must be on adequacy of the training program in relation to the tasks the particular officers must perform." City of Canton, 489 U.S. at 390, 109 S.Ct. 1197. Further, "[t]hat a particular officer may be unsatisfactorily trained will not alone suffice to fasten liability on the city, for the officer's shortcomings may have resulted from factors other than a faulty training program." Id. at 390-91, 109 S.Ct. 1197. Nothing Plaintiff provided in opposition to Defendants' Motion addresses the adequacy of the officers training, and Plaintiff's opposition fails to evidence a genuine issue of material fact in this regard.
Accordingly, because Plaintiff has failed to submit any evidence that the City knowingly maintained a widespread custom or practice of allowing or promoting the use of excessive force which it promulgated with deliberate indifference, the Court is of the opinion that summary judgment on the issue of municipal liability is proper.
B. Qualified Immunity Richard Wiles in his Individual Capacity[6]
Wiles asserts qualified immunity to Plaintiffs claims against him in his individual capacity. Qualified immunity shields public officials from both civil damages and trial "if their actions were objectively reasonable in light of then clearly established law." Bazan v. Hidalgo County, 246 F.3d 481, 488 (5th Cir.2001). Once a defendant raises a qualified immunity defense on summary judgment, the plaintiff bears the burden of rebutting that defense. Id. at 489.
The Court employs a two step process to resolve a qualified immunity defense. First, the Court must determine whether the plaintiff has alleged "the violation of a clearly established Constitutional *835 right." Siegert v. Gilley, 500 U.S. 226, 111 S.Ct. 1789, 114 L.Ed.2d 277 (1991). A right is "clearly established" only when its contours are "sufficiently clear that a reasonable official would understand that what he is doing violates that right." Anderson, 483 U.S. at 640, 107 S.Ct. 3034; Foster v. City of Lake Jackson, 28 F.3d 425, 429 (5th Cir.1994). The second component of a qualified immunity defense requires the Court to determine whether the official's conduct was objectively reasonable, in light of the legal rules clearly established at the time of the alleged violation. Anderson, 483 U.S. at 639, 107 S.Ct. 3034. On summary judgment, "the objective reasonableness inquiry is a question of law," which means it "cannot be decided if there are genuine issues of material fact" shaping its resolution. Bazan, 246 F.3d at 490 (citations omitted).
The first requirement for a plaintiff attempting to overcome the bar of qualified immunity is to establish that the defendant violated his rights. Plaintiff alleges violations of his Fourth and Fourteenth Amendment rights to be free from excessive force and constitutionally deficient tactics. Plaintiff seeks to hold Wiles liable for these violations as the ultimate supervisor of Officers Cisneros and Torres. In a § 1983 action, a court cannot hold supervisory officials vicariously liable for the actions of their subordinates. Oliver v. Scott, 276 F.3d 736, 743 (5th Cir.2002). Rather, "the misconduct of [a] subordinate must be affirmatively linked to the action or inaction of the supervisor." Southard v. Tex. Bd. of Criminal Justice, 114 F.3d 539, 550 (5th Cir.1997). Accordingly, a court will hold supervisory officials liable only if "(i) they affirmatively participate in acts that cause constitutional deprivation; or (ii) implement unconstitutional policies that causally result in plaintiff's injury." Baker, 75 F.3d at 199. Furthermore, a plaintiff must demonstrate that the supervisory official acted with deliberate indifference, "which requires proof that the supervisor `disregarded a known or obvious consequence of his action.'" Evett v. DETNTFF, 330 F.3d 681, 689 (5th Cir. 2003) (quoting Southard, 114 F.3d at 551).
The Court concludes that Plaintiff has failed to demonstrate that Wiles violated any of Plaintiff's constitutional rights while acting in his supervisory capacity. The uncontested summary judgment evidence demonstrates that Wiles did not affirmatively participate in Plaintiff's arrest or, by logical extension, any direct use of force against him. Accordingly, for Plaintiff to establish Wiles's liability as a supervisor, he must demonstrate that Wiles acted with deliberate indifference in implementing unconstitutional policies that caused Plaintiff's injuries. Plaintiff asserted nearly all of his claims against Wiles in tandem with his claims against the City. Accordingly, nearly all of Plaintiff's claims against Wiles rely on the same informal custom and "failure to train" evidence that the Court already concluded is insufficient to survive summary judgment.[7] Plaintiff's only argument unique to Wiles is that Wiles is not sufficiently attentive to excessive force complaints filed against the EPPD. However, this evidence fails to demonstrate either that Wiles implemented an unconstitutional policy or that this policy caused Plaintiff's injuries. Plaintiff *836 merely avers that Wiles should or could have reviewed every excessive force complaint without explaining why the failure to do so (1) is deficient, (2) disregards a known or obvious negative consequence, or (3) is causally related to his injuries. While the Court must draw all inferences in favor of Plaintiff, the Court cannot create and inject facts where they do not exist in an attempt to sustain Plaintiffs allegations. The lack of any evidence implicating Wiles in the violation of Plaintiff's constitutional rights requires summary judgment on Plaintiff's § 1983 claims against Wiles in his individual capacity and obviates the need for analysis of the other qualified immunity elements.
IV. CONCLUSION
Based on the foregoing analysis, the Court concludes that Defendants' Motion for Summary Judgement should be granted.
Accordingly, IT IS ORDERED that Defendants the City of El Paso and Richard Wiles's Motion for Summary Judgment (Docket No. 18) is GRANTED.
IT IS FURTHER ORDERED that partial judgment is entered in favor of Defendants the City of El Paso and Richard Wiles, individually and in his official capacity, and against Plaintiff David Snow.
NOTES
[1] Plaintiff named Chief of Police Richard Wiles both individually and officially. A claim against a public servant in his official capacity is tantamount to a claim against the entity that the public servant represents. Turner v. Houma Mun. Fire & Police Civil Serv. Bd., 229 F.3d 478, 483 (5th Cir.2000); see Monell v. Dep't of Soc. Servs., 436 U.S. 658, 691 n. 55, 98 S.Ct. 2018, 56 L.Ed.2d 611 (1978) (noting that "official-capacity suits generally represent only another way of pleading an action against an entity of which an officer is an agent"). Therefore, the Court considers Plaintiff's claims against Richard Wiles in his official capacity to be repetitive of his claim against the City of El Paso ("City").
[2] The better practice would be to heed the Fifth Circuit's instruction that "each and any policy which allegedly caused constitutional violations must be specifically identified by plaintiff." Piotrowski, 237 F.3d at 579.
[3] Plaintiff offers the following items of evidence in support of his argument: (1) Plaintiff's deposition testimony that, on the night of his arrest, he voluntarily laid down on the ground and the EPPD officers jumped on him and broke his neck and jaw (Pl.'s Resp. ¶¶ 16-17, Ex. 6); (2) Officer Torres's deposition testimony that Plaintiff fell or collapsed to the ground after which he continued to press Plaintiff to the ground (Pl.'s Resp. ¶ 16, Ex. 9); (3) Eyewitness Sergio Perez's deposition testimony that he believes that a police officer tackled Plaintiff to the ground (Pl.'s Resp. ¶ 26, Ex. 10); (4) Officer Gabriel Zaragosa's deposition testimony that Officer Torres continued to press Plaintiff to the ground (Pl.'s Resp. ¶ 17, Ex. ¶); Officers Torres's and Cisneros's interrogatory answers that Plaintiff did not resist arrest (Pl.'s Resp. ¶¶ 19, 24, Exs. 4, 5); (6) Defendants' responses to Plaintiff's request for admissions that Plaintiff did resist arrest (Pl.'s Resp. ¶ 24, Exs. 2, 3); (7) Sergeant Steve Lopez's Internal Affairs witness statement that he inadvertently failed to call a crime scene unit to assist with photographs in violation of official policy (Pl.'s Resp. ¶ 20, Ex. 12); (8) Plaintiff's medical records for treatment for a fractured neck, rib cage, and jaw, as well as injuries to his head and ear (Pl.'s Resp. ¶ 18, Ex. 15); (9) Statements by Plaintiff's treating physicians that his injuries were "rarely" seen and "very unlikely" to have occurred as a result of a fall (Pl.'s Resp. ¶ 30, Ex. 7); (10) Wiles's affidavit statement that "there is no policy, custom or practice of the El Paso Police Department being deliberately indifferent to the citizens of this community or suspects in custody." (Pl.'s Resp ¶ 32, Ex. 1); (11) Exhibits one and two to the deposition of Richard Wiles indicating that 104 excessive force complaints were filed against the EPPD in 2004 (Pl.'s Resp. ¶ 32, Ex. 13); (12) Richard Wiles's deposition testimony that he does not believe that the number of excessive force complaints filed against the EPPD is large when considering the size of the department (Pl.'s Resp. ¶ 32, Ex. 8); (13) Richard Wiles's deposition testimony that he does not personally review every excessive force complaint because he delegates this responsibility to a well-trained and capable staff (Pl.'s Resp. ¶ 34, Ex. 8); and (14) Richard Wiles's answer to Plaintiff's interrogatory that he is the responsible policymaker concerning the amount of force used by the EPPD (Pl.'s Resp. ¶ 36, Ex. 14).
[4] Plaintiff offers evidence of the number of excessive force complaints filed for the entire year of 2004. However, any complaint filed after the date of Plaintiff's arrest is irrelevant to the issue of the City's knowledge of a policy or custom of allowing excessive force or deliberate indifference to such custom on that date.
[5] All failure to act claims, such as Plaintiff's failure to train, supervise, and discipline claims, involve the same basic elements: inadequacy, deliberate indifference, and causation. See Burge, 336 F.3d at 370 (relating the aforementioned elements for failure to train or supervise claims); Piotrowski, 237 F.3d at 581-82 (reviewing failure to train or investigate claims). Because Plaintiff only makes passing reference to most of these claims, the Court analyzes all of them under the context of Plaintiff's failure to train allegation.
[6] Plaintiff asserts that Wiles's qualified immunity defense should be denied as untimely pursuant to Local Rule CV-12. To the extent that Wiles's Motion relies on the qualified immunity defense, it is in technical violation of Local Rule CV-12. However, the apparent purpose of the rule is to ensure that the qualified immunity determination is made "at the earliest possible stage of litigation." Anderson v. Creighton, 483 U.S. 635, 646 n. 6, 107 S.Ct. 3034, 97 L.Ed.2d 523 (1987). Plaintiff does not argue that he has been prejudiced by the delay or that he ever prompted Wiles to comply with Local Rule CV-12. See Chacon v. Hous. Auth. of the City of El Paso, No. EP-99-CA-410-DB, 2000 WL 33348200, at *6 (W.D.Tex. Oct. 31, 2000) (finding that a defendant did not waive qualified immunity, in part because the plaintiff did not "contend he [had] been prejudiced by any delay and never once prompted Defendant to comply with Local Rule CV-12"). Additionally, Wiles's Answer, filed on January 11, 2005, put Plaintiff on notice that Wiles intended to assert the defense of qualified immunity. See id. (noting that the defendant had put the plaintiff on notice that the defendant intended to assert a qualified immunity defense prior to the filing of the defendant's motion for summary judgment). Moreover, the qualified immunity doctrine supports the important policy of "protecting the public by permitting its decision-makers to act without fear of unanticipated personal liability." Id. Therefore, the Court finds that Wiles has not waived his qualified immunity.
[7] See supra Part III.A (discussing summary judgment as to the City and Wiles in his official capacity). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2411662/ | 41 F.Supp.2d 93 (1999)
VISION GRAPHICS, INC., Plaintiff
v.
E.I. DU PONT DE NEMOURS & COMPANY, Defendant
No. CIV. A. 97-30001-MAP.
United States District Court, D. Massachusetts.
March 25, 1999.
*94 John F. Donahue, Donahue & Cross, Springfield, MA, for Vision Graphics, Inc., Plaintiff.
John C. Wyman, Roche, Carens & DeGiacomo, P.C., Boston, MA, for E.I. Dupont Denemours, Defendant.
MEMORANDUM REGARDING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
(Docket No. 16)
PONSOR, District Judge.
I. INTRODUCTION
Between January 1992 and September 1994, plaintiff entered into four contracts *95 with defendant to purchase or lease a computer software system and various upgrades to it. Plaintiff contends that it paid defendant substantial sums pursuant to these contracts in reliance on representations that the system would be supported and enhanced in specific ways. In 1996, defendant informed plaintiff that, for financial reasons, it would discontinue developing and supporting the system. Believing itself thus abandoned, plaintiff brought suit.
Plaintiff's six-count complaint alleges breach of contract (Count I); breach of implied warranty of merchantability (Count II); intentional misrepresentation (Count III); negligent misrepresentation (Count IV); promissory estoppel (Count V); and violation of Mass. Gen. Laws ch. 93A (Count VI).
Defendant has moved for summary judgment on all counts. For the reasons set forth below, the court will allow the motion as to Counts I, II, and V, and deny it as to Counts III, IV, and VI.
II. FACTUAL AND PROCEDURAL BACKGROUND
The facts pertinent to defendant's motion for summary judgment are largely undisputed. Where the record contains contested evidence, the court, of course, will view the record in the light most favorable to plaintiff. See Fed.R.Civ.P. 56.
Plaintiff Vision Graphics, Inc. ("Vision Graphics") has engaged in the graphics printing business in Massachusetts for over ten years. It provides color separation and electronic pre-press services[1] to customers such as Milton Bradley Company and Friendly Ice Cream Company. These services include page composition, graphics, and photographic finishing. Defendant E.I. Du Pont de Nemours and Co. ("Du Pont"), a Delaware corporation, is a multinational energy and chemical company.
In the 1980s, Crosfield Electronics Ltd. of the United Kingdom ("Crosfield"), along with other companies, started to design and manufacture color scanning and electronic pre-press equipment. The proprietary software program unique to the Crosfield products, like electronic pre-press systems marketed by other manufacturers at that time, would not accept or run digital information formatted by competing systems.
In 1985, Adobe Systems Inc. in California developed a software program called "PostScript," a highly versatile computer language applicable to the printing industry that could run on Apple Macintosh computers, but not on others. Due to their inability to perform functions on a commercial scale, however, Apple computers and PostScript were unpopular among electronic pre-press firms like Vision Graphics before the 1990s. Later, as Apple computers became more powerful and economical, the use of PostScript to develop print and advertising layouts became much more prevalent among the customers of Vision Graphics and other electronic pre-press operations.
In 1989 and 1990, prior to the contracts between Vision Graphics and Du Pont that eventually led to this litigation, Vision Graphics purchased directly from Crosfield a series of electronic pre-press components.[2]
In January 1992, Vision Graphics and Du Pont entered into an agreement by which Du Pont agreed to sell and Vision *96 Graphics agreed to purchase and lease certain Crosfield equipment, specifically a Studio 9500 Cererity Electronic Page Composition System, with three upgrades. By this time, it was of paramount importance to Vision Graphics that this computer system (called "9700R," as upgraded) have the capacity to accept PostScript files in raw form or, in trade lingo, to be "postscriptable" as soon as possible. Without this capacity, Vision Graphics would be unable to serve its customers adequately and would cease to be competitive.
Fully aware of this fact, Du Pont, prior to and at the time of entering into the contracts in 1992, orally represented to Vision Graphics that it would continue to upgrade the system. In June and August 1993 plaintiff entered into additional agreements with Du Pont to purchase and lease more equipment, each time relying on the oral representations that Du Pont would continue to support and upgrade the system and that it would soon be completely postscriptable. Thomas Mitchell, the President of Vision Graphics, stated that his decision to lease and purchase the upgrades was based on these representations.
In September 1994, Vision Graphics purchased and leased from Du Pont still more expensive equipment. During discussions preceding the new agreements, Du Pont informed Vision Graphics that it would not take more than a year to render its systems fully postscriptable. As Du Pont claimed that each of the three upgrades was necessary to attain full postscriptability, and as Vision Graphics had already expended significant sums of money in purchasing/leasing the system and upgrades up to that point, Mitchell decided to continue relying on Du Pont.
None of the promises regarding support, upgrading or postscriptability was ever included in any of the parties' written contracts. Equally significantly, it is undisputed that defendant fulfilled all the obligations actually contained in the contract documents.
Between September 1994 and June 1996, even though no additional lease/purchase contracts were signed by the two parties, Vision Graphics was periodically informed by Du Pont that it was researching and developing the system and that full postscriptability was imminent.
By 1996, Apple Computer's operating PostScript programs achieved widespread commercial acceptance from electronic pre-press businesses, because they performed most of the same functions as, and cost substantially less than, proprietary systems such as those manufactured by Crosfield. As a result, Du Pont found it could not compete with other providers of desktop publishing systems. In June 1996, Du Pont informed Vision Graphics that it would no longer support the system it had sold plaintiff. No additional upgrades would be offered, and the system would not be made postscriptable.
After this announcement, Vision Graphics continued to use the system components purchased from Du Pont between 1992 to 1994. However, because its system could not run raw postscript, the company lost many customers and could not attract new customer accounts. Its reputation as a leader in the graphic industry was also severely damaged. Although the total amount spent on the system and upgrades is in dispute, it is unquestionably substantial.
As noted above, in January 1997, Vision Graphics filed this suit against Du Pont, alleging breach of contract, breach of implied warranty of merchantability, intentional misrepresentation, negligent misrepresentation, promissory estoppel and violation of Mass. Gen. Laws ch. 93A.
III. DISCUSSION
A. Summary Judgment Standard
Summary judgment is appropriate when "the pleadings, depositions, answers to interrogatories, and admissions on file, together *97 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); see Goldman v. First Nat'l Bank, 985 F.2d 1113, 1116 (1st Cir. 1993). Initially, the moving party must aver an absence of evidence to support the nonmoving party's case. See Garside v. Osco Drug, Inc., 895 F.2d 46, 48 (1st Cir. 1990). In order to fend off summary judgment, the nonmoving party (here, the plaintiff) must "establish at least a genuine issue of material fact on every element essential to his case in chief." Mesnick v. General Elec. Co., 950 F.2d 816, 825 (1st Cir.1991). At summary judgment, it is this court's obligation "to review the record in the light most favorable to the nonmoving party, and to draw all reasonable inferences in the nonmoving party's favor." LeBlanc v. Great Am. Ins. Co., 6 F.3d 836, 841 (1st Cir.1993) (citation omitted).
Keeping this standard in mind, the court will address Du Pont's motion for summary judgment.
B. Contract-Based Claims
As an initial matter, this court must decide whether to apply Massachusetts or Delaware law. Advocating the application of Massachusetts law, Vision Graphics argues that Delaware lacks a reasonable or substantial relation to the agreement and to the parties in this case. It points out that the only connection to Delaware is that Du Pont is a Delaware corporation. (Docket No. 20).
The governing law provision of the parties' contract, paragraph 15(f) of the Terms and Conditions of System License and Sale, states unequivocally that Delaware law will apply:
THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE without regard to its choice of law provisions (and the United Nations Convention on the International Sale of Goods shall specifically not apply).
Vision Graphics contends, however, that this provision should be disregarded because Du Pont breached the oral agreement (regarding the postscriptability of the system), not the written one.
In a diversity case in federal court in Massachusetts, conflict of law issues must be determined by the law of Massachusetts. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Mass. Gen. Laws ch. 106, § 1-102(3) explicitly provides that in commercial transactions the effect of the Uniform Commercial Code may be varied by agreement between the parties. Mass. Gen. Laws ch. 106, § 1-105(1) further states that with regard to transactions that bear a reasonable relation to more than one jurisdiction, the parties may agree that the law of either may govern their rights and duties.
Absent serious conflict with public policy, Massachusetts courts will respect a contractual choice of law provision. See Roadmaster Indus., Inc. v. Columbia Mfg. Co., 893 F.Supp. 1162, 1173 (D.Mass.1995). No public policy argument has been raised by Vision Graphics.
The fact that defendant is a Delaware corporation, and that plaintiff freely agreed to the applicability of Delaware law through the execution of several related contracts, is sufficient in this case to establish a reasonable relation between the transactions at issue here and the laws of Delaware. Moreover, as will be seen below, the facts make clear that plaintiff is not attempting to enforce an independent oral contract, but rather trying to add a provision to the existing written contracts. Delaware law will therefore apply.
1. Count I: Breach of Contract
Du Pont argues that whether it breached its oral agreement about the postscriptability of the system (if such an agreement *98 ever existed) is immaterial, because Delaware law and the parol evidence rule bar enforcement of oral representations made prior to a written contract. As Du Pont points out, the language of the contract itself solidly supports its position. Paragraph 15(h) of the Terms and Conditions of System License and Sale in the applicable written contract, states as follows:
THIS AGREEMENT CONSTITUTES THE ENTIRE UNDERSTANDING BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF. IT SUPERSEDES ALL OTHER UNDERSTANDINGS OR REPRESENTATIONS, ORAL OR WRITTEN INCLUDING ANY CATALOGUES OR OTHER ADVERTISING MATERIAL, WHICH HAVE NOT BEEN SPECIFICALLY INCORPORATED HEREIN ...
Given the applicable law, and this explicit language, plaintiff's attempt to enforce the alleged oral agreements regarding postscriptability through a claim for breach of contract is doomed.[3] The integration clause precludes the consideration of antecedent oral agreements which would vary or contradict the written language. See, e.g., J.A. Moore Constr. Co. v. Sussex Assocs. Ltd. Partnership, 688 F.Supp. 982, 987 (D.Del.1988); Restatement (Second) of Contracts § 215 (1981). It simply cannot be fairly argued that the question of future support and enhancement of the system being purchased, or particularly its postscriptability, was not within the "subject matter" of the written contracts.
Since Du Pont's oral statements are not enforceable, the next inquiry is whether Du Pont has breached the written contract itself. It is undisputed that Du Pont has fulfilled its obligation to provide the software system and upgrades, as required by the actual terms of the contract. No breach of contract therefore occurred. Accordingly, defendant is entitled to summary judgment on Count I.
2. Count II: Breach of Implied Warranty of Merchantability
Vision Graphics alleges that Du Pont breached the implied warranty of merchantability when it announced that the computer system would no longer be supported by research and development, that no additional upgrades would be offered, and that the system would not be made postscriptable.
Du Pont points to paragraph 7, a limited warranty provision of the Terms and Conditions of System License and Sale in the contract. The pertinent part of paragraph 7, which serves as a warranty disclaimer, states as follows:
THE WARRANTY IS EXPRESSLY IN LIEU OF ALL OTHER WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
Du Pont contends that this disclaimer bars Vision Graphics' claim of breach of the implied warranty of merchantability. The court agrees. Under Delaware Code title 6, § 2-316(2), "to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous." Here, it is clear that the above disclaimer is in writing and its text mentions merchantability.
The remaining issue is the conspicuousness of the language. Delaware Code title 6, § 1-201(10) provides useful guidelines as to what constitutes "conspicuous language." It states that "[a] term or clause is conspicuous when it is so written that a *99 reasonable person against whom it is to operate ought to have noticed it. A printed heading in capitals ... is conspicuous. Language in the body of a form is `conspicuous' if it is in larger or other contrasting type or color.... Whether a term or clause is `conspicuous' or not is for decision by the court."
The disclaimer here was in capital letters and appeared right below the parties' signature line. No person exercising reasonable prudence could have overlooked it.
Equally importantly, the record of this case, even viewed under the Rule 56 standard, offers no evidence that any breach of implied warranty occurred. It is true that contracts of sale entered into by a merchant in most circumstances carry an implied warranty that the goods sold are "merchantable." Del.Code tit. VI, § 2-314(1); see Cropper v. Rego Distribution Ctr., Inc., 542 F.Supp. 1142, 1153-54 (D.Del.1982). The computer software system and upgrades, to be merchantable, must have been capable of passing without objection in the trade under the contract description, and fit for the ordinary purposes for which they were intended. See Del.Code tit. VI, § 2-314(1) (2).
Vision Graphics' claim, however, is based on the system's inability to be made postscriptable a condition that is neither set forth in the written contract nor properly considered as an "ordinary purpose" for which such system was intended. While it may be true that Vision Graphics' long-term objective was to have the system postscriptable, this feature was certainly not part of the "ordinary purpose" of the system at the time when the contract was executed. The "ordinary purpose" of the system was to handle tasks relating to computer graphics. There is no evidence in the record showing that the system failed to accomplish such tasks.
Some evidence of the existence of a defect at the time of delivery is an essential element of a cause of action for breach of the implied warranty of merchantability. See DiIenno v. Libbey Glass Div., Owens-Illinois, Inc., 668 F.Supp. 373, 377 (D.Del. 1987). Vision Graphics does not allege that the system was defective at the time of delivery, and the system continues to perform as it did at the time of installation. On the undisputed facts of record, even if the warranty had not been effectively disclaimed, no breach of implied warranty occurred here as a matter of law. Thus, defendant is entitled to summary judgment on Count II.
3. Count V: Promissory Estoppel
Citing Boomer v. New York Central Railroad Co., 409 F.2d 382 (7th Cir.1969), plaintiff contends that defendant's promises as to its future support of the system were intended to, and did, induce plaintiff to take action to its detriment. These undertakings are therefore enforceable, plaintiff says.
It is true that representations as to the future, reasonably calculated to induce action or forbearance, and in fact inducing such action or forbearance, may be enforced where to do so would avoid injustice. See Restatement (Second) of Contracts § 90 (1981). Plaintiff must prove an actual promise or definite assurance, and his own reliance thereon to his detriment. See VonFeldt v. Stifel Fin. Corp., 714 A.2d 79, 87 (Del.1998).
The party asserting estoppel, however, has the burden of proving it by clear and convincing evidence. See Reeder, 397 A.2d at 141. "Mere expressions of opinion, expectation or assumption are insufficient." Reeder v. Sanford Sch. Inc., 397 A.2d 139, 141 (Del.Sup.Ct.1979).
"It is well settled that a mere statement of future intention does not rise to the level of a binding promise and cannot be relied upon for promissory estoppel purposes." Morris v. Runyon, 870 F.Supp. 362, 374 (D.D.C.1994) (citation omitted). Such vague statements, made as expressions of future intention and unrelated to the present condition of the *100 system, do not constitute a sufficiently definite promise for promissory estoppel purposes.
In this case, where the written contract contains an integration clause, conflicting oral assurances about future behavior cannot provide the evidentiary fuel necessary to carry that burden. See Coll v. PB Diagnostic Sys., Inc., 50 F.3d 1115, 1124-25 (1st Cir.1995).
As a final consideration, the court's denial of defendant's motion on the counts alleging misrepresentation will supply plaintiff with an opportunity to obtain any relief it is entitled to under this related but more appropriate theory.
In summary, the record will not support any claim for promissory estoppel. Defendant's motion for summary judgment will therefore be allowed as to Count V.
C. Counts III & IV: Intentional and Negligent Misrepresentation
For these two non-contractual counts, the parties agree that Massachusetts law governs. "Massachusetts jurisprudence recognizes causes of action for both fraudulent misrepresentation and negligent misrepresentation." Massachusetts Sch. of Law at Andover, Inc. v. American Bar Ass'n, 142 F.3d 26, 41 (1st Cir.1998). Accordingly, this court will treat plaintiff's intentional misrepresentation claim as one alleging fraudulent misrepresentation. The First Circuit recently articulated the elements of a negligent misrepresentation claim under Massachusetts law:
that defendant falsely represented a past or existing material fact without any reasonable basis for thinking it to be true; that he intended to euchre the plaintiff into relying on the representation; that the plaintiff, unaware of the representation's falsity, justifiably relied on it; and that the plaintiff suffered harm due to his reliance.
Id. For an action claiming intentional or fraudulent misrepresentation, plaintiff must also show that defendant made the false representation either knowing that the statement was false or with reckless disregard for the truth. See Kelly v. Brigham & Women's Hosp., No. CIV.A. 97-0489B, 1998 WL 512983, at *5 (Mass.Sup. Ct. July 23, 1998); see also Petricca v. Simpson, 862 F.Supp. 13, 16 (D.Mass. 1994).
Vision Graphics points to statements made by Du Pont that the system would be fully postscriptable by the end of 1993, and to Exhibit D showing that research and development regarding postscript capability was not even budgeted by Du Pont in 1993. The record therefore contains sufficient evidence to justify a jury in concluding that the promises with regard to postscriptability were either negligently or intentionally misleading.
Given this conclusion, the critical issue is whether the record contains sufficient evidence to support a conclusion that defendant's statements were actually representations of fact and were, in fact, untrue.
Du Pont argues that its statements were merely "opinion," vague predictions of future conduct or sales "puffery" regarding the general virtues of the system. It is possible at a trial on the merits that a jury may accept this contention. But the record as a whole, examined in the light most favorable to Vision Graphics, would also justify a contrary verdict.
Statements made in this kind of commercial context are more likely to be actionable, when, as here, the speaker possesses special knowledge of facts unknown to the party relying on the statements. See McEneaney v. Chestnut Hill Realty Corp., 38 Mass.App.Ct. 573, 575, 650 N.E.2d 93 (1995) (citing Restatement (Second) of Torts § 539). In this case, Du Pont possessed all the knowledge and control, unknown to Vision Graphics, as to whether the system was actually going to be postscriptable. Without such knowledge or any other information that indicated otherwise, Vision Graphics may be *101 found to have reasonably and justifiably relied on Du Pont's statements when it entered into the contracts. The motion for summary judgment on Counts III and IV will therefore be denied.
D. Count VI: Violation of Mass. Gen. Laws ch. 93A
Finally, Vision Graphics alleges that Du Pont has engaged in unfair or deceptive trade practices in violation of Mass. Gen. Laws ch. 93A. The test for assessing a 93A claim such as this is summarized in Quaker State Oil Ref. Corp. v. Garrity Oil Co., 884 F.2d 1510 (1st Cir.1989): "The objectionable conduct must attain a level of rascality that would raise an eyebrow of someone inured to the rough and tumble of the world of commerce." Id. at 1513 (quoting Levings v. Forbes & Wallace, Inc., 8 Mass.App.Ct. 498, 396 N.E.2d 149 (1979)). To put it in another way, a chapter 93A plaintiff "must show that the defendant's actions fell `within at least the penumbra of some common-law, statutory, or other established concept of unfairness,' or were `immoral, unethical, oppressive or unscrupulous,' and resulted in `substantial injury ... to competitors or other businessmen.'" Id. (quoting PMP Assocs., Inc. v. Globe Newspaper Co., 366 Mass. 593, 596, 321 N.E.2d 915 (1975)). Here, since the question of "whether a particular set of acts, in their factual setting, is unfair or deceptive is a question of fact," Ahern v. Scholz, 85 F.3d 774, 797 (1st Cir.1996) (quoting Schwanbeck v. Federal-Mogul Corp., 31 Mass.App.Ct. 390, 414, 578 N.E.2d 789 (1991), rev'd on other grounds, 412 Mass. 703, 592 N.E.2d 1289 (1992)), and since this court has already found that Vision Graphics' misrepresentation claims will survive summary judgment, Du Pont's motion for summary judgment on this count, as well, will be denied.
IV. CONCLUSION
For the foregoing reasons, defendant's motion for summary judgment is ALLOWED with respect to Counts I, II, and V, and DENIED with respect to Counts III, IV, and VI. The case will now proceed on plaintiff's claims for intentional and negligent misrepresentation, and unfair trade practices under chapter 93A. The clerk will set the case for a status conference. Three days prior to the conference, counsel will submit their written proposed schedule for completion of discovery.
A separate order will issue.
NOTES
[1] "`Electronic pre-press' refers to computer systems used by the printing industry that scan color picture and graphic images into the computer system in digital format, in which images and text can be added, altered, manipulated and composed into pages, which are output onto plates or other media from which printing can be performed by conventional printing systems." (Docket No. 16, Defendant's Statement of Uncontested Facts, at ¶ 2).
[2] The court will omit the technical names for the equipment in question; the nomenclature is irrelevant to the discussion of the legal issues.
[3] Plaintiff's citation of a rather old Pennsylvania district court decision is unpersuasive. Carl Beasley Ford, Inc. v. Burroughs Corp., 361 F.Supp. 325 (E.D.Pa.1973), did not involve an integration clause. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2413362/ | 243 F.Supp.2d 987 (2003)
Daniel HOWELL, Plaintiff,
v.
LAB ONE, INC., a Missouri Corporation, Lab One, Inc., a Delaware Corporation, Union Pacific Railroad Co., a Utah Corporation, Defendants.
No. 8:02CV73.
United States District Court, D. Nebraska.
February 10, 2003.
*988 Jayson D. Nelson, Omaha, NE, Richard J. Dinsmore, Omaha, NE, for Plaintiff.
Joseph S. Daly, Daly Law Firm, Omaha, NE, for Lab One, Inc.
Henry N. Carnaby, Union Pacific Law Department, Omaha, NE, for Union Pacific Railroad Co.
MEMORANDUM AND ORDER
BATAILLON, District Judge.
This matter is before the court on defendant Lab One's motion to dismiss, Filing No. 10, and defendant Union Pacific Railroad Company's (U.P.'s) motion to dismiss or alternatively for summary judgment, Filing No. 11. Plaintiffs motion for oral argument on the motions is also pending, Filing No. 26. The court finds oral argument is not necessary and the motion for oral argument will be denied.
*989 I. Background
Daniel Howell, a former freight conductor employed by U.P., asserts he was wrongfully terminated by U.P. in reliance on results of a random drug test negligently performed by Lab One. In his complaint, which was removed from state court, Howell asserted state law claims of negligence, breach of contract, defamation, negligent misrepresentation, fraudulent misrepresentation, interference with an existing business relationship, interference with a prospective business relationship, intentional infliction of mental distress, and invasion of privacy. In ruling on a motion to remand, this court earlier found that Howell's state law claims are preempted by federal law. See Memorandum and Order, Filing No. 23. Defendants now argue that the state law claims should be dismissed as preempted. Although Howell's complaint did not explicitly include any federal claims, the court's earlier order establishes that Howell's claims arise under the Railway Labor Act (RLA), 45 U.S.C. § 151, and the Federal Railway Safety Act (FRSA), 49 U.S.C. § 20101, as amended by the Federal Omnibus Transportation Employee Testing Act of 1991 (FOTETA), 49 U.S.C. § 20140, and is governed by regulations promulgated by the Secretary of Transportation, at 49 C.F.R. §§ 40 and 219, pursuant to these statutes.[1]
Lab One moves to dismiss the federal claims for failure to state a claim on which relief can be granted. It contends that there is no private right of action under the federal statutes. U.P. similarly moves to dismiss and alternatively moves for summary judgment, asserting that any claim premised on the Railway Labor Act is barred because Howell failed to appeal the denial of Howell's grievance in connection with this issue.
In support of its motion, U.P. has shown that Howell was covered by a collective bargaining agreement governed by the Railway Labor Act, 45 U.S.C. § 151, et seq. Filing No. 12, Ex. B. U.P.'s Drug and Alcohol Policy and Procedures mandated drug and alcohol tests and were promulgated consistent with its rights under "current collective bargaining agreements." Filing No. 12, Ex. A at 7. Howell filed a grievance challenging the drug test findings and his resultant discharge and was granted a hearing and an opportunity to present evidence. Filing No. 12, Ex. C. After an adverse ruling, he appealed to the Special Board of Adjustment, which rendered an unfavorable decision on August 18, 1999. Id. He did not petition the district court for review of the Board's findings under 45 U.S.C. § 153(q).
II. Discussion
Defendants' motions are premised on the theory that since the RLA, FSRA, and FOTETA completely preempt state law, all alleged causes of action arise under federal law but fail to state a claim upon which relief can be granted and should therefore be dismissed. The court agrees. Complete preemption has jurisdictional consequences that distinguish it from preemption asserted only as a defense. See Gaming Corp. of Amer. v. Dorsey & Whitney, 88 F.3d 536, 542 (8th Cir.1996). The *990 defense of preemption can prevent a claim from proceeding, but in contrast to complete preemption it does not convert a state claim into a federal claim. Id. The court's finding of complete preemption as a basis for jurisdiction does not resolve the issue of preemption as a defense. See id. For the reasons stated below and in this court's earlier order, the court finds Howell's state law claims are preempted and should be dismissed.
A. Motion to dismiss FOTETA claim
In considering a motion to dismiss a complaint under Rule 12(b)(6), the court must assume all the facts alleged in the complaint are true and must liberally construe the complaint in the light most favorable to the plaintiff. Schmedding v. Tnemec Co., 187 F.3d 862, 864 (8th Cir.1999). A Rule 12(b)(6) motion to dismiss a complaint should not be granted unless it appears beyond a doubt that the plaintiff can prove no set of facts which would entitle him to relief. Id. Thus, as a practical matter, a dismissal under Rule 12(b)(6) should be granted only in the unusual case in which a plaintiff includes allegations that show on the face of the complaint that there is some insuperable bar to relief. Id.
Howell's complaint fails to state a claim under federal law. In 1991, Congress passed FOTETA, amending the Federal Railway Safety Act, to require drug testing of railroad workers in safety-sensitive positions. See 49 U.S.C. § 20140. Pursuant to the statute, the Secretary of Transportation has promulgated the Department of Health and Human Services (DHHS) Procedures for Transportation Workplace Drug and Alcohol Testing Programs regulations. See 49 C.F.R. Part 40. Drug testing procedures must comply with the scientific and technical procedures set forth in those regulations. See 49 C.F.R. § 382.105.
FOTETA and the regulations promulgated thereunder do not provide for, nor imply, a private right of action. Parry v. Mohawk Motors of Michigan, Inc., 236 F.3d 299, 308-09 (6th Cir.2000); see also Drake v. Delta Air Lines, Inc., 147 F.3d 169, 170-71 (2d Cir.1998) (affirming district court's conclusion that plaintiff did not have a private cause of action under 49 C.F.R. Part 40); Schmeling v. NORDAM, 97 F.3d 1336, 1343-44 (10th Cir.1996) (concluding that 49 C.F.R. § 40.35 did not provide for a private cause of action); Abate v. Southern Pacific Transp. Co., 928 F.2d 167 (5th Cir.1991) (concluding that Federal Railroad Safety Act provides no private cause of action to enforce regulations implementing federally mandated drug-testing programs set forth in 49 C.F.R. Part 40). Accordingly, the court finds that Howell cannot state a claim under the FRSA, as amended by FOTTA, and the claim will be dismissed.
B. Motion for Summary Judgment
On a motion for summary judgment, the question before the court is whether the record, when viewed in the light most favorable to the nonmoving party, 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); Mansker v. TMG Life Ins. Co., 54 F.3d 1322, 1326 (8th Cir.1995). Where unresolved issues are primarily legal rather than factual, summary judgment is particularly appropriate. Id.
If the resolution of a state-law claim "depends upon the meaning of a collective-bargaining agreement, the application of state law (which might lead to inconsistent results since there could be as many state-law principles as there are States) is pre-empted and federal laborlaw principles-necessarily uniform throughout the Nationmust be employed *991 to resolve the dispute." Lingle v. Norge Div. of Magic Chef Inc., 486 U.S. 399, 405-06, 108 S.Ct. 1877, 100 L.Ed.2d 410 (1988). Under the Railway Labor Act, a dispute is classified as either major, involving the creation of new contractual rights, or minor, involving the interpretation and enforcement of existing collective bargaining agreements (CBAs). See Consol. Rail Corp. v. Ry. Labor Executives Ass'n, 491 U.S. 299, 302-05, 109 S.Ct. 2477, 105 L.Ed.2d 250 (1989) (Conrail). The distinction is important when establishing jurisdiction because minor disputes must be submitted to binding arbitration. See Hawaiian Airlines, Inc. v. Norris, 512 U.S. 246, 252-53, 114 S.Ct. 2239, 129 L.Ed.2d 203 (1994). In the railroad industry, minor disputes must be resolved only through the RLA mechanisms, including the carrier's internal dispute-resolution processes and an adjustment board established by the employer and the unions. See 45 U.S.C. § 184; Conrail, 491 U.S. at 302, 109 S.Ct. 2477. Judicial review of the arbitral decision is limited. See Conrail, 491 U.S. at 302-03, 109 S.Ct. 2477; Union Pacific R. Co. v. Sheehan, 439 U.S. 89, 93, 99 S.Ct. 399, 58 L.Ed.2d 354 (1978).
"Minor" disputes involve the interpretation and enforcement of an existing CBA. Bhd. of Maint. of Way Emps. v. Burlington N. Santa Fe R.R., 270 F.3d 637, 638 (8th Cir.2001). Although there is no bright line to differentiate between major and minor disputes, a dispute that is arguably justified by the terms of the CBA is minor. Id, The railroad has the "relatively light burden" of establishing the exclusive arbitral jurisdiction of the adjustment board under the RLA and there is a presumption that disputes between railroads and their unionized employees are minor and, thus, arbitrable. Schiltz v. Burlington N.R.R., 115 F.3d 1407, 1413 (8th Cir.1997). If doubts arise as to the type of dispute at issue, a court should construe the dispute as minor. Id.
The court concludes that Howell's complaint involves a minor dispute. Objections to drug testing are "minor disputes" in the RLA's parlancethat is, disputes about the interpretation or application of an existing agreement. See, e.g., Consol. Rail, 491 U.S. at 311, 109 S.Ct. 2477 (noting that although the labor agreement did not mention drug tests, the dispute was "minor" because "collective-bargaining agreements may include implied, as well as express, terms"); Airline Professionals Ass'n v. ABX Air, Inc., 274 F.3d 1023, 1029 (6th Cir.2001) (finding dispute regarding random searching of union members to be a minor dispute); Chapple v. Nat'l Starch & Chem. Co., 178 F.3d 501, 508 (7th Cir.1999) (stating "[w]hether the plaintiffs were wrongfully discharged or not depends on whether the company acted properly in setting up the drug investigation and had sufficient cause to fire the plaintiffs" and would "require a court to decide if the employer was acting within the scope of the management rights clause of the collective bargaining agreement"); In the Matter of Amoco Petroleum Additives Co., 964 F.2d 706, 710 (7th Cir. 1992) (noting "objections to drug testing are `minor disputes' in the RLA's parlance"); Schlacter-J ones v. Gen. Tel, 936 F.2d 435, 441 (9th Cir.1991) (employee's state law claims were preempted where the "allegations turn on the propriety of [the company]'s Drug Policy and cannot be assessed without examining the CBA to determine whether the Drug Policy was a valid term and condition of employment"); and Jackson v. Liquid Carbonic Corp., 863 F.2d 111, 121 (1st Cir.1988) (rejecting state law privacy and constitutional challenges to drug tests as preempted where "[t]he central thesis of his suit questions whether [the employer]'s drug-testing protocol was reasonable").
*992 Admittedly, the RLA's mechanism for resolving minor disputes does not preempt causes of action to enforce rights that are independent of the CBA. Norris, 512 U.S. at 256, 114 S.Ct. 2239 (involving application of state whistle-blower protection). Howell's complaint, however, presents no such claims. Compare Meyer v. Schnucks Markets, Inc., 163 F.3d 1048, 1050-51 (8th Cir.1998) (finding no CBA interpretation needed to resolve state law claims of slander and tortuous interference where allegations involved retaliation for criticism of employer's sanitation procedures and public criticism and harassment of employee), Luecke v. Schnucks Markets, Inc., 85 F.3d 356, 359-60 (8th Cir.1996) (allowing action for defamation in a case involving a claim that employer publicly disseminated false information of employee's refusal to submit to a drug test, noting the case did not involve a challenge to the employer's right to require the drug test or to discipline an employee for failing to take or pass the drug test), and Taggart v. Trans World Airlines, 40 F.3d 269, (finding state law claim for handicap discrimination was independent of CBA), with Gore v. Trans World Airlines, 210 F.3d 944, 949-52 (8th Cir.2000) (finding claims of false arrest, slander, invasion of privacy, and negligence inextricably intertwined with consideration of the terms of the labor contract in a case involving termination for making threats).
The court finds that Howell's claims in this case are inextricably intertwined with the provisions of the collective bargaining agreement. Howell's allegations involve actions that took place in the course and scope of his employment and procedures governed by a collective bargaining agreement. The gravamen of Howell's complaint involves interpretation of the contract language in the CBA known as the management prerogatives clause, pursuant to which the drug testing policy was promulgated. "Employers and employees are free to negotiate what actions an employer may take to preserve the safety and security of the workplace and the safety of other employees." Id. at 952. Moreover, although state law creates certain tort actions, in a case where "the collective bargaining agreement is the defining source of the duties specifically owed by the defendants for each [tort] claim asserted," a plaintiff "cannot establish liability on his tort claims without demonstrating that the defendants' actions were wrongful under a proper interpretation of the relevant rights and duties bargained for in the collective bargaining agreement." See id. at 952.
The allegations in Howell's complaint relate only to the circumstances leading up to his termination for failure to provide a sample for a drug test. There are no allegations that stem from any actions by U.P. apart from its promulgation of and enforcement of its Drug and Alcohol Policy, its disciplinary procedures, and its decision to terminate Howell. All of these are governed by the collective bargaining agreement. Importantly, the allegations in Howell's complaint that relate to defamation, negligent misrepresentation, fraudulent misrepresentation, intentional infliction of emotional distress and invasion of privacy refer to Lab One's reporting Howell's drug test results to U.P. Similarly, Howell's allegations of interference with an existing and prospective business relationships are based on Howell's employment relationship with U.P. Allegations of negligence relate to Lab One's testing procedures and to U.P.'s alleged shortcomings in its disciplinary process. The contract allegedly breached was the contract between Lab One and U.P. In short, Howell is challenging his termination.
There is no dispute that Howell utilized the U.P.'s internal dispute resolution mechanism to challenge his termination. *993 See Filing No. 12, Ex. C. A party who has litigated an issue before the Adjustment Board on the merits may not relitigate that issue in an independent judicial proceeding. Andrews v. Louisville & Nashville R.R. Co., 406 U.S. 320, 324, 92 S.Ct. 1562, 32 L.Ed.2d 95 (1972). He is limited to the judicial review of the Board's proceedings that the Act itself provides. Id.; 45 U.S.C. § 1539(q). The proper avenue of redress for Howell would have been a petition for review of the Board's order. Because Howell's claims are preempted by the RLA and Howell did not pursue his remedies thereunder, U.P. is entitled to judgment on Howell's claims.
Accordingly,
IT IS ORDERED:
1. The plaintiffs motion for oral argument, Filing No. 26, is denied;
2. Defendant Lab One's motion to dismiss, Filing No. 10, is granted;
3. Defendant U.P.'s motion to dismiss or for summary judgment, Filing No. 11, is granted; and
4. A separate judgment will be entered in accordance with this Memorandum and Order.
JUDGMENT
In accordance with the court's Memorandum and Order entered on this date,
IT IS ORDERED THAT:
1. Plaintiffs motion for summary judgment, Filing No. 26, is denied;
2. Defendant Lab One's motion to dismiss, Filing No. 10, is granted;
3. Defendant U.P.'s motion to dismiss or for summary judgment, Filing No. 11, is granted;
4. Judgment is entered in favor of defendants and against plaintiff, and this action is dismissed.
NOTES
[1] As noted in the court's earlier opinion, removal based on federal question jurisdiction is generally governed by the "well-pleaded complaint" rule, which provides that federal jurisdiction exists only where a federal question is presented on the face of the plaintiff's properly pleaded complaint, but a narrow exception exists in the case of "complete preemption," under which the preemptive force of certain federal statutes is deemed so "extraordinary" as to convert complaints purportedly based on the preempted state law into complaints stating federal claims from their inception. Krispin v. The May Department Stores Co.. 218 F.3d 919, 922 (8th Cir. 2000). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2467906/ | 49 F. Supp. 2d 851 (1999)
AMERICA ONLINE, INCORPORATED, Plaintiff,
v.
GREATDEALS.NET et al., Defendants.
No. Civ.A. 99-62-A.
United States District Court, E.D. Virginia, Alexandria Division.
May 4, 1999.
*852 *853 Anthony Tobias Pierce, Akin, Gump, Strauss, Hauer & Feld, Washington, D.C., for plaintiff.
William Francis Krebs, Galland, Skaraseh & Garfinkle, Washington, D.C., for defendant.
MEMORANDUM OPINION AND ORDER
LEE, District Judge.
THIS MATTER is before the Court on Plaintiff's Motion to Dismiss Defendants' Counterclaims.[1] The issues presented are: (1) whether Defendants' claim of discrimination in violation of the Federal Communications Act and the Telecommunications Act states a claim where an information service provider rather than a common carrier is the alleged perpetrator of discrimination; (2) whether Defendants' claim of monopolization and attempted monopolization in violation of antitrust laws constitutes a claim upon which relief can be granted; and (3) whether Defendants state a claim for tortious interference with contract and prospective contractual relations where the contract or prospective contractual relation is Defendants' relationship with Plaintiff's subscribers through unsolicited bulk e-mail transmission. For the reasons stated below, the Court grants Plaintiff's Motion to Dismiss and all Defendants' counterclaims are hereby dismissed.
I. BACKGROUND
Defendant Martindale Empowerment ("Martindale") is a Virginia corporation in the business of providing commercial electronic-mail ("e-mail") service to advertisers. GreatDeals.Net is an Internet domain name belonging to Martindale Empowerment and GreatDeals is a trade name belonging to Martindale Empowerment. Until September 1998, Martindale's business included sending *854 commercial electronic advertising over the Internet in the form of e-mail to e-mail addresses throughout the United States.
Plaintiff America Online, Inc. ("AOL") is the largest commercial online service with more than sixteen million individual subscribers across the United States. From late 1996 to September 1998, Martindale transmitted commercial e-mail messages advertising goods and services to AOL subscribers among others. Martindale marketed computers and computer-related equipment. Martindale claims that it ceased transmitting messages to AOL subscribers because AOL created various mechanisms to block these transmissions and succeeded in blocking virtually all such transmissions. Martindale contends that AOL has established itself as the only entity that can advertise to AOL subscribers.
AOL brought a complaint seeking damages and an injunction to prohibit Defendants from continuing their practice of sending unsolicited bulk e-mail ("UBE") advertisements to AOL subscribers. AOL charged Defendants with trespass to chattels, unjust enrichment, and violations of the Computer Fraud and Abuse Act, the Virginia Computer Crimes Act, and Washington State's Unsolicited Commercial Electronic Mail Act. AOL alleged that Defendants used deceptive practices to mask the source and quantity of their transmissions and thereby avoid AOL's filtering technologies. AOL further alleged that Defendants continued such transmissions after specific notice from AOL that their use of AOL's computer network was unauthorized and that AOL was receiving thousands of complaints from its subscribers who received Defendants' UBE.
Defendants admit that they transmitted UBE containing their advertisements for computer equipment to AOL subscribers. In response to the complaint, Defendants filed counterclaims complaining of AOL's acts and attempts to block the transmission of Defendants' UBE from reaching AOL subscribers. Specifically, Defendants claimed that AOL unlawfully discriminated against them in violation of the Federal Communications Act and the Telecommunications Act of 1996, that AOL violated antitrust laws by engaging in monopolization and attempted monopolization, and that AOL intentionally interfered with Defendants' contracts and prospective contracts with advertiser-clients.
AOL has filed a motion to dismiss all Defendants' counterclaims on various grounds. That is the subject of this memorandum opinion and order.
II. STANDARD OF REVIEW ON A MOTION TO DISMISS
A court should grant a motion to dismiss for failure to state a claim when it appears that no relief could be granted under any set of facts that could be proved consistent with the allegations. Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S. Ct. 2229, 81 L. Ed. 2d 59 (1984); Estate Constr. Co. v. Miller & Smith Holding Co., 14 F.3d 213, 217 (4th Cir.1994). The function of a motion to dismiss is to test the sufficiency of the complaint, not to resolve contested facts, the merits of the claim or the applicability of defenses. Republican Party of North Carolina v. Martin, 980 F.2d 943, 952 (4th Cir.1992); Gasner v. County of Dinwiddie, 162 F.R.D. 280, 281 (E.D.Va. 1995). In considering a rule 12(b)(6) motion to dismiss, the factual allegations in the complaint are presumed to be true, all reasonable inferences are made in favor of the non-moving party, and a count should be dismissed only where it appears beyond a reasonable doubt that recovery would be impossible under any set of facts which could be proven. Martin, 980 F.2d at 952; Gasner, 162 F.R.D. at 281.
III. Violations of Federal Communications Act and Telecommunica- *855 tions Act (Counts I and 11)[2]
Counts I and II allege that AOL discriminated against Defendants by blocking their ability to send UBE to hundreds of thousands of AOL's customers over AOL's computer network. Defendants contend that this blocking constitutes discrimination in violation of the Federal Communications Act of 1934[3] and its amendment in the Telecommunications Act of 1996. AOL argues that under section 230(c)(2)(A) of the Telecommunications Act, it is immune from civil liability for actions taken in good faith to restrict access to or availability of material that the provider or user considers to be "obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such material is constitutionally protected."[4] AOL contends that section 230(c)(2) immunity applies here because AOL is an interactive computer service within the meaning of the statute and because UBE is "harassing" and "otherwise objectionable." AOL claims that UBE is objectionable because it typically contains advertisements for pornography or for fraudulent "get rich quick" schemes that AOL members consider offensive and harassing, because it is transmitted indiscriminately to AOL users regardless of age, and because it slows e-mail processing times and requires members to spend time opening and discarding unwanted solicitations.
AOL further argues that it is not subject to the anti-discrimination provisions of the communications laws because AOL is not a common carrier. AOL claims that it is not a common carrier because it does not offer telecommunications services; rather, it offers information services which are distinguishable as found by Congress and the Federal Communications Commission ("FCC").
The Court holds that AOL is not a common carrier and thus is not subject to the anti-discrimination provisions of the Federal Communications Act and the Telecommunications Act.[5] Under the Telecommunications Act, a common carrier is defined as "any person engaged as a common carrier for hire, in interstate or foreign communication by wire or radio or in interstate or foreign radio transmission of energy, except where reference is made to common carriers not subject to this chapter; but a person engaged in radio broadcasting shall not, insofar as such person is so engaged, be deemed a common carrier." 47 U.S.C. § 153(10) (Supp.1998). An interactive computer service is defined as "any information service, system, or access *856 software provider that provides or enables computer access by multiple users to a computer server, including specifically a service or system that provides access to the Internet and such systems operated or services offered by libraries or educational institutions." Id. § 230(e)(2). These two definitions clearly differ. Yet, Congress has not provided clarification on whether an information service provider is a common carrier.
Where a statute is silent or ambiguous with respect to a specific issue, the Court must defer to the agency's interpretation of the statute unless it is an impermissible construction or manifestly contrary to the statute. Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843-44, 104 S. Ct. 2778, 81 L. Ed. 2d 694 (1984); City of Dallas v. Federal Communications Comm'n, 165 F.3d 341, 346-47 (5th Cir.1999); Kennedy v. Shalala, 995 F.2d 28, 30 (4th Cir.1993). In a 1998 Report to Congress, the FCC concluded that Congress intended the categories of telecommunications service and information service to be mutually exclusive, similar to the mutual exclusivity of basic and enhanced service. See 13 F.C.C.R. 11501 ¶ 13 (Apr. 10, 1998). The FCC stated that information service providers generally do not provide telecommunications service. Id. The FCC found that Congress intended to maintain a regime in which information service providers are not subject to regulation as common carriers merely because they provide their services "via telecommunications." Id. In particular, the FCC opined:
The Internet and other enhanced services have been able to grow rapidly in part because the Commission concluded that enhanced service providers were not common carriers within the meaning of the Act. This policy of distinguishing competitive technologies from regulated services not yet subject to full competition remains viable.... We believe that Congress, by distinguishing "telecommunications service" from "information service," and by stating a policy goal of preventing the Internet from being fettered by state or federal regulation, endorsed this general approach.
Id. ¶ 95 (footnotes omitted).
There is further support for the conclusion that information service providers such as AOL are not common carriers and thus are not subject to the same regulation as a common carrier or telecommunications carrier. If Congress had intended to include interactive computer services or information service providers like AOL in the definition of common carrier, it would have so indicated. However, section 230(e)(2) demonstrates that Congress recognized the different type of service an interactive computer service provides and constructed a definition to cover such providers. AOL is an interactive computer service because it provides access and software that enables access by multiple users both to AOL's computer servers and the Internet. See Zeran v. America Online, Inc., 129 F.3d 327, 330 n. 2 (4th Cir.1997) (treating AOL as an interactive service provider); Blumenthal v. Drudge, 992 F. Supp. 44, 49-50 (D.D.C.1998) (same). Furthermore, the Telecommunications Act sets forth Congress's explicit desire to have the Internet remain without regulation by federal or state government. See e.g., 47 U.S.C. § 230(b)(2) ("It is the policy of the United States ... to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation."). In addition, FCC Chairman William Kennard as well as other FCC representatives have all stated that the Internet will not be regulated by the FCC. See e.g., Jeannine Aversa, FCC Won't Regulate Internet. Really., Wash. Post, Mar. 12, 1999, at E3 (citing FCC Chairman William E. Kennard, Remarks Before Legg Mason in Washington, DC (Mar. 11, 1999)). In fact, neither party has identified a case where a federal or state court has applied common carrier regulation-either generally or specifically *857 on the discrimination provision-to an information service provider. Thus, this Court will not be the first to do so, especially in the face of contrary direction by Congress and the FCC.
Having found that AOL is not a common carrier and dismissing Counts I and II on those grounds, the Court does not reach the immunity argument.
IV. Violations of Antitrust Laws (Counts III & IV)
AOL assumed in its briefs and Defendants confirmed in their opposition that the antitrust violations are based on the Sherman Act, 15 U.S.C. § 2.
A. Monopolization
AOL argues that the antitrust violation claims should be dismissed because Defendants cannot sufficiently allege an element essential to all their claims-monopoly power by AOL in a relevant market. Defendants contend that whether AOL has engaged in monopolization is a question of fact that cannot be resolved at the motion to dismiss stage. Defendants claim that the relevant market is e-mail advertising and that AOL controls a distinct sub-market based on the Internet subscribers who are accessed through AOL facilities.
To prevail on a monopolization claim, a party must show: (1) possession of monopoly power in a relevant market; (2) willful acquisition or maintenance of that power in an exclusionary manner; and (3) causal antitrust injury. Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 596 n. 19, 105 S. Ct. 2847, 86 L. Ed. 2d 467 (1985) (quoting United States v. Grinnell, 384 U.S. 563, 570-71, 86 S. Ct. 1698, 16 L. Ed. 2d 778 (1966)); Advanced Health-Care Servs., Inc. v. Radford Community Hosp., 910 F.2d 139, 147 (4th Cir.1990). Mere allegations that a party has violated the antitrust laws are insufficient to survive a motion to dismiss under rule 12(b)(6); the party must plead sufficient facts to establish each element and cannot use terms which are conclusory. Estate Constr. Co. v. Miller & Smith Holding Co., 14 F.3d 213, 220-21 (4th Cir.1994).
1. Relevant Market
AOL argues that Defendants have failed to allege a viable relevant market and that several courts have granted motions to dismiss where a relevant market is not alleged with references to the availability of interchangeable alternatives or cross-elasticity of demand. See e.g., Queen City Pizza, Inc. v. Domino's Pizza, Inc., 124 F.3d 430, 436 (3d Cir.1997), cert, denied, ___ U.S. ___, 118 S. Ct. 1385, 140 L. Ed. 2d 645 (1998); Rohlfing v. Manor Care, Inc., 172 F.R.D. 330, 345 (N.D.Ill. 1997) (proposed market definition held legally inadequate because it is improper to define a market in terms of a single class of customers); Deep South Pepsi-Cola Bottling Co. v. Pepsico, Inc., No. 88 CIV 6243, 1989 WL 48400, at *8-9 (S.D.N.Y. May 2, 1989) (manufacturer's monopoly over distribution of its own product cannot form basis of valid monopolization claim); Shaw v. Rolex Watch, U.S.A., Inc., 673 F. Supp. 674, 678-79 (S.D.N.Y.1987) (refusing to restrict relevant market to company's trademarked product). Defendants argue that the proper market for purposes of this case is e-mail advertising and that Internet subscribers who are accessed through the facilities which AOL controls constitute a distinct sub-market. Defendants claim that e-mail advertising is a different medium than other forms of advertising and it is addressed to a demographically select portion of the population. The Court holds that Defendants' monopolization claim should be dismissed for failure to plead a relevant market.
A relevant market has two dimensions: (1) the relevant product market, which identifies the products or services that compete with each other, and (2) the relevant geographic market, which identifies the geographic area within which competition takes place. Brown Shoe Co. v. United States, 370 U.S. 294, 324, 82 S.Ct. *858 1502, 8 L. Ed. 2d 510 (1962); Bathke v. Casey's Gen. Stores, 64 F.3d 340, 345 (8th Cir.1995); see also ABA Section of Antitrust Law, Antitrust Law Developments 493 (4th ed.1997). The outer boundaries of a relevant market are determined by reasonable interchangeability of use. Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 482, 112 S. Ct. 2072, 119 L. Ed. 2d 265 (1992). Reasonable interchangeability of use refers to consumers' practicable ability to switch from one product or service to another. Antitrust Law Developments, supra, at 500. Thus, the Court must consider whether there are any substitutes for Defendants' e-mail advertising to AOL subscribers.
In defining the relevant product or service market, the Court finds that there are reasonable substitutes for advertising through AOL. Thus, it must reject Defendants' proposed relevant market. First, the Court rejects Defendants' attempt to restrict the market to e-mail advertising. There are numerous substitutes for e-mail advertising. There are numerous substitutes for e-mail advertising, some of which are less expensive, including use of the World Wide Web, direct mail, billboards, television, newspapers, radio, and leaflets, to name a few. Even if the Court restricted the market to e-mail advertising, interchangeable substitutes include other paid e-mail subscription services such as Microsoft Network or Prodigy, or free e-mail services like Hotmail and Yahoo. See Cyber Promotions, Inc. v. America Online, Inc., 948 F. Supp. 456, 459 (E.D.Pa.1996) (citing American Civil Liberties Union v. Reno, 929 F. Supp. 824, 832-33 (E.D.Pa. 1996)) (noting that computer users have a wide variety of avenues by which to access the Internet, including the major national commercial online services such as America Online, CompuServe, the Microsoft Network, or Prodigy); Leslie Walker, Rivals Cede Throne to AOL, Wash. Post, Apr. 8, 1999, at El (naming some of the 4,000 companies providing dial-up access to the Internet). The Court will not restrict the market to AOL subscribers because it is improper to define a market simply by identifying a group of consumers who have purchased a given product. See Rohlfing, 172 F.R.D. at 345. Instead, the market consists of the array of "interchangeable" products that those consumers confronted when making their product selection. Here, AOL subscribers could have chosen another paid e-mail service or a free e-mail service. Thus, those entities are part of the relevant market. This is not a case like Eastman Kodak where a single brand of product or service constitutes a relevant market because it is unique. In this case, there are other e-mail services that provide the same type of service as AOL. Defendants could have advertised through another e-mail service and still reached the Internet-accessing public.
With respect to the relevant geographic market in which competition takes place, the Court finds that the Internet cannot be defined with outer boundaries. It is not a place or location; it is infinite. The Internet is a "giant network which interconnects innumerable smaller groups of linked computer networks." Cyber Promotions, Inc., 948 F.Supp. at 459. The network "allows any of literally tens of millions of people with access to the Internet to exchange information." Id. Defendants ignore the fact that they have multiple means of advertising their computer equipment to the Internet-accessing public. The geographic market may not be restricted to AOL subscribers not only because there are other persons with access to the Internet, but also because there are other means of advertising to those persons and to AOL subscribers.
While proper market definition is often determined after a factual inquiry into the commercial realities faced by consumers, Eastman Kodak Co., 504 U.S. at 482, 112 S. Ct. 2072, an antitrust plaintiff must still allege a legally sufficient relevant market, see Rohlfing, 172 F.R.D. at 347 n. 23. "Where the relevant market proposed by the plaintiff is not even alleged to encompass *859 all interchangeable substitute products, the market is legally (rather than factually) insufficient, and a motion to dismiss is appropriate." Id.; see also Queen City Pizza, Inc., 124 F.3d at 430; Lee v. Life Ins. Co., 23 F.3d 14, 18-19 (1st Cir. 1994) (holding that inadequate allegations regarding scope of relevant market are proper grounds for rule 12(b)(6) dismissal); TV Communications Network, Inc. v. Turner Network Television, Inc., 964 F.2d 1022, 1025 (10th Cir.1992). Thus, dismissal here is appropriate because Defendants' proposed market definition fails legally due to the lack of interchangeable substitutes.
2. Exclusionary or Anti-Competitive Conduct
The second element of a monopolization claim requires that Defendants prove willful acquisition or maintenance of the monopoly power in an exclusionary manner. Aspen Skiing Co., 472 U.S. at 596 n. 19, 105 S. Ct. 2847. Whether conduct is exclusionary is not defined by the effect of such conduct on Defendants. Id. at 605, 105 S. Ct. 2847. The Court should consider the impact of such conduct on consumers and competitors. Id. If Defendants show that AOL has harmed consumers and competition by making a short-term sacrifice in order to further its exclusive, anti-competitive objectives, then Defendants establish predation by AOL. Advanced Health-Care Servs., Inc., 910 F.2d at 148. Exploiting competitive advantage that is legitimately available, however, does not amount to predatory conduct, even for a firm with monopoly power. Id. at 147 n. 14. Thus, general intent to gain monopoly power. Id. at 147 n. 14. Thus, general intent to gain monopoly status is not sufficient absent some predatory conduct.
Here, Defendants make no showing of harm to consumers or to AOL's competition.[6] Furthermore, Defendants do not point to any exclusive, anti-competitive objectives other than AOL's requirement that advertisers pay for the right to advertise on AOL's network to AOL's subscribers. Even if the Court views AOL as a monopoly power in the Internet access or information services market because AOL has 16 million subscribers, there is no proof of exclusionary conduct by AOL. Defendants' allegation that AOL discouraged other information service providers from permitting Martindale to advertise on their networks does not amount to anti-competitive conduct. Defendants fail to allege or demonstrate any impact of the purported anti-competitive, conduct on consumers or competitors. Indeed, Defendants' claim seems to rest on the fact that AOL has been successful in the information services market. Where, as here, there is no predatory conduct and a successful entrepreneur competing in the infinite Internet market, there can be no claim of monopolization. Thus, Defendants cannot prevail on this aspect of the monopolization claim and dismissal is appropriate.
3. Causal Antitrust Injury
Defendants claim that their antitrust injury is shown by the fact that AOL's actions have put Defendant Martindale out of business. This is insufficient to prove this element of a monopolization claim.
In Advanced Health-Care Services, Inc., the Fourth Circuit reversed a district court's dismissal of a monopolization claim for failure to allege a causal antitrust injury. 910 F.2d at 149. The Court found that the plaintiff made colorable allegations that it had lost income as a direct result of the defendants' anti-competitive actions and monopolization of the relevant medical equipment markets. Id.
*860 In the instant case, Defendants claim, "By monopolizing the market for transmission of commercial electronic messages to its subscribers, AOL has caused substantial damage to Martindale in an amount which will be proven at trial." Counterclaim, Count III, ¶ 25. This is not a sustainable allegation of causal antitrust injury. As stated above, Defendants fail to allege any anti-competitive conduct. Moreover, Defendants are not competitors of AOL because they provide different products and services. Thus, it would be impossible for Defendants to base their injury on anti-competitive conduct even if some were alleged. Furthermore, even if Defendants had alleged anti-competitive conduct, there is no allegation of fact supporting a connection between Defendants' loss of business and AOL's conduct. Under Advanced Health-Care Services, Inc., Defendants must allege lost income as a direct result of monopolization of the relevant market. As established above, Defendants have not alleged a relevant market, so they cannot demonstrate the requisite monopolization of the relevant market necessary to show causal antitrust injury. Thus, Defendants have failed to properly allege causal antitrust injury.
In sum, Defendants have failed to state a claim for monopolization under the antitrust laws because they have not properly alleged a relevant market, anti-competitive conduct, or causal antitrust injury.
B. Attempted Monopolization
To establish attempted monopolization, a party must show: (1) specific intent to monopolize the market; (2) antitrust or predatory conduct designed to further that intent; and (3) a dangerous probability of success. Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456, 113 S. Ct. 884, 122 L. Ed. 2d 247 (1993); Abcor Corp. v. AM Int'l, Inc., 916 F.2d 924, 926 (4th Cir.1990).
1. Specific Intent to Monopolize
Defendants claim intent may be inferred from the acts of the party allegedly attempting to monopolize. Defendants contend that such evidence is difficult to obtain without discovery. The only evidence thus far is that AOL blocked Defendants' advertisements, refused to accept compensation from Defendants for the right to advertise to AOL subscribers on AOL's network,[7] and allegedly threatened to stop dealing with other entities who do business with Defendants.
Unlike monopolization, which requires intent only, attempted monopolization requires proof that the accused party had a "specific intent to destroy competition or build monopoly." Abcor Corp., 916 F.2d at 927. A desire to increase market share or even to drive a competitor out of business through vigorous competition on the merits is not sufficient. Id. The monopolizing party must have sought to create a monopoly by circumventing the competitive process. Id. The requisite intent may be shown through direct evidence or through inference by showing anti-competitive practices. Id.
In Abcor Corp., the Court held that certain deposition statements about acquiring business through competition were not sufficient to constitute direct evidence of specific intent to monopolize. 916 F.2d at 927. The Court also rejected the plaintiff's attempt to infer specific intent from a series of anti-competitive acts including discriminatory and deceptive pricing, misuse of confidential financial and customer information, selective denial of parts, lies and misinformation, and hiring of plaintiff's employees. Id. The Court concluded that none of these actions rose to the level of illegal competition. Id.
*861 If dismissal was appropriate in Abcor Corp., it is more than appropriate here where Defendants have failed to allege any conduct that would support an inference of specific intent. The only anti-competitive practice that Defendants allege is that AOL allegedly threatened other providers who dealt with Defendants with lack of access to AOL subscribers if they did not stop dealing with Defendants. Even viewing that allegation in the light most favorable to Defendants as the Court must, it is insufficient to support an inference of specific intent. AOL's vigorous attempts to protect its subscribers from UBE and to prevent Defendants from circumventing AOL's technical means to prevent the transmission of UBE to its subscribers do not show intent to monopolize. See generally America Online, Inc. v. LCGM, Inc., No. Civ.A 98-102-A, 1998 WL 940347, at *5-7 (E.D.Va. Nov.10, 1998) (holding that the practice of sending UBE to AOL subscribers without AOL's authorization and using techniques to avoid AOL's blocking mechanisms constitutes a common law trespass to chattels as well as a violation of statutory computer fraud laws); America Online, Inc. v. IMS et al., 24 F. Supp. 2d 548, 550-51 (E.D.Va.1998) (same).
2. Anti-Competitive or Predatory Conduct
As established in the discussion above on monopolization, Defendants have not alleged any anti-competitive conduct. Thus, there is nothing to show that AOL acted to further a specific intent to monopolize. This factor not satisfied, a motion to dismiss the claim for attempted monopolization is appropriate. See Menasco, Inc. v. Wasserman, 886 F.2d 681, 684-85 (4th Cir.1989).
3. Dangerous Probability of Success
To determine whether there is a dangerous probability of success in monopolizing the market, courts often consider the relevant market and a participant's ability to lessen or destroy competition in that market. Spectrum Sports, 506 U.S. at 456, 113 S. Ct. 884. The Court holds that in this case there cannot be a probability that AOL will monopolize the information services market because the Internet is infinite. Indeed, the Court is unable to measure AOL's market share because the market in which AOL participates is not defined. The Internet is not regulated and an entrant's ability to participate in the market and offer services like that offered by AOL is without boundary.[8] Thus, even if the Court determined AOL's market share to be relatively high, there is no dangerous probability of successful monopolization where there are no substantial barriers to entry and there are other factors that make the exercise of monopoly power unlikely. See Dial A Car, Inc. v. Transportation, Inc., 82 F.3d 484, 486-87 (D.C.Cir.1996) (finding no unlawful attempt to monopolize corporate car service market where there is nothing to indicate that monopolization of the market is even possible); Indiana Grocery, Inc. v. Super Valu Stores, Inc., 864 F.2d 1409, 1414-15 (7th Cir.1989) (finding a 50% market share insufficient to show dangerous probability of successful monopolization where plaintiff conceded that defendant could never control the market); Deauville Corp. v. Federated Dep't Stores, 756 F.2d 1183, 1191 (5th Cir.1985) (upholding directed verdict where ease of entry precluded inference of dangerous probability of success); Advanced Health-Care Servs., Inc. v. Giles Mem'l Hosp., 846 F. Supp. 488, 497 (W.D.Va.1994) (finding a 50% market share is insufficient where evidence of *862 predatory intent and conduct is weak and entry is easy).
Because Defendants can establish none of the factors necessary to show attempted monopolization, dismissal of this claim is appropriate.
C. Denial of Essential Facilities
The third and fourth counts of Martindale's counterclaim are for denial of access to an essential facility. To plead monopolization through the "essential facilities" doctrine, Defendants must allege (1) control of the essential facility by a monopolist; (2) a competitor's inability practically or reasonably to duplicate the essential facility; (3) the denial of the use of the facility to a competitor; and (4) the feasibility of providing the facility to competitors. Laurel Sand & Gravel, Inc. v. CSX Transp., Inc., 924 F.2d 539, 544 (4th Cir.1991); Advanced Health-Care Servs., Inc., 910 F.2d at 150; see also MCI Communications Corp. v. American Tel. & Tel. Co., 708 F.2d 1081, 1132-33 (7th Cir.1983). "An `essential facility' is one which is not merely helpful but vital to the claimant's competitive viability." Cyber Promotions, Inc., 948 F.Supp. at 463.
Here, Defendants allege that AOL controls an essential facility for access to all persons who obtain access to the Internet through AOL. Defendants contend that there is no other way to obtain access to such persons other than through nodes controlled by AOL. Defendants allege that AOL has used its control of Internet nodes to prevent Martindale from transmitting commercial electronic messages to AOL subscribers. At the same time, Defendants contend that AOL does transmit commercial electronic messages for non-AOL advertisers, and thus monopolizes the market for such commercial electronic messages to its subscribers.
On the face of the pleadings, Martindale seems to sufficiently allege element one-that AOL controls an essential facility for access to all AOL subscribers. Martindale fails, however, to effectively plead elements two, three, and four of the essential facilities doctrine.
Elements two, three, and four require that the monopolist and the plaintiff are competitors. Advanced Health-Care Servs., Inc., 910 F.2d at 151; Cyber Promotions, Inc., 948 F.Supp. at 461 (noting that it is unlikely that plaintiff and AOL are competitors even though plaintiff alleged such). The essential facilities doctrine is inapplicable where the alleged monopolist and the plaintiff do not compete. Ferguson v. Greater Pocatello Chamber of Commerce, Inc., 848 F.2d 976, 983 (9th Cir.1988). In the present case, Martindale fails to allege or plead any facts from which the Court could infer that Defendants and AOL are competitors.
In Advanced Health-Care Services, Inc., the Court found that the plaintiff stated the elements of the essential facilities doctrine in order to survive a 12(b)(6) challenge. 910 F.2d at 151. In that case, a durable medical equipment supplier brought an antitrust action against certain hospitals and competitors. Id. at 142. The plaintiff alleged that the hospitals exclusively marketed a competitor's product in return for a financial stake in those sales. Id. The Fourth Circuit noted the hospital's financial stake, but reserved ruling on whether this was enough to make the hospital a competitor of the plaintiff. Id. at 151.
In this case, however, Martindale has not alleged that AOL is a competitor with Martindale. Defendants do not allege that AOL had any financial stake in any other non-AOL advertiser, which would imply AOL's status as a competitor. See Cyber Promotions, Inc., 948 F.Supp. at 461 (stating that Cyber and AOL are not competitors where AOL's business is private commercial online service and Cyber is an advertising agency).
The pleadings also have another defect as to element two. Martindale failed to plead that it could not reasonably duplicate or pursue a reasonable alternative to the *863 essential facility. In fact, Martindale even concedes that in "rare" cases persons such as Martindale can obtain access to such persons other than through nodes controlled by AOL. As stated by another court, "Internet users are not a `captive audience' to any single service provider, but can transfer from one service to another. ..." CompuServe Inc. v. Cyber Promotions, Inc., 962 F. Supp. 1015, 1025 (S.D.Ohio 1997). Anyone can acquire the computer equipment necessary to provide Internet access services on a smaller scale with a relatively minor capital investment. Id. See also Cyber Promotions, Inc., 948 F.Supp. at 463 (listing various means by which an advertiser can reach AOL subscribers). As argued by AOL, Martindale could develop its own commercial online system or advertising web site and charge a competitive rate. Id. Due to the other means by which Martindale could reach AOL subscribers, Martindale cannot properly plead element two of the essential facilities doctrine.
A cursory view of the pleadings might suggest that Martindale does plead elements three and four. As to element three, Martindale alleges that it has been denied access to persons who obtain access to the Internet through AOL.[9] Although Martindale does not specifically allege the feasibility of providing the facility to competitors as required for element four, the pleadings do allege that AOL transmits commercial messages for other non-AOL advertisers. However, because Martindale has failed to allege specifically that AOL is a competitor or to allege any facts that suggest AOL is a competitor, the counterclaim does not effectively plead Counts III and IV.
Because elements two, three, and four of the essential facilities doctrine have not been plead, Counts III and IV are dismissed.
V. Tortious Interference Claims (Counts V, VI, & VIII)
Counts V and VIII of the Counterclaim allege tortious interference with contract. In Count V, Defendants allege that AOL interfered with the contractual relationship between Defendants and their advertiserclient, who sought direct Internet marketing services from Defendants including commercial bulk e-mail, e-mail address collection, and e-mail services. Defendants sent their clients' advertisements to substantial numbers of e-mail addresses. Count VIII of the Counterclaim alleges that AOL interfered with the contractual relationship between Martindale and certain Internet access providers. According to Defendants, they contracted with Internet access providers to connect their computers to the Internet, but the providers terminated their service after being threatened by AOL. Count VI claims intentional interference with prospective advantage and prospective contractual relations. In this count, Defendants claim that AOL interfered with contractual and business relationships with potential advertiser-clients by blocking Defendants' access to the e-mail addresses of AOL subscribers.
AOL contends that Defendants failed to state a claim because they have not and cannot allege two critical elements-a valid contractual relationship and improper means of interference. In response, Defendants argue that they can prove improper means because AOL's blockade of Defendants' e-mail messages to AOL subscribers was wrongful.
In order to plead a case of tortious interference with contract or contract expectancy, the plaintiff must allege: (1) the existence of a contract or contract *864 expectancy; (2) the defendant's knowledge thereof; (3) intentional interference with the contract or expectancy; (4) use of improper means or methods to interfere; and (5) loss suffered by the plaintiff resulting from disruption of the contract or contract expectancy. Maximus, Inc. v. Lockheed Info. Management Sys. Co., 254 Va. 408, 493 S.E.2d 375, 378 (1997); see also Perk v. Vector Resources Group, Ltd., 253 Va. 310, 485 S.E.2d 140, 143 (1997).[10] "Tortious interference" means only that the interference was intentional and improper under the circumstances, not that the improper methods used were inherently illegal or tortious. Maximus, 493 S.E.2d at 379.
The Court holds that Martindale did not have any valid contractual relationship with its advertiser-clients, AOL, or the AOL subscribers, whereby Defendants would have authorization to send e-mail advertisements to AOL subscribers over AOL's network. Under Virginia contract law, a contract made in violation of a statute is void. Taylor Thiemann & Aitken v. Hayes, 244 Va. 198, 418 S.E.2d 897, 899 (1992). Furthermore, when a plaintiff must rely on the illegal contract to establish his cause of action, he may not recover for damages otherwise due him. Id. As AOL notes, this Court has already held that the practice of sending UBE, unauthorized by AOL, and using techniques to evade AOL's blocking mechanisms violates the Computer Fraud and Abuse Act and the Virginia Computer Crimes Act, and constitutes a trespass to chattels. See America Online, Inc. v. LCGM, Inc., 46 F. Supp. 2d 444, 449-52 (E.D.Va. 1998); America Online, Inc. v. IMS et al., 24 F. Supp. 2d 548, 550-51 (E.D.Va.1998). Thus, any contract or business expectancy based on the sending of unauthorized UBE would be contrary to case law and statute and thereby illegal. Consequently, Defendants' alleged contracts with their advertiser-clients to transmit UBE to AOL subscribers is illegal and cannot be the basis for an interference with contract claim. Defendants had no valid expectancy to contract with prospective advertiser-clients regarding an illegal contract to transmit UBE. Thus, Defendants cannot prove the first element of tortious interference. Accordingly, Martindale cannot establish AOL's knowledge, AOL's intentional interference with, or Martindale's loss of a contract or contract expectancy which does not exist.
Assuming a legitimate contract or expectancy existed, Defendants' failure to allege that AOL engaged in improper means or methods is another ground on which to grant the motion to dismiss. Even if the pleadings contained such language, Defendants cannot plead facts which demonstrate that AOL engaged in improper means or methods to interfere with Defendants' alleged contractual relationships or business expectancy. First, blockage of UBE is encouraged by federal law. See 47 U.S.C. § 230(c)(2). Second, this Court has issued two published decisions which imply that AOL has a right to prevent trespass to chattels by blocking the transmission of UBE to its subscribers. See LCGM, Inc., 46 F. Supp. 2d 444, 446-47; IMS et al., 24 F.Supp.2d at 548. Because Defendants cannot prove a legal contract or improper means of interference by AOL, the Court grants the motion to dismiss the three tortious interference counts.
VI. Conclusion
For the reasons stated above, Plaintiff's Motion to Dismiss Defendants' Counterclaims *865 is granted. Under some circumstances, the Court might grant leave to amend where a counterclaim is deficiently plead. In this case, however, amendment of the counterclaim would be futile. The only claims that arguably might be aided in some way by amendment are the anti-trust violations. Martindale is not a competitor of AOL and there are no facts supporting allegations of anti-competitive conduct. Thus, even with an amendment, Martindale cannot establish a claim for monopolization or attempted monopolization. Similarly, Martindale cannot demonstrate denial of an essential facility because access to AOL is not required to advertise to AOL subscribers or the rest of the information services market. As such, the motion to dismiss the counterclaims without leave to amend must be granted.
The Clerk is directed to forward a copy of this Order to counsel of record.
NOTES
[1] Defendants filed counterclaims for violation of the Federal Communications Act, violation of the Telecommunications Act, antitrust violations, tortious interference with contract, intentional interference with prospective advantage and prospective contractual relations.
[2] Because these two counts are substantially similar, the Court will consider them together.
[3] Section 202(a) of the Federal Communications Act provides in pertinent part:
It shall be unlawful for any common carrier to make any unjust or unreasonable discrimination in charges, practices, classifications, regulations, facilities, or services for or in connection with like communication service, directly or indirectly, by any means or device, or to make or give any undue or unreasonable preference or advantage to any particular person, class of persons, or locality, or to subject any particular person, class of persons, or locality to any undue or unreasonable prejudice or disadvantage.
47 U.S.C. § 202(a) (1991).
[4] Section 230(c)(2) provides in full: No provider or user of an interactive computer service shall be held liable on account of
(A) any action voluntarily taken in good faith to restrict access to or availability of material that the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such material is constitutionally protected; or
(B) any action taken to enable or make available to information content providers or others the technical means to restrict access to material described in paragraph (1).
47 U.S.C. § 230(c)(2) (Supp.1998).
[5] The Court also notes that even if AOL were subject to the anti-discrimination provisions, it is not clear that Defendants could prevail on a discrimination claim where they have not shown that AOL treats other entities that transmit UBE any differently than it treated Defendants.
[6] It is important to note that Defendants cannot claim harm as a competitor of AOL because Defendants do not compete in the same market as AOL. Defendants are advertisers and sellers of computer equipment whereas AOL sells information services.
[7] There is no evidence that AOL prohibited Defendants from participating in the normal application process for businesses that want to advertise on AOL's work. Defendants did not apply; instead, they advertised through UBE then offered to pay AOL after being caught.
[8] See Cyber Promotions, Inc., 948 F.Supp. at 459 ("No single entity-academic, corporate, governmental, or nonprofit-administers the Internet. It exists and functions as a result of the fact that hundreds of thousands of separate operators of computers and computer networks independently decided to use common data transfer protocol to exchange communications and information with other computers (which in turn exchange communications and information with still other computers).").
[9] AOL contends it did not deny Defendants access to AOL subscribers. AOL submits that Martindale can advertise to AOL subscribers, after applying for the right and paying the required fee. On a motion to dismiss, the Court must accept the pleadings as true, so the Court accepts Martindale's averment that AOL has prevented Martindale from transmitting commercial electronic messages to AOL subscribers.
[10] Martindale contends that the Court should rely on Perk for the elements of tortious interference with contract as opposed to tortious interference with contract expectancy as stated in Maximus. In Perk, the Virginia Supreme Court listed four elements of tortious interference with contract. 485 S.E.2d at 143. Because the court did not incorporate "improper means" as an element, Martindale seems to imply that improper means is not relevant. However, the Perk Court also stated that in order to present a prima facie case of tortious interference, the plaintiff must allege and prove that the defendant employed improper methods. Id. Thus, the elements are the same for both causes of action. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2450393/ | 278 F.Supp.2d 5 (2003)
BORN FREE USA, et al., Plaintiffs,
v.
Gale NORTON, Secretary, Department of the Interior, et al., Defendants, and
The Zoological Society of San Diego, et al., Intervenor-Defendants.
No. Civ.A.03-1497 JDB.
United States District Court, District of Columbia.
August 8, 2003.
*6 *7 *8 Katherine A. Meyer, Meyer & Glitzenstein, Washington, DC, for Plaintiffs.
Teresa Patrick, Wayne Douglas Hettenbach, Department of Justice, Ann D. Navaro, U.S. Department of Justice, Natural Resources Division/Litigation, Washington, DC, for Defendants.
James Craig Potter, Gary Charles Adler, George J. Mannina, Jr., O'Connor & Hannan, LLP, Washington, DC, for Intervenor-Defendants.
MEMORANDUM OPINION
BATES, District Judge.
Plaintiffs, who include several organizations and two individuals interested in the welfare of elephants, bring this case against the United States Department of the Interior and the Fish and Wildlife Service ("FWS") (collectively, the "federal defendants"), challenging FWS's decision to issue permits to the San Diego Zoo and the Lowry Park Zoo (collectively, the "zoos") for the importation of eleven African elephants from Swaziland. Presently before the Court is plaintiffs' motion for a preliminary injunction to prevent the import of the elephants until this Court reaches a final determination on the merits. Although the expedited briefing on plaintiffs' motion was completed only on August 6, 2003, the parties require a decision on the motion for a preliminary injunction by today, August 8, because the zoos, who have intervened as defendants, represent that it is imperative that the process to import the elephants commence immediately, before the beginning of Swaziland's rainy season. This case raises novel issues and evokes considerable emotion in part because the record supports the conclusion that if the elephants are not exported to these zoos promptly, they will be killed. For the reasons set forth below, the motion for a preliminary injunction is denied.
II. Factual and Procedural Background
The Court will only briefly summarize the relevant background. In 1987 and 1994, the Kingdom of Swaziland imported African elephants from Kruger National Park in South Africa as part of an effort to reintroduce the species to Swaziland after a hiatus of several decades. The elephants have since been located within the Hlane and Mkhaya reserves in Swaziland. Both reserves are managed by Terence "Ted" Reilly, who is the government official responsible for managing Swaziland's threatened and endangered big game.
The population of elephants within the Hlane and Mkhaya reserves has now grown to approximately 30 adults plus six calves. Mr. Reilly, as the head of the reserves, has become concerned about impacts upon biodiversity as a result of the elephant population. Elephants can severely deplete vegetation, cause significant damage to trees that are the homes to certain species of birds, and compete for resources with the black rhinoceroses located in the reserves, which are even more endangered than the elephants. Mr. Reilly, on behalf of Swaziland, has determined that the removal of eleven elephants is required in order to maintain a biologically diverse ecosystem within the reserves. Mr. Reilly has further stated unequivocally that if he is unable to export the elephants now, he will cull themi.e., kill them.
*9 The San Diego Zoo, in California, and Lowry Park Zoo, in Tampa, Florida, have made arrangements to import eleven elephants from Swaziland. The zoos will pay approximately $133,000 for the elephants, which they will use not just for display but also in an attempt to revive captive breeding. Zoos have historically had difficulty breeding captive elephants, and the elephant population in the United States is declining; the San Diego and Lowry Park Zoos hope that the import of wild captured elephants that have already established some social bonds will allow for more successful breeding and will also increase the genetic diversity of the U.S. captive elephant population. The zoos have already made and will continue to make considerable efforts to provide expanded and improved areas for housing the elephants. Swaziland, for its part, intends to use the proceeds from the elephant sale to enhance anti-poaching protections and expand available habitat for the remaining elephants.
Under the Convention on International Trade In Endangered Species ("CITES"), T.I.A.S. No. 8249 (1973), and the Endangered Species Act ("ESA"), 16 U.S.C. § 1531 et seq., zoos seeking to import African elephants, which are protected as a threatened species on "Appendix I" under CITES, must apply to FWS for a permit. The zoos here first applied to FWS for permits in June 2002. Import permits were issued to each zoo in September 2002. Export permits have been issued by Swaziland as also required under CITES. See CITES, T.I.A.S. No. 8249, Art. III, ¶ 2.
In March 2003, counsel for plaintiffs wrote to FWS that the zoos had misrepresented certain information in their permit applications, such as the specific locations of the elephants within Swaziland. Plaintiffs thereafter filed suit in this Court to halt the import of the elephants. That suit was dismissed by joint stipulation when the zoos agreed to return their permits on April 24, 2003. The zoos then provided additional information requested by FWS in response to concerns raised by plaintiffs and sought permit reissuance.
In connection with the zoos' new permit applications, FWS made certain findings required under CITES and ESA, and issued an Environmental Assessment ("EA") and a Finding of No Significant Impact ("FONSI") pursuant to the National Environmental Policy Act ("NEPA"), 42 U.S.C. § 4321 et seq. On July 11, 2003, FWS reissued the import permits to the zoos. Plaintiffs filed the complaint in this case on July 10, 2003, and on July 18, 2003, moved for a preliminary injunction to stop the importation.
Plaintiffs' complaint asserts a number of claims against the U.S. Department of Interior and FWS under CITES, the ESA, and NEPA. Plaintiffs' amended complaint, filed only a few days ago, asserts additional ESA claims against the zoos, which appear as intervenor-defendants in this action. Through their preliminary injunction request, plaintiffs seek to enjoin the issuance of the permits by the federal defendants, which under CITES would effectively halt the importation. The procedural vehicle for plaintiffs' claims against the federal defendants is the judicial review provision of the Administrative Procedure Act ("APA"), 5 U.S.C. § 706, which requires the Court to determine whether an agency actionhere, issuance of the import permitsis arbitrary and capricious, an abuse of discretion, or otherwise not in accordance with law.
An important consideration for the preliminary injunction is the anticipated disposition of the elephants in the event a preliminary injunction were granted. The elephants are currently located in a *10 "boma" or corral, where they have been awaiting export to the zoos for several months. Mr. Reilly has submitted an affidavit that states that he "cannot hold these elephants beyond the middle of this August" and "if the permits are not issued by this time, these elephants will be culled." Declaration of Terence (Ted) E. Reilly ¶ 68. Although plaintiffs challenge Mr. Reilly's representation, as the Court will explain later in its discussion, plaintiffs have little to undercut Mr. Reilly's representation, and, in any event, it must be given credence.
III. Preliminary Injunction Standard
In order to prevail on their application for a preliminary injunction, plaintiffs must demonstrate (1) a substantial likelihood of success on the merits; (2) that they will suffer irreparable harm absent the relief requested; (3) that other parties will not be harmed if the requested relief is granted; and (4) that the public interest supports granting the requested relief. Taylor v. Resolution Trust Corp., 56 F.3d 1497, 1505-06 (D.C.Cir.1995); Washington Area Metro. Transit Comm'n v. Holiday Tours, Inc., 559 F.2d 841, 843 (D.C.Cir.1977). In determining whether to grant urgent relief, the Court must "balance the strengths of the requesting party's arguments in each of the four required areas." CityFed Fin. Corp. v. Office of Thrift Supervision, 58 F.3d 738, 747 (D.C.Cir.1995). "If the arguments for one factor are particularly strong, an injunction may issue even if the arguments in other areas are rather weak." Id. It is particularly important for plaintiffs to demonstrate a substantial likelihood of success on the merits; where a plaintiff cannot show a likelihood of success on the merits, "it would take a very strong showing with respect to the other preliminary injunction factors to turn the tide in plaintiff['s] favor." Davenport v. Int'l Brotherhood of Teamsters, AFL-CIO, 166 F.3d 356, 366-67 (D.C.Cir.1999).
Because preliminary injunctions are extraordinary forms of judicial relief, courts should grant them sparingly. The Supreme Court has stated that "`[i]t frequently is observed that a preliminary injunction is an extraordinary and drastic remedy, one that should not be granted unless the movant, by a clear showing, carries the burden of persuasion.'" Mazurek v. Armstrong, 520 U.S. 968, 972, 117 S.Ct. 1865, 138 L.Ed.2d 162 (1997).
IV. Likelihood of Success on the Merits
It appears from plaintiffs' amended complaint that they are bringing claims that they have not pressed for the purposes of the motion for a preliminary injunction for example a claim against the federal defendants under Section 7(a)(1) and (a)(2) of the ESA, and the claims against the zoos under the ESA. The Court will limit its discussion of the likelihood of success to the particular claims that have been briefed by the partiesthe claim that the permit applications should have been denied because of misrepresentations; the claim that FWS incorrectly found that the importation of the elephants was not detrimental to the species within the meaning of CITES; the claim that FWS erred in concluding that the importation of the elephants was not for a primarily commercial purpose under CITES; and the claim that FWS failed to conduct an appropriate environmental evaluation under NEPA.
Each of these claims is brought under the APA, which requires that the Court "hold unlawful and set aside agency action, findings, and conclusions" that are "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A). The "scope of *11 review under the `arbitrary and capricious' standard is narrow and a court is not to substitute its judgment for that of the agency." Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983).
The Court notes, moreover, that its review of the merits is confined to the administrative record. See Camp v. Pitts, 411 U.S. 138, 142, 93 S.Ct. 1241, 36 L.Ed.2d 106 (1973) ("[T]he focal point for judicial review should be the administrative record already in existence, not some new record made initially in the reviewing court."); Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 420, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971) ("[R]eview is to be based on the full administrative record that was before the Secretary at the time he made his decision."). The Court will not consider the extra-record declarations and other materials submitted by the parties except to the extent that those materials bear upon the balance of harms.
A. Standing
Before reaching an analysis of plaintiffs' claims, the Court notes that the zoosin a brief separate from their opposition to the preliminary injunction motionhave moved to dismiss all of the claims against the federal defendants except for the NEPA claims on the ground that plaintiffs lack standing. Among other things, the zoos argue that the organizational plaintiffs lack standing under ESA and CITES because the only injury they allege is a failure to receive informationinformation that the zoos claim plaintiffs have no entitlement to under the ESA or CITES. The zoos also argue that the two individual plaintiffs lack standing: one plaintiff, the zoos contend, is neither a citizen nor resident of the United States and thus has no ability to sue in U.S. courts; the second plaintiff alleges only a psychological injury in connection with the translocation of the elephants to the zoosan injury that the zoos claim is insufficient to confer Article III standing. The federal defendants asserted at the August 6, 2003, hearing on plaintiffs' motion that they fully support the zoos' position as articulated in the motion to dismiss, and may file their own motion that would additionally argue that plaintiffs do not suffer a danger to a concrete interest sufficient to confer standing for a NEPA claim.
For their part, plaintiffs largely ignore the standing arguments that have been raised, asking instead that the Court defer ruling on this jurisdictional issue at this time. Plaintiffs' substantive response to the standing arguments is confined to part of a footnote and does not directly address some of the concerns raised by the zoos.
Given the fact that plaintiffs have not had sufficient time formally to oppose the zoos' motion to dismiss, the Court will not rule on that motion at this time. The Court notes, however, that defendants have raised substantial unanswered questions about the plaintiffs' standing to pursue some of their claims. The doubts raised about plaintiffs' standing to pursue this action somewhat undermines their likelihood of ultimately succeeding on the merits of their claims.
B. ESAAlleged Misrepresentations
50 C.F.R. § 13.21(b)(2), an implementing regulation under the ESA, precludes FWS from issuing a permit where "[t]he applicant has failed to disclose material information required, or has made false statements as to any material fact, in connection with his application." Here, there is no dispute that the initial permit applications of the zoos contained some incorrect, incomplete, or unclear information as to certain facts, such as the identity *12 of the specific elephants to be imported and the precise location of the elephants in Swaziland. Plaintiffs contend that these flaws constitute material misstatements or omissions that provide a basis for denying the permits.
This claim is not likely to succeed. Whatever merit there may have been to the argument that the initial permit applications were defective, the permits issued as a result of those applications were returned. The agency action before the Court today involves FWS's action on resubmitted permit applications that appear to cure any material defects in the earlier applications. Moreover, contrary to plaintiffs' suggestion, the current applications do not represent applications for "renewal permits" within the meaning of 50 C.F.R. § 13.22; even if they did, the Court is not persuaded that defects in the original applications would require FWS to deny the "renewed," cured applications.
C. CITES
Plaintiffs next assert violations of CITES. For Appendix I species such as African elephants, CITES requires both an export permithere from Swaziland officialsand an import permithere from appropriate U.S. officials. Article 3, paragraph 3 of CITES provides, in relevant part:
An import permit [for an Appendix I species] shall only be granted when the following conditions have been met:
(a) a Scientific Authority of the State of import has advised that the import will be for purposes which are not detrimental to the survival of the species involved;
. . . . .
(c) a Management Authority of the State of import is satisfied that the specimen is not to be used for primarily commercial purposes.
CITES, T.I.A.S. No. 8249, Art. III, ¶ 3. FWS is the designated Scientific Authority and Management Authority in the United States. Plaintiffs claim that FWS acted arbitrarily and capriciously in finding that the import was not detrimental to the survival of the species and was not primarily for commercial purposes.
1. Not Detrimental
On June 26, 2003, FWS issued a five-page finding with respect to each zoo that the proposed import is likely to be for purposes that are not detrimental to the survival of the species. AR 83, 84.[1] FWS reviewed Swaziland's concerns about its expanding elephant population, noting, among other things, Swaziland's concerns about conflicts and competition between elephants and black rhinos, and the elephants' destruction of nesting sites for birds. AR 83 at 1-3; AR 84 at 1-3. FWS noted that Swaziland lacks the resources to expand the elephant habitat and cannot translocate the elephants within the country. AR 83 at 2; AR 84 at 4. As FWS noted, Swaziland has decided to remove eleven elephants from its population. Id. Further, FWS stated, Mr. Reilly has noted that if the elephants cannot be exported or translocated, they will be culled. Id. Indeed, FWS found that "the specimens in this application are intended by Swaziland to be removed from the wild population as part of a wildlife management program whether they are exported or not." AR 83 at 3; AR 84 at 3.
FWS noted that the import of the specimens is consistent with the American Zoo and Aquarium Association ("AZA") African *13 Elephant Species Survival recommendations. AR 83 at 3; AR 84 at 3. FWS also noted that the specimens will be placed in a breeding situation, consistent with AZA efforts to improve reproduction of the species in North America. AR 83 at 3-4; 84 at 3-4. Moreover, FWS noted, Mr. Reilly intends to use the revenue generated by the sale of the specimens for park operation, expansion of protected habitat, fencing, and equipment such as anti-poaching gear. AR 83 at 4; AR 84 at 4. Based on the foregoing findings, FWS concluded that the importation would "be for purposes that are not detrimental to the survival of the species." AR 83 at 4; AR 84 at 4.
Plaintiffs challenge this conclusion, arguing that the importation of the elephants will result in the removal of one-third of the total elephant population in Swaziland and, by FWS's own admission, will reduce genetic diversity. Moreover, plaintiffs assert that FWS has disregarded the detriment to the remaining elephants and their social structure. In addition, plaintiffs argue that, with respect to the non-detriment finding, as well as the other findings made under CITES and NEPA, FWS abdicated its statutory obligations by "simply accept[ing] all of the representations made by either Reilly or the Zoosthe very parties to the transaction who stand to benefit financially from the sale of the elephants." Pls.' Mem. Supp. Mot. Prelim. Inj. at 35.
Plaintiffs' central argumentswhich focus on the effect of removing the elephants from their herdmiss the point. As FWS found, Swaziland has already determined that it will remove the elephants. Thus the effect on the elephants remaining in the herdincluding the effect on their genetic diversity or social structureis beyond the ability of FWS to control. All FWS may do is determine whether the elephants may be imported, given the fact that Swaziland has decided to remove them. It is this importation decision by FWSnot the removal and export decision by Swazilandthat is the proper focus of the non-detrimental analysis. This conceptualization is consistent with the two-part analysis under CITES, wherein the state of import must determine that the "import will be for purposes which are not detrimental to the survival of the species involved," and the state of export must determine that the "export will not be detrimental to the survival of that species." CITES, T.I.A.S. No. 8249, Art. III, ¶ 2(a), 3(a) (emphases added).
That being said, FWS nevertheless did consider to some extent the effects of the export on the remaining elephantsspecifically noting that the number of remaining elephants will be "optimal for ensuring regeneration of the vegetation required by the elephants," that the "removal of the specimens would not affect the breeding capacity of the remaining elephants," and that the removal of the elephants "would create space for a gradual increase in the population." AR 83 at 3; AR 84 at 3. Although it is true that these findings relied heavily upon Mr. Reilly, FWS also relied upon a Senior Scientist at Kruger National Park as well as published recommendations practiced by that park. See id.
Plaintiffs argue that FWS should have considered alternatives to the export of the elephants, such as translocation to other refuges in Africa. However, not only does CITES not require a consideration of alternatives to translocation, but here the alternative translocations that plaintiffs suggest were not within the control of FWS or the zoos, which do not control the elephants. Moreover, even the alternatives pressed by plaintiffs involve removal and thus its effect on the remaining herd.
*14 Overall, given that the elephants are to be used for breeding in the United States and, moreover, that proceeds from the importation are going to be used by Swaziland for the benefit of the elephant habitat there, it was not arbitrary and capricious for FWS to determine that the importation would not be for purposes that are detrimental to the survival of the species. It is perhaps worth emphasizing in this regard that CITES expressly requires the state of import to determine, and FWS did ultimately determine, that the "import will be for purposes which are not detrimental to the survival of the species involved." CITES, T.I.A.S. No. 8249, Art. III, ¶ 3(a). The zoos' purpose of propagating the species through captive breeding is not inconsistent with the continued survival of African elephants.
2. Commercial Purpose
On June 11, 2003, FWS issued two one-page findings that the import of the elephants was not primarily for commercial purposes. AR 64, 65. With respect to each zoo's application, FWS noted that the "primary purpose of the import is to improve the breeding capability of captive elephants within the United States and to provide conservation education to visitors." Id. FWS further noted that "[a]lthough the zoo may collect additional gate receipts, gift shop sales, and donations due to the import of these elephants, the money is going back into the zoo, the elephant breeding program, and/or in-situ conservation programs in which the zoo participates." Id. FWS concluded that given that the zoos are "non profit institution[s] and that any profits made from obtaining the elephants from Swaziland will be used for in-situ and ex-situ conservation work carried out at the zoo[s], . . . the import of these specimens is not for primarily commercial purposes." Id.
Plaintiffs challenge this conclusion, arguing that because the elephants will be exhibited for paying guests, and indeed, because elephants are a species that tends to increase gate admissions at zoos, the importation of the elephants must be for a primarily commercial purpose. Moreover, to the extent that the zoos seek to use the elephants for captive breeding purposes, plaintiffs argue, any newborn elephants likewise will be displayed to the financial benefit of the zoos, if not in fact sold to other zoos, also to be displayed for admission fees. Finally, plaintiffs contend that FWS should not have relied upon "conversation education" as a purpose because the zoos did not rely on this purpose in their applications.
CITES itself does not define the terms "commercial purpose" or "primarily commercial purpose." Moreover, the Court finds that the term "primarily commercial purpose" is ambiguousit is not clear what a commercial purpose might be or how to determine if purposes are "primarily" commercial.
The Conference on CITES has passed a resolution concerning the definition of "primarily commercial purposes" that both plaintiff and defendant look to for guidance. Indeed, FWS expressly relies upon the resolution in its finding. The resolution, "Resolution Conf. 5.10," at the outset notes the difficulty in arriving at a uniformly accepted meaning of "commercial purpose" and clarifies that the commercial purposes examination concerns only "the intended use of the specimen . . . in the country of importation, not the nature of the transaction between the owner of the specimen in the country of export and the recipient in the country of import." Thus, as an initial matter, the fact that Swaziland may have profited from the sale of the elephantsand likewise the fact that Swaziland intends to reinvest the funds for *15 the benefit of remaining elephantsis irrelevant.
Resolution Conf. 5.10 further states that "[a]n activity can generally be described as `commercial' if its purpose is to obtain economic benefit, including profit (whether in cash or in kind) and is directed towards the resale, exchange, provision of a service or other form of economic use or benefit." The country of import is to define "commercial purposes" as "broadly as possible so that any transaction which is not wholly `non-commercial' will be regarded as `commercial.'" Importantly, the Resolution states: "In transposing this principle to the term `primarily commercial purposes,' it is agreed that all uses whose non-commercial aspects do not clearly predominate shall be considered to be primarily commercial in nature."
Resolution Conf. 5.10 provides several non-exhaustive examples as guidance for the commercial purpose determination. Unfortunately, none of the examples fits exactly the current situation. Of most apparent relevance, example (e) concerns imports with relation to "captive breeding programmes." However, the example focuses on "captive breeding programmes [that] sell surplus specimens to underwrite the cost of the captive breeding programme." Indeed, the example cross-references a separate resolution, Conf. 2.12 (since amended as Conf. 10.16), that involves trading specimens bred in captivity. See Resolution Conf. 10.16 (Rev.). Neither the zoos here nor Mr. Reilly's parks in Swaziland fit this mold. Furthermore, there is some suggestion in the Resolution that the kind of captive breeding programs contemplated in example (e) "must be aimed as a priority at the long term protection of the affected species" and that importations for captive-breeding "must be part of general programmes aimed at the recovery of a species." Here, although ultimately successful breeding by the zoos may eliminate or decrease future need for importation, it is not entirely clear that "long term protection" and "recovery" of African elephants is a "priority" or "aim" of the importation. Thus, example (e) is not particularly instructive.
In its finding, FWS quoted language from example (e) stating that "importations for ... [captive breeding] could be allowed if any profit made would not inure to the personal economic benefit of a private individual or shareholder. Rather, any profit gained would be used to support the continuation of the captive breeding programme to the benefit of the Appendix I species." To the extent that, in quoting this language, FWS intended to convey that it believed that the zoos fit within the "captive breeding programmes" contemplated in example (e), the Court concludes that FWS erred. The Court finds the language in example (e) to be confusing, but it certainly does not provide direct support for importing animals from the wild for use in the type of captive breeding program at issue here.
It may be, however, that by quoting language in example (e), FWS was merely trying to abstract from the example a more general observation that where profit is derived from an imported animal but the income is funneled back into a program that benefits the Appendix I species, rather than being allocated to the economic benefit of a private individual or shareholder, there is not necessarily a commercial purpose. That principle arguably can be extracted from example (e). Here, as FWS emphasizes, the money earned from gate receipts will "go[] back into the zoo, the elephant breeding program, and/or in-site conservation programs in which the zoo participates." AR 64, 65. Hence, applying the principle reasonably drawn from example (e) to the facts here does *16 support FWS's conclusion that the elephants will not be used for primarily commercial purposes.
In example (c), Resolution Conf. 5.10 provides that specimens may "be imported by government agencies or non-profit institutions ... for purposes of conversation, education, or training." As noted above, in its finding, FWS relied in part on the educational aspect of the zoos' desire for importation. However, plaintiffs are correct that in the initial applications, the zoos did not emphasize education as the principal purpose of the importation. Rather, the zoos stated that their purpose was for captive reproduction and to assist the Swaziland government with their population and habitat issues. See AR 1 ¶ 6.a. (Lowry Park Zoo application"The purpose for this import is twofold: 1) for captive reproduction and propagation and 2) to assist the Swaziland government with their population control program."); AR 2 ¶ 6.a. (San Diego Zoo application"The purpose for this Import is for captive reproduction and propagation of this species."). Moreover, in a public comment, the zoos actually urged FWS to distinguish between the primary purposes noted in the applications and other "secondary activities and benefits." AR 75 at 5.
Nevertheless, it is true that certain aspects of the zoos' initial applications make clear that education is a component of the zoos' mission that would be furthered by the importation of the elephants. For example, the Lowry Park application notes that "[e]ducational signage regarding elephants' ecological role and the conservation needs of the species will figure prominently at the perimeter of the exhibit." AR 1 ¶ 6.d. Moreover, the zoos append to their applications the African Elephants Species Survival Plan and the AZA Policies on Elephants, both of which note the role of zoos in providing conservation education. See AR 1 at Addendum C (African Elephant Species Survival Plan: "Elephants, as a flagship species, provide unique opportunities for zoos' conservation education efforts."); AR 1 at Addendum F (AZA Policies on Elephants: "AZA zoos that currently exhibit or desire to exhibit elephants should make every effort to maintain elephants in their collections so that they can contribute to conservation through public, education, scientific research, and the support of field conservation."); AR 2 (appending the same documents).
Overall, the Court is not at this time persuaded that plaintiffs are likely to succeed on their claim that FWS acted arbitrarily, capriciously, or otherwise not in accordance with law in concluding that the importation was not for primarily commercial purposes. Although the zoos ultimately may realize additional admission revenue as a result of importing the elephants, and although the importation here does not fit cleanly into any of the non-exhaustive list of examples in Resolution Conf. 5.10, the zoos' status as non-profit institutions, their plans to use the elephants for breeding purposes and not merely for display, and their role in educating the public about conservation together provide a reasonable basis for FWS's conclusion that the importation is not for primarily commercial purposes. Under the guidance of Res. Conf. 5.10, it is reasonable for FWS to conclude that this is not a setting in which commercial aspects of the zoos' purposes predominate over non-commercial aspects. Plaintiffs' interpretation of the commercial purposes test, on the other hand, would essentially preclude all importation of Appendix I species by zoos that would display the animals and charge a fee for general admissionalmost always the context where zoos are involved. Neither the language of CITES nor the Resolution indicates that the Treaty goes that far. *17 Moreover, although the parties did not brief this issue prior to the hearing, both FWS and plaintiffs now agree that FWS's interpretation of the language of CITES is subject to deference under Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). See Iceland S.S. Co. v. U.S. Dep't of Army, 201 F.3d 451, 458 (D.C.Cir.2000) ("To the extent that the meaning of treaty terms are not plain, we give `great weight' to `the meaning attributed to treaty provisions by the Government agencies charged with their negotiation and enforcement.'" (citation omitted)); More v. Intelcom Support Services, Inc., 960 F.2d 466, 472 (5th Cir. 1992) (Chevron deference applies to treaties). Accordingly, the Court does not find that plaintiffs are substantially likely to succeed on their claim that FWS's interpretation of CITES and findings on commercial purpose were arbitrary or capricious.
D. NEPA
Under NEPA, an agency must prepare an Environmental Impact Statement ("EIS") for any proposed "major Federal action[] significantly affecting the quality of the human environment." 42 U.S.C. § 4332(C). Under the CEQ regulations interpreting NEPA, a "major Federal action" is defined to "include[] actions with effects that may be major and which are potentially subject to Federal control and responsibility." 40 C.F.R. § 1508.18.
Here, FWS initially determined that its approval of the permits was categorically excluded from NEPA requirements. See AR 19, 20. Nevertheless, with respect to each zoo's permit application, FWS prepared a draft Environmental Assessment ("EA")a "concise public document" that, among other things, provides "evidence and analysis for determining whether to prepare an environmental impact statement or a finding of no significant impact." 40 C.F.R. § 1508.9(a). After a twenty day public comment period, the FWS issued a final EA, as well as a Finding of No Significant Impact ("FONSI"). AR 92, 93.
The final EA, which is seventeen pages in length, reviews the purpose of the translocation, both from Swaziland's perspective and from the zoos' perspective, considers the impact on the environment both in Swaziland and the United States, and considers the environmental consequences of granting the permits, as opposed to denying them or granting them only for a smaller number of elephants. AR 92. The EA's general conclusions are that importing the elephants will ameliorate the environmental problems caused by over-population of the elephants in the Swaziland reserves, that the elephants will not be adversely affected by translocation, and that the public will not be adversely affected by importation. Id.
Plaintiffs now challenge FWS's environmental analysis on several bases. Principally, plaintiffs claim that the environmental effects of granting the permits will be sufficiently significant that an EISand not merely an EAshould have been prepared. Plaintiffs also allege that the analysis contained in the EA is incorrect or inadequate, and, in particular, that the EA fails to explore the full range of alternatives to issuing the permits.
A critical issue raised by plaintiffs' complaint is whether, under NEPA, FWS is required to analyze the importation's environmental effects outside the United States and, specifically, the effects within Swaziland. If FWS is required only to consider environmental impacts within the United States, then plaintiffs' allegations concerning defects in FWS's environmental analysis with respect to the effects extraterritorially allegations that dominate plaintiffs' claims and rely on substantial *18 expert scientific assessmentare legally irrelevant.
FWS raises two arguments that it was required only to analyze domestic effects: (1) that the "federal action" that requires environmental evaluation in this case is limited to FWS's decision to allow importation of the elephants, not Swaziland's decision to export the elephants; and (2) that NEPA's EIS requirement does not apply to possible environmental impacts within foreign sovereign nations. The Court will consider each of these theories in turn.
1. Subject to Federal Control
Case law makes clear what the governing CEQ regulation states on its facethat only actions "which are potentially subject to Federal control and responsibility" must be the subject of an environmental evaluation. 40 C.F.R. § 1508.18. See Macht v. Skinner, 916 F.2d 13, 18 (D.C.Cir.1990); Citizens Alert Regarding the Environ. v. U.S. EPA, 259 F.Supp.2d 9, 14-15 (D.D.C.2003); Winnebago Tribe of Neb. v. Ray, 621 F.2d 269, 271 (8th Cir.1980). That being said, "federal involvement in a non-federal project may be sufficient to federalize the project for purposes of NEPA." Macht, 916 F.2d at 18. Thus courts may have to consider whether the degree and nature of federal involvement in a state, local, private, or, in this case, transnational project implicates obligations under NEPA. "In cases, such as this one, where there is no claim that the non-federal project is being federally funded, the circuits have ... focus[ed] ... on the indicia of control over the private actors by the federal agency." Mayaguezanos por la Salud y el Ambiente v. United States, 198 F.3d 297, 302 (1st Cir.1998) ("[W]e look to whether federal approval is the prerequisite to the action taken by the private actors and whether the federal agency possesses some form of authority over the outcome."); see also Sugarloaf Citizens Ass'n v. FERC, 959 F.2d 508, 512-14 (4th Cir.1992) ("[A] non-federal project is considered a federal action if it cannot begin or continue without prior approval by a federal agency and the agency possesses authority to exercise discretion over the outcome." (internal quotation marks and citation omitted)); Ross v. Federal Highway Admin., 162 F.3d 1046, 1051 (10th Cir.1998) ("major federal action" is present when "the federal government has actual power to control the project").
Here, the aspect of the environmental analysis that is the focus of plaintiffs' concerns relates to the effects of removal of the elephants from their habitat in Swaziland. That removal, however, is not subject to federal control. As the administrative record makes clear, Swaziland has determined that its elephant population must be reduced, and it will do so either by exporting these elephants to the United States or by culling them. FWS's conclusion that the elephants will be removed from the reserves in Swaziland is fully supported by the record and thus reasonable. See, e.g., AR 2 (Sept. 1., 2001, Memo from Mr. Reilly); AR 49; AR 75 (June 18, 2003, notice by Mr. Reilly). FWS executes no discretion with respect to Swaziland's determination. FWS's roleand the scope of its authorityis therefore limited to determining whether, given Swaziland's conclusion that it will either export or cull the elephants, issuance of import permits is appropriate. This limited role is insufficient "`to turn essentially private action'"by a foreign sovereign no less"into federal action.'" Winnebago Tribe of Neb., 621 F.2d at 272 (citation omitted).
Plaintiffs might argue that FWS's issuance of the permits makes possible the exportation of the elephants and therefore FWS must also consider the environmental effects of exportation. But *19 "the fact that a federal action is a `but for' cause of a non-federal action does not, in itself, subject the non-federal action to NEPA." See Landmark West! v. USPS, 840 F.Supp. 994, 1006 (S.D.N.Y.1993). Where a government agency lacks "sufficient control and responsibility" over the entire project, it is not required to undertake a project-wide environmental review. See Winnebago Tribe, 621 F.2d at 272-73; see also Goos v. ICC, 911 F.2d 1283, 1294 (8th Cir.1990) ("[W]hether an agency action or project is part of some other concededly major federal action depends largely on whether the agency exercises legal control over the allegedly non-federal action or project."); Save the Bay, Inc. v. U.S. Corps of Engineers, 610 F.2d 322, 327 (5th Cir.1980). Here, Swaziland has determined that it will remove the elephants from their habitat one way or another; FWS lacks any control whatsoever over this decision and the resulting environmental effects in Swaziland. FWS therefore has no obligation to conduct an EIS with respect to the effects in Swaziland of removal of the elephants. See Citizens Against Rails-to-Trails v. Surface Trans. Bd., 267 F.3d 1144, 1151 (D.C.Cir.2001) ("If ... the agency does not have sufficient discretion to affect the outcome of its actions, . . . the information that NEPA provides can have no affect on the agency's actions, and therefore NEPA is inapplicable.").
2. Extraterritorial Application
The law concerning extraterritorial application of NEPA is unsettled. As a general rule, there is a "presumption that Acts of Congress do not ordinarily apply outside our borders." Sale v. Haitian Centers Council, Inc., 509 U.S. 155, 173, 113 S.Ct. 2549, 125 L.Ed.2d 128 (1993). NEPA, by its terms, does not state whether it has extraterritorial effects, and "NEPA's legislative history illuminates nothing in regard to extraterritorial application." Natural Res. Defense Council v. Nuclear Regulatory Comm'n, 647 F.2d 1345, 1367 (D.C.Cir.1981). Nevertheless, in Environmental Defense Fund, Inc. v. Massey, 986 F.2d 528, 533 (D.C.Cir.1993), the D.C. Circuit ruled that "since NEPA is designed to regulate conduct occurring within the territory of the United States"i.e., decisionmaking processes of federal agencies"and imposes no substantive requirements which could be interpreted to govern conduct abroad"and hence poses no choice of law dilemmas "the presumption against extraterritoriality does not apply to this case." The court's ruling, however, was bolstered by (or even dependent on) the fact that the case involved Antarctica, which is not a foreign country and is in some measure subject to U.S. legislative control. Id. at 533-534. Indeed, ultimately, the court specifically noted that it "[did] not decide . . . how NEPA might apply to actions in a case involving an actual foreign sovereign." Id. at 537.
Other decisions in this Circuit have found that the presumption against extraterritoriality does preclude application of NEPA to environmental effects outside the United States. In NRDC v. NRC, Judge Wilkey, writing on behalf of himself only, ruled that NEPA did not require the NRC to evaluate the impacts in the Phillippines of nuclear exports to that country. 647 F.2d at 1365-66. In NEPA Coalition of Japan v. Aspin, 837 F.Supp. 466, 467 (D.D.C.1993), Judge Pratt of this Court ruled that NEPA did not require agency consideration of environmental impacts for U.S. military installations in Japan. Judge Pratt distinguished Massey on the ground that its reach was expressly limited to situations where no foreign sovereign was *20 involved.[2]
It is true, as plaintiffs point out, that the reluctance of the judges in NRDC and NEPA Coalition to apply NEPA extraterritorially was motivated in part by concerns about interference with the foreign relations of the United States, given the sensitive nature of the federal actions at issuea concern which is not as prominent here. See NRDC, 647 F.2d at 1358 (discussing risk of impeding on conduct of U.S. foreign relations); NEPA Coalition, 837 F.Supp. at 467 (discussing concern with intruding upon a long-standing treaty relationship). Nevertheless, this Court agrees with these cases that appropriate weight should be given to the presumption against extraterritoriality.[3] In the present case, the Court is not dealing with environmental effects in a no-man's land such as Antarctica, where the United States has some real measure of control; rather, it is dealing with environmental affects in a foreign sovereign nation. That nation has made an independent determination to proceed with the export of the elephants under CITES, has concluded that the export will not be detrimental to the species, and has determined that if the export is not possible, it will be necessary to cull the elephants. Absent some further indication from Congress, this Court is not inclined to take the step of requiring FWS to conduct an environmental analysis aimed at second-guessing the validity of Swaziland's determinations. This view is bolstered by the fact that an environmental assessment of effects in Swaziland would be to no avail in any event because, as discussed above, FWS is not a position to control whether the elephants should be removed from the herds. Ultimately, in the present procedural context, this assessment markedly undercuts the likelihood that plaintiffs will succeed on the merits of their NEPA claims.
3. Alleged Deficiencies in FWS's Environmental Analysis
Having preliminarily determined that FWS was not required to assess the environmental effects in Swaziland or other factors beyond FWS's control, the Court must proceed to consider plaintiffs complaints concerning the environmental analysis that FWS was required to perform. Plaintiffs broadly allege two types of deficiencies: (1) that FWS should have produced an EIS, not an EA followed by a FONSI; and (2) that the EA inadequately assessed alternatives to granting the import permits.
a. Necessity for EIS
In determining whether an action "significantly affects" the environment, and thus whether an agency must produce an EIS, the agency must consider "both context and intensity." 40 C.F.R. *21 § 1508.27. With respect to "context," the CEQ regulations provide:
The significance of an action must be analyzed in several contexts such as society as a whole (human, national), the affected region, the affected interests, and the locality. Significance varies with the setting of the proposed action. For instance, in the case of a site-specific action, significance would usually depend upon the effects in the locale rather than in the world as a whole.
Id. § 1508.27(a). Plaintiffs' challenge here does not focus on the "context" inquiry.
"Intensity" refers to the "severity of impact," and requires a consideration of several factors:
(1) Impacts that may be both beneficial and adverse. A significant effect may exist even if the Federal agency believes that on balance the effect will be beneficial.
(2) The degree to which the proposed action affects public health or safety.
(3) Unique characteristics of the geographic area such as proximity to historic or cultural resources, park lands, prime farmlands, wetlands, wild and scenic rivers, or ecologically critical areas.
(4) The degree to which the effects on the quality of the human environment are likely to be highly controversial.
(5) The degree to which the possible effects on the human environment are highly uncertain or involve unique or unknown risks.
(6) The degree to which the action may establish a precedent for future actions with significant effects or represents a decision in principle about a future consideration.
(7) Whether the action is related to other actions with individually insignificant but cumulatively significant impacts. Significance exists if it is reasonable to anticipate a cumulatively significant impact on the environment. Significance cannot be avoided by terming an action temporary or by breaking it down into small component parts.
(8) The degree to which the action may adversely affect districts, sites, highways, structures, or objects listed in or eligible for listing in the National Register of Historic Places or may cause loss or destruction of significant scientific, cultural, or historical resources.
(9) The degree to which the action may adversely affect an endangered or threatened species or its habitat that has been determined to be critical under the Endangered Species Act of 1973.
(10) Whether the action threatens a violation of Federal, State, or local law or requirements imposed for the protection of the environment.
40 C.F.R. § 1508.27(b).
"`Because the NEPA process involves an almost endless series of judgment calls ... the line-drawing decisions ... are vested in the agencies, not the courts.'" Fund for Animals v. Williams, 246 F.Supp.2d 27, 42 (D.D.C.2003) (quoting Coalition on Sensible Trans., Inc. v. Dole, 826 F.2d 60, 66 (D.C.Cir.1987)). A court's role "`is simply to ensure that the agency has adequately considered and disclosed the environmental impact of its actions and that its decision is not arbitrary or capricious.'" City of Olmsted Falls v. FAA, 292 F.3d 261, 269 (D.C.Cir.2002) (quoting Baltimore Gas & Elec. v. NRDC, 462 U.S. 87, 97-98, 103 S.Ct. 2246, 76 L.Ed.2d 437 (1983)). In the context of determining whether FWS's decision to issue a FONSI and not prepare an EIS was arbitrary and capricious, the court should consider:
(1) whether the agency took a "hard look" at the problem;
*22 (2) whether the agency identified the relevant areas of environmental concern;
(3) as to the problems studied and identified, whether the agency made a convincing case that the impact was insignificant; and
(4) if there was an impact of true significance, whether the agency convincingly established that changes in the project sufficiently reduced it to a minimum.
Sierra Club v. Peterson, 717 F.2d 1409, 1413 (D.C.Cir.1983).
Here, plaintiffs argue that four "intensity" factors augur in favor of performing an EIS "adverse[][e]ffect [on] an endangered or threatened species," effect on "public health or safety," environmental effects that are "highly controversial," and establishment of a "precedent for future actions with significant effects." 40 C.F.R. § 1508.27(b)(2), (4), (6), (9). Plaintiffs emphasize the last two of these here.
With respect to the adverse effect on the species, as an initial matter, the only "species" at issue here are the eleven elephants that will be imported. There will be no broad impact on African elephants in general sufficient to warrant an EIS. Furthermore, the only public health issue potentially raised by the import of the elephants is the danger of Foot and Mouth Disease ("FMD"). However, FWS explains in the EA that it consulted with U.S. Department of Agriculture the agency responsible for animal health and disease issues which not only recommended granting the permits, but also specifically indicated that it had no concern about FMD coming from Swaziland. AR 92 at 7-8. FWS also noted that elephants are not susceptible to FMD and that Swaziland has certified itself to be FMD-free. Id. Thus FWS convincingly established that there was no significant public health issue associated with importation of the elephants.
With respect to the assertion that the FWS decisions on the permits represent "a precedent for future actions with significant effects or represents a decision in principle about a future consideration," plaintiffs' argument misses the point. FWS's issuance of the permits does not "establish a precedent that would form `a link in a chain of bureaucratic commitment that will become progressively harder to undo the longer it continues.'" Williams, 246 F.Supp.2d at 47 (quoting Sierra Club v. Marsh, 769 F.2d 868, 879 (1st Cir.1985)). Nor has FWS made a decision in principle about a "future consideration." Rather, because applications for permits are considered on an individual basis, and FWS will be able to make a meaningful assessment with respect to future applications regardless of what action it has taken on the zoos' applications here, this factor does not support issuance of an EA. See Sierra Club, 769 F.2d at 879.
Plaintiffs' final (and most persuasive) argument is that the effects of the import on the eleven elephants are "highly controversial." See 40 C.F.R. § 1508.27(4). In this regard, plaintiffs point to the public comments submitted by elephant experts arguing that the eleven elephants will be severely adversely impacted by their transportation to and confinement in the zoos. See, e.g., AR 69-71. These experts' contentions, although not directly mentioned in the EA, were rejected by FWS, which took the position that the translocation of the elephants will have no significant effects. In reaching this conclusion, the FWS made several findings: that elephants have been successfully moved by air and that veterinarians and elephant handlers have developed procedures to safely move elephants long distances; that the planned transportation of the elephants comported fully with International Transport Association Standards and 40 C.F.R. § 14, which concerns humane *23 transport; that the planned treatment and breeding of the elephants in the zoos meets the standards for Elephant Management and Care devised by the American Zoological Society; that the zoos had demonstrated that their personnel were qualified to care for the elephants and provide all necessary medical and husbandry care required; and that the elephants would be maintained in suitably large enclosures. AR 92 at 11-13.
The EA reflects that FWS took a "hard look" at concerns with the transportation, acclimation and housing of the elephants. Moreover, in reaching its reasonable conclusion that there was no significant environmental effect, the FWS did not simply speculate or rely only on the zoos' representations but rather made distinct findings based in part on applicable regulations and industry standards.
Nevertheless, the Court cannot help but note the disparity between FWS's conclusion that the transportation and housing proposed by the zoos would be adequate and the opinions of several experts that translocation would severely impact the elephants. Thus the Court finds that there is at least some degree of controversy with relation to the effects of the translocation on these elephants.
Plaintiffs, however, have not presented persuasive authority that the presence of one out of ten intensity factors here, the presence of at least some level of controversy is sufficient to require an EIS. Neither of the two cases that plaintiffs rely upon fully supports this proposition. National Audubon Society v. Hoffman, 132 F.3d 7, 18 (2d Cir.1997), nowhere states that the presence of one CEQ factor is sufficient to require preparation of an EIS. And although Public Service Co. of Colo. v. Andrus, 825 F.Supp. 1483, 1495 (D.Idaho 1993), states that the "presence of one or more [CEQ] factors should result in an agency decision to prepare an EIS," the Ninth Circuit case that Andrus relied upon, LaFlamme v. FERC, 852 F.2d 389, 398 (9th Cir.1988), does not speak at all to the issue whether one CEQ factor is sufficient to require an EIS.
Here, given that only one CEQ factor is present, and that the relevant action involves the effects in the United States of importing just eleven elephants into two zoos, the Court cannot conclude at this stage that plaintiffs are substantially likely to succeed on their claim that FWS acted arbitrarily and capriciously by issuing an environmental assessment instead of an EIS and finding that there would be no significant impact from the importation.
b. Failure to Consider Alternatives
Plaintiffs' principal substantive complaint about the EA is that it fails to consider alternatives. Most of these alternatives involve relocation of the elephants to reserves elsewhere in southern Africa. Such alternatives, however, were beyond the power of FWS or even the zoos to affect because the elephants are in the control of Swaziland. Moreover, FWS actually made an inquiry to Reilly about some of these alternatives, see AR 48, by the time the EA was published, Mr. Reilly had made abundantly clear that the only alternative he would consider would be culling the elephants not translocating them elsewhere in Africa, see, e.g., AR 75 (June 18, 2003, notice by Mr. Reilly) ("If these particular 11 animals do not find homes at San Diego Wild Animal Park and Lowry Park Zoo before August 2003, ... we will sadly be forced to cull them as stated numerous times previously."). He specifically considered and rejected many of the proposed alternatives. AR 48; see also AR 49. Given that the range of alternatives that an agency must explore in an EA is governed by a "rule of reason," *24 Davis v. Latschar, 202 F.3d 359, 368 (D.C.Cir.2000), and must be "moored `to some notion of feasibility,'" Citizens Against Burlington, Inc. v. Busey, 938 F.2d 190, 195 (D.C.Cir.1991) (citation omitted), plaintiffs are not substantially likely to prevail on a claim that FWS should have considered alternatives involving translocation within Africa. See also Sierra Club v. Watkins, 808 F.Supp. 852, 871 (D.D.C.1991) ("[A]n agency need not `consider alternatives when such consideration would serve no purpose' or when they are speculative.") (quoting Natural Res. Defense Council, Inc. v. SEC, 606 F.2d 1031, 1054 (D.C.Cir.1979)).
Plaintiffs additionally argue that FWS should have further considered requiring, as a precondition to import, that the zoos exhaust every possible source of captive elephants, both domestically and abroad, before seeking import. However, "[t]he fact that the EA may not have considered a specific alternative preferred by plaintiffs is simply not grounds for finding that the agency failed to meet its obligations in preparing the EA, or that the agency's decision was `arbitrary and capricious.'" City of Roseville v. Norton, 219 F.Supp.2d 130, 170 (D.D.C.2002). The breeding program the zoos desire to revive, moreover, is somewhat dependent on introducing elephants from the wild. The Court is satisfied that FWS considered a reasonable range of alternatives given the limited scope of its authority in this permitting context.
c. Other NEPA Allegations
As a final matter, the Court notes that plaintiffs assert a generalized complaint that FWS did not conduct an independent evaluation of environmental consequences, but rather relied upon Reilly and the zoos for its information. Much of plaintiffs' argument in this regard relates to environmental effects or available alternatives in Africa, and thus would not be relevant given the Court's earlier assessment of the "federal control" and extraterritorial issues. With respect to the NEPA obligations that FWS was plainly required to undertake, the Court notes that, at the present time, it is not persuaded that FWS's analysis, which included reliance on a consultation with another agency, relevant literature, and industry standards, was not sufficiently independent to meet its obligations. See, e.g., AR 92 at 9-11. FWS does not appear to have "delegate[d] to parties and intervenors its own responsibility to independently investigate and assess the environmental impact of the proposal before it." Illinois Commerce Comm'n v. ICC, 848 F.2d 1246, 1258 (D.C.Cir.1988). Rather, the 17-page EA, together with the history of the permit process here, documents a careful assessment by FWS.
V. Balance of the Harms
Having concluded that plaintiffs do not have a substantial likelihood of success on any of their claims, the Court will proceed to consider the balance of harms. A principal consideration in the harms assessment in this case is what would happen to the elephants if a preliminary injunction were granted.
As noted earlier, the elephants are currently located in a boma separated from other elephants. According to Mr. Reilly, this creates "pathogenic threats to [the elephants'] health," and places "unnecessary strain on tractor haulage and human resources, maintenance of water installations (during the persisting drought), and other park infrastructure." Reilly Aff. ¶ 66. Moreover, armed security personnel must guard the boma 24 hours a day diverting the guards from their task of *25 protecting rhino and other elephants from poachers. Id. at ¶ 67.
According to Mr. Reilly, "[t]his situation cannot persist indefinitely and has to be brought to a conclusion forthwith as it is compromising ... day to day conservation efforts." Id. (emphasis omitted). "Each day that passes increases ... expenses to the extreme detriment of the entire Swaziland wildlife conservation effort." Id. at ¶ 73. Therefore, Mr. Reilly states, he "cannot hold these elephants beyond the middle of this August." Id. at ¶ 68. Moreover, he explains that he "cannot and will not release these elephants back into the herds" because of the need to reduce the herd and the additional degradation to the habitat that would occur. Id. Ultimately, Mr. Reilly states, "if the permits are not issued by [the middle of this August], these elephants will be culled." Id. "As much as we want to avoid it, if the elephants are not ready for export, with all necessary U.S. permits by [mid-August], they will, unfortunately, be killed." Id. at ¶ 69.
Plaintiffs ask the Court to reject Mr. Reilly's representations that he will kill the elephants. They point to Mr. Reilly's statements in the record that he will do everything possible to avoid culling the elephants, and they note that they have identified certain reserves in Africa that state that they would accept the elephants. Plaintiffs also note Mr. Reilly's long history with these elephants and his affinity for wildlife. Ultimately, however, they essentially ask the Court to take a leap of faith that, despite Mr. Reilly's statements in his affidavit that he will cull the elephants, in fact he will not do so.[4]
The Court cannot take such a leap. Granted, the Court does not appreciate brinksmanship. But the statements in Mr. Reilly's affidavit are unequivocal. Moreover they are generally consistent with his other statements about his intentions throughout the administrative record, see, e.g., AR 2 (Sept. 1., 2001, Memo from Mr. Reilly); AR 49; AR 75 (June 18, 2003, notice by Mr. Reilly), and thus seem to reflect well-considered views developed independent of this litigation. Although plaintiffs claim to have found suitable homes for the elephants, Mr. Reilly makes clear in his affidavit that he does not intend to pursue any alternatives other than immediate culling. Moreover, the Court notes in this regard, although culling may seem offensive, it has been previously employed to reduce animal populations in southern Africa. AR 40.
At the hearing in this matter, plaintiffs argued that the zoos may already have some control over the elephants and thus can prevent culling, at least until a final decision on the merits. The zoos, however, deny such control, and the import contracts produced to the Court by the zoos upon request of the plaintiffs do not indicate that the zoos would have the ability legally or factually at this time to prevent Mr. Reilly from culling the elephants. In sum, therefore, the Court must accept that if the elephants are not imported in the immediate future they will be culled.
In contrast to the relative certainty of the outcome in the event plaintiffs' motion for a preliminary injunction were granted, it is worth noting that it remains unclear what the disposition of the elephants would be in the event that the Court denied the motion but ultimately ruled in favor of plaintiffs on the merits after the elephants have been imported. Counsel for FWS *26 explained at the hearing that in such circumstances, FWS could attempt to export the elephants back to Swaziland but FWS could not control whether or not Swaziland would accept the elephants. In light of Mr. Reilly's statements about the need to remove the elephants in the first place, the Court finds it implausible to believe Swaziland would take the elephants back. Moreover, although the issue was not briefed by the parties, a potential complication in seeking alternative destinations might be that CITES would make it difficult to export the elephants to any other country if this Court found that the initial importation into the U.S. had been invalid.
With this background, the Court will consider the relevant harms to plaintiffs, the federal defendants, the zoos, and the public.
A. Plaintiffs
Plaintiffs ask the Court to maintain the status quo because their interests will be irreparably harmed if the elephants are imported and placed at zoos. Plaintiffs are correct that their interestsor at least the purported interests of the individual plaintiffs in appreciating the elephants and feeling concern for their welfare, rather than the informational interests of the organizational plaintiffswill in fact be harmed if the animals are placed in the zoos. Moreover, as discussed above, in the event the Court denies a preliminary injunction and the elephants are imported, it may be that the elephants could not later be placed in an environment consistent with plaintiffs' interests even if the Court were ultimately to rule in favor of plaintiffs on the merits.
On the other hand, if an injunction is granted the elephants will be culled. This might appear to mean, somewhat ironically, that plaintiffs would be irreparably injured as the result of the very injunction that they request; however, at the August 6 hearing in this matter, counsel for plaintiffs explained that, from plaintiffs' perspective, the elephants will be better off and thus plaintiffs' interests will be more fully advancedif the elephants are killed rather than imported and placed in the zoos. Taking the plaintiffs at their word, the Court concludes, on balance, that plaintiffs' interestsinterests about which the Court has some concerns in terms of standing will be harmed if an injunction is not granted, yet somewhat advanced if an injunction is granted.
B. Federal Defendants
With regard to the federal defendants, the Court does not see why those entities have more than an abstract interest in the disposition of the elephants. Although the Department of the Interior and FWS undoubtedly have an institutional interest in seeing their policy vindicated, they are detached government bodies that do not, as a practical matter, stand to gain or lose based on what happens to the elephants as a result of the Court's preliminary injunction decision.
C. Zoos
The zoos undoubtedly have an interest in importing the elephants for use in their breeding programs. Culling of the elephants in the event an injunction is issued will thus substantially harm the zoos. On the other hand, it may be that the zoos could successfully import elephants from other countries to fill their breeding needsalthough it is not clear how difficult a task this might be. Nonetheless, the potential harm to the zoos from an injunction is quite significant.
D. Public Interest
It is not clear where the public interest lies in this dispute. The zoos aver that *27 sustaining a viable population of African elephants in North America will serve the public interest because the public will be able to view the elephants and because such viewing will promote and encourage conservation of the world's resources. But however sensible that may seem, it may be that the public (or a substantial portion thereof) sympathizes with plaintiffs' view that zoos are improper places to keep wild animals and that the elephants are even better off culled than at these zoos.
Although preserving the lives of these eleven elephants would seem to be the publicly more acceptable outcome, the Court will not without further evidence assume that the public firmly adopts either side's perspective. Accordingly, the public interest does not strongly favor either granting nor denying the motion for a preliminary injunction.
E. Conclusion on Balance of the Harms
Overall, balancing the harms is basically a washplaintiffs' interests will be advanced to some degree by granting an injunction and may be harmed irreparably from denying an injunction; the zoos' interests will be harmed significantly, although in the long term perhaps not irreparably, if an injunction is granted; and the interests of the federal defendants and the public do not cut clearly one way or another. In that setting, the most that can be said is that plaintiffs have not carried their burden on the balance of harms, since they have not shown that irreparable harm to them is certain and great absent an injunction, see Wisconsin Gas Co. v. FERC, 758 F.2d 669, 674 (D.C.Cir.1985), or that an injunction would not irreparably harm others (here, the zoos) and that an injunction would be in the public interest.
VI. Conclusion
In conclusion, plaintiffs do not have a substantial likelihood of success on their claims based on the record and arguments presented at this time. Moreover, the balance of harms does not significantly favor granting an injunction. Accordingly, plaintiffs' motion for a preliminary injunction is denied. A separate order accompanies this opinion.
ORDER
Upon consideration of Plaintiffs' Motion for a Preliminary Injunction, the arguments of counsel at the hearing on August 6, 2003, and the entire record, it is hereby ORDERED that the motion is DENIED for the reasons stated in the Memorandum Opinion issued on this date.
NOTES
[1] The pages in the administrative record are sequentially numbered. Citations to the administrative record will thus be presented in the format "AR [document number]."
[2] Other courts, consistent with Massey, have ruled that NEPA requires an EIS for environmental impacts on the high seaslike Antarctica a context not involving a foreign sovereign. Center for Biological Diversity v. Nat'l Science Found., 2002 WL 31548073, at *2 (N.D.Cal. Oct. 30, 2002); Natural Res. Defense Council, Inc. v. U.S. Dep't of Navy, 2002 WL 32095131, at *8-12 (C.D.Cal. Sept. 17, 2002).
[3] As Judge Pratt pointed out, Massey's suggestion that the presumption against extraterritoriality does not apply to NEPA because it is merely procedural was undermined somewhat by later Supreme Court rulings that the presumption against extraterritoriality is not grounded exclusively in concerns about potential conflict of laws problems. See NEPA Coalition, 837 F.Supp. at 467 n. 3 (citing Smith v. United States, 507 U.S. 197, 204 n. 5, 113 S.Ct. 1178, 122 L.Ed.2d 548(1993) and Sale v. Haitian Centers Council, Inc., 509 U.S. 155, 173-74, 113 S.Ct. 2549, 125 L.Ed.2d 128 (1993)). These cases recognize as a significant factor the proposition that Congress legislates domestically, not internationally.
[4] In the end, as stated unequivocally by counsel for plaintiffs at the conclusion of the August 6 hearing, given the choice plaintiffs would rather see the elephants dead than in a zoo. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1377342/ | 485 F. Supp. 1035 (1980)
COMMUNITY COMMUNICATIONS COMPANY, INC., a Colorado Corporation, doing business as Boulder Cable T.V., Plaintiff,
v.
CITY OF BOULDER, COLORADO, a Municipal Corporation, Boulder Communications Co., a partnership, Thomas Cross, Jack Kerner, Michael Thompson, Donald Passalaqua, Barry Telleen, and Dennis DuBe, Defendants.
Civ. A. No. 80-M-62.
United States District Court, D. Colorado.
March 17, 1980.
*1036 Stephen M. Brett, Robert E. Youle, Dawson, Nagel, Sherman & Howard, Denver, Colo., Harold R. Farrow, Thomas A. Seaton, H. Wayne Goodroe, Megan Tootell, Farrow, Schildhause & Wilson, Oakland, Cal., for plaintiff.
Joseph N. de Raismes, Alan E. Boles, Jr., City of Boulder, Boulder, Colo., for defendant City of Boulder.
John A. Purvis, Steve C. Briggs, Hutchinson, Black, Hill, Buchanan & Cook, Boulder, Colo., for other defendants.
MEMORANDUM OPINION AND ORDER
MATSCH, District Judge.
The plaintiff, Community Communications Company, Inc. (CCC), moved for a preliminary injunction to prevent the City of Boulder from restricting or revoking the rights which it claims from a revocable, nonexclusive permit granted to a predecessor company in 1964. That permit was issued in the form of an ordinance enacted by the Boulder City Council, as a franchise to use public ways in that city to string cables for a community antenna system, or cable television. The geographical area involved was the entire City of Boulder and the permitted use of public ways was for a period of twenty years, with the power to terminate reserved in the following language:
SECTION 2. That the right, permit and privilege herein granted is subject to revocation by the City Council, at its pleasure, at any time . . . (Plaintiff's Exhibit No. 22)
Under that ordinance, CCC has provided cable television service to the University Hill area of Boulder, an area comprising approximately 20% of the City's residential units and blocked off from normal reception of Denver television stations. Up to February 1980, CCC provided basically only retransmission of television signals from Denver and from one station in Cheyenne, Wyoming. In February 1980, CCC established an earth station for the reception of remote channels via satellite. The result is a greatly increased access to a variety of programming, including movies, sports, and channels from distant major cities.
Up to late 1975, cable television throughout the country was concerned primarily with retransmission of television signals to areas which did not have normal reception, with some special local weather and news services originated by the cable operators. During the late 1970's however, satellite technology impacted the industry and prompted a rapid, almost geometric rise in its growth. As earth stations became less expensive, and "Home Box Office" companies developed, the public response to cable television greatly increased the market demand for such expanded services.
The "state of the art" presently allows for more than 35 channels, including movies, sports, FM radio, and educational, children's, and religious programming. The institutional uses for cable television are fast *1037 increasing, with technology for two-way service capability. Future potential for cable television is referred to as "blue sky", indicating that virtually unlimited technological improvements are still expected.
In May 1979, CCC wrote to the Mayor of Boulder advising her of its plans to expand cable television service to other areas of the City and to establish an earth station for satellite pick-up. To expand to new areas, CCC must contract with the public utilities for the use of their poles. Many such poles are jointly owned by the Public Service Co. and Mountain Bell Telephone Co., and a certain amount of "communications space" is left available by them for use by cable companies. The utilities grant a license to the company, under which it must make advance payments if rearrangement of the poles is necessary to make room for the cables. This "pole rearrangement" is done by the utility company, after which CCC is free to string its cables. Contracts and pole rearrangements were being negotiated by CCC from May through the end of 1979.
Shortly after CCC's letter to the Mayor, a newly formed business organization, Boulder Communications Company (BCC), codefendant herein, expressed an interest in obtaining a permit and competing with CCC. In a letter to the City Manager, BCC outlined a proposal for a new system, acknowledging the presence of CCC in Boulder but stating that "(w)hatever action the City takes in regard to TCI, it is the plan of BCC to begin building its system as soon as feasible after the City grants BCC its permit." (Plaintiff's Exhibit 9)
The Boulder City Manager and City Council reacted to this development by initiating a review and reconsideration of cable television in view of the many changes in the industry since the 1964 ordinance. Accordingly, they hired a consultant, Robert Sample, and held a number of study meetings to develop a governmental response to these changes. The primary thrust of Sample's advice was that the City should be concerned about the tendency of a cable system to become a natural monopoly. Much discussion in the City Council centered around a supposed unfair advantage that CCC had because it was already operating in Boulder. Members of the Council, and the City Manager, expressed fears that CCC may not be the best cable operator for Boulder, but would nonetheless be the only operator because of its head start in the area. The Council wanted to create a situation in which other cable companies could make offers and not be hampered by the possibility that CCC would build out the whole area before they even arrived.
The result of this process was enactment of an "emergency" ordinance on December 19, 1979 (Ordinance No. 4473), unilaterally amending the 1964 Ordinance under which CCC had been operating, by restricting CCC from expanding its area of service for a period of three months. On the same day, the Council enacted Ordinance No. 4472, which revoked the 1964 Ordinance and reenacted it to include the same three month restriction. Both ordinances expressly stated that the purpose of this moratorium on construction was to give other cable companies an opportunity to make proposals to provide service to the City. The Boulder Council had accepted the view that such a restriction was necessary to prevent CCC from obtaining a competitive advantage by connecting up to new customers during the proposal and negotiation process. Additionally, while the Boulder Council was persuaded that it had some responsibility to regulate cable television, it had received legal advice which cast doubt upon its authority and which particularly cautioned about the possibility of violations of antitrust laws.
Apparently upon the view that any lack of regulatory authority could be finessed by the use of a contract approach, the City included the following language in Ordinance No. 4472:
SECTION 12. The grantee shall signify its acceptance of the terms hereof by continuing to provide service to any customers presently served by the grantee . . . (Plaintiff's Exhibit No. 27)
*1038 As a part of the process of soliciting applications from interested cable companies, the City drafted a proposed model ordinance and submitted it to the cable television industry with the request that those who wished to make proposals to enter the Boulder market should give their comments on that draft. The objective of the total process was to select those applications meeting the City's criteria, apparently including acceptance of regulatory powers, and then enter into a period of negotiation culminating in an agreed ordinance which could not later be attacked by the permittee.
The plaintiff claims that the revocation of its permit and the enactment of the new ordinance, with the moratorium, have adversely affected its business in ways which generate several claims for relief. The contention which is of primary importance for this motion for preliminary injunction is that the City has violated Section 1 of the Sherman Act (15 U.S.C. § 1). The plaintiff asserts that Boulder and BCC are engaged in a conspiracy to restrict competition by replacing the plaintiff with BCC. While the plaintiff has gathered some circumstantial evidence which might indicate such a conspiracy, that evidence is insufficient to establish a probability that the plaintiff will prevail on this claim.
What CCC has shown is that to influence competition Boulder unilaterally prevented further expansion of the geographical area of the plaintiff's business. Whether the intent is to promote new competition by assuring other cable companies that most of Boulder will remain available to them for possible first service, and then to permit competing companies to overbuild in the same geographical areas, or whether there is a more insidious motive to supplant CCC with a de facto monopoly, the motion for injunctive relief requires consideration of the impact on CCC. Is Boulder's action in imposing a moratorium an unlawful interference with the plaintiff's business and with free market competition?
The plaintiff concedes that it does not have an exclusive license and it recognizes that the City has the right to grant additional licenses to compete in the same geographical area. Under the present technology, more than one cable company can be on the same poles without adversely affecting the public ways. While there certainly are finite limits to overbuilding, those limits are something beyond two companies.
The City contends that its conduct here cannot be violative of the antitrust laws because it is exercising police powers and has immunity under the doctrine of Parker v. Brown, 317 U.S. 341, 63 S. Ct. 307, 87 L. Ed. 315 (1943). That assertion requires an inquiry into the extent of Boulder's governmental authority. Clearly, the City has the right and responsibility to control and regulate the use of public ways. That is not disputed here. Accordingly, the City may impose such restrictions on the hanging of cables as may reasonably be necessary to protect the public and other franchise users of such property. Cable companies are entirely dependent upon their ability to use public ways for the cables necessary to transmit their programs. That obviously gives the City some leverage by controlling access to the consumer market. The scope of that leverage and the legality of its use are difficult questions.
Boulder is a home rule city under Article XX of the Colorado Constitution and claims broad regulatory power because there is a vacuum resulting from inaction by federal and state governments. Broadly stated, the people of Colorado have granted home rule cities autonomy in matters of local concern. Accordingly, though it is a municipality, the City of Boulder contends that it should be considered to have the power of state government as to such matters within its geographical area. There is no Colorado case which characterizes the operations of cable television companies as a matter of local concern. Obviously there are wider concerns, including interstate commerce, giving rise to some uncertainty about the *1039 power of the state government in this regard, both in terms of an obstruction to interstate commerce, and with respect to the First Amendment rights of communicators.
In City of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 98 S. Ct. 1123, 55 L. Ed. 2d 364 (1978), the Supreme Court held that both cities and states come within the reach of the proscriptions of the Sherman Act and that the immunization under Parker v. Brown, supra, is limited to governmental acts. In the very recent opinion deciding California Retail Liquor Dealers Assoc. v. Midcal Aluminum Inc., ___ U.S. ___, 100 S. Ct. 937, 63 L. Ed. 2d 233 (1980), the Court emphasized that antitrust immunity can be claimed for governmental action only when the action is taken pursuant to a clearly articulated and affirmatively expressed policy, actively supervised by the state.
Assuming that Boulder does have the claimed authority to regulate cable television within the City in the manner which would be required to impose all of the terms and conditions in the draft ordinance which was submitted to the plaintiff and other cable companies, the approach taken is not an appropriate exercise and articulation of a policy of regulation. It is not characteristic of utility regulation for the regulating authority to negotiate with those to be regulated and then formulate the final policy by exercising legislative power through an offer and acceptance mechanism. It might well be a different case if Boulder had enacted an ordinance articulating qualifying criteria for cable companies to do business in the City, with such other regulations as the City government might believe to be necessary and proper in the exercise of police power, and then to confront the contention that such an ordinance has an anticompetitive effect. That is not this case. Here, upon the present record, Parker v. Brown is wholly inapplicable and Boulder is subject to antitrust liability under City of Lafayette v. Louisiana Power & Light, supra for the actions which it has taken.
Boulder does not claim that CCC has violated any of the terms and conditions of its operating authority under the 1964 or the 1979 ordinances. The City has also conceded that while it may have the right to revoke the plaintiff's permit without cause, it may not take that action for an unlawful purpose.
What has happened up to this time in this case is not unlike those cases in which there is a unilateral refusal to deal unless certain anticompetitive conditions are met. See, Sahm v. V-1 Oil Co., 402 F.2d 69 (10th Cir. 1968) and Milsen Co. v. Southland Corp., 454 F.2d 363 (7th Cir. 1971). There is also a similarity with those cases in which retailers or distributors were coerced into unlawful conditions or restrictions by their suppliers, the suppliers claiming that a contractual right to terminate allowed them to cancel a previous agreement and impose new terms. Interphoto Corp. v. Minolta, 295 F. Supp. 711 (S.D.N.Y.1969) and Continental Distributing Co. v. Somerset Importers, 411 F. Supp. 754 (N.D.Ill.1976). See also, Perma-Life Mufflers, Inc. v. International Parts Corp., 392 U.S. 134, 88 S. Ct. 1981, 20 L. Ed. 2d 982 (1968). Most simply stated, Boulder has attempted to restrict the lawful business of CCC by preventing it from obtaining new customers for three months while potential competitors submit proposals for serving those same customers. The motivation may be to foster competition in the long run, but the direct and immediate effect is a restraint of trade and an artificial and unreasonable geographical market allocation.
I am in agreement with the defendants' contention that the record does not establish any agreement or conduct which can be considered to be a per se violation of the antitrust laws. Accordingly, the rule of reason is applicable here. I disagree that the evidence shows that cable television is such a natural monopoly that *1040 the only feasible competition is in the process of currying favor with the City Council to obtain a permit to operate. To the contrary, the evidence is that there can be competition in the marketplace, with the choice of price and service left to the consumers.
There are two other aspects of this case which are deserving of preliminary observations at this time. The plaintiff has attempted to use the shield of the First Amendment to avoid any interference from City government. That is an obvious overstatement of the law and an attempt to escape the reality that the messages it chooses to transmit must pass through a medium which is subject to some control by the City.
While the defendant Boulder readily concedes that the First Amendment would prohibit its control of the content of these transmissions, it does assert both the right and the responsibility for restricting the use of the public ways in this communications system. The question, of course, is what are the limits of that authority? If controlling content of the programs is beyond those limits, is it different, either in degree or in kind, for the City government to prescribe the number, variety, and scope of programming and services to be offered? And, is it appropriate for the City administration to say that the acceptability of a cable company rests on its willingness to contribute free services to that government or to such institutions or groups as may be considered to be in need of benefit or reward? Stated bluntly, may the City exact tribute for its favor?
While these questions are not now ripe for decision, they are potential problems in this developing situation. It is inappropriate to ascribe any illegal or improper intent to action which has not yet been taken, but it may be helpful to give caution about the potential consequences of that which may be contemplated. The City should carefully consider the need to exercise its authority by narrowly drawn regulations which do not unnecessarily interfere with First Amendment freedoms, as the Supreme Court has cautioned in Village of Schaumburg v. Citizens for a Better Environment, ___ U.S. ___, 100 S. Ct. 826, 63 L. Ed. 2d 73 (1979).
In summary, the plaintiff has established the need for a preliminary injunction for the protection of its business from irrevocable injury which could occur pending the final resolution of this dispute, under the standards set forth in Continental Oil Company v. Frontier Refining Co., 338 F.2d 780 (10th Cir. 1964). The final outcome of this matter is far from predictable given the difficult questions which I have discussed in this opinion, and given the fact that the Boulder City Council has not yet acted on the applications which have been submitted in the proposal process. While the primary function of a preliminary injunction is to preserve the status quo until a final determination of the rights of the parties, that cannot mean that the parties are frozen in the positions they occupied immediately prior to the filing of the complaint. The circumstances surrounding this case are very fluid and there are interested persons who are not before the court. What equity requires here is that the plaintiff be protected in the exercise of the lawful rights which it had prior to the conduct which in reasonable probability will be declared to be unlawful under the antitrust laws. In considering the public interest and how it may be affected by this injunction, it is necessary to look beyond Boulder to the national policy of protecting free market competition.
If this lawsuit is finally decided in favor of the defendant City of Boulder, any injury which it may sustain can be remedied by the removal of the cables involved in the extension of the plaintiff's plant. It is not necessary to require the posting of a bond in an amount sufficient to cover the cost of that removal because the City already has that protection under the 1964 ordinance. *1041 Accordingly, only a bond to meet the jurisdictional requirements of Rule 65 need be posted, in the nominal amount of $100.00.
Upon the foregoing, it is
ORDERED, that so long as the plaintiff, Community Communications Company, Inc., operates within the terms and conditions of Ordinance No. 2846, enacted October 6, 1964, the City of Boulder and all of its officers, agents, servants, employees, and attorneys are enjoined from taking any unilateral action to restrict, limit, or revoke the authority of the plaintiff to conduct its cable television business in the City of Boulder. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2450711/ | 278 F.Supp.2d 1210 (2003)
UNITED STATES of America, Plaintiff,
v.
William Leonard PICKARD and Clyde Apperson, Defendants.
No. 00-40104-01/02-RDR.
United States District Court, D. Kansas.
April 4, 2003.
*1211 Mark L. Bennett, Jr., Bennett & Hendrix, LLP, Topeka, KS, for Defendant Clyde Apperson.
Gregory G. Hough, Office of United States Attorney, Topeka, KS, for Plaintiff.
William K. Rork, Rork Law Office, Topeka, KS, for Defendant William Leonard Pickard.
MEMORANDUM AND ORDER
ROGERS, District Judge.
This matter is presently before the court upon defendant Pickard's renewed motion to suppress.[1] In this motion, he contends *1212 that "newly discovered evidence" requires the court to reconsider its ruling of March 27, 2002. The new evidence comes in the form of testimony of Gordon Todd Skinner offered to the court in a hearing outside the presence of the jury during the course of the defendant's trial.[2] Additional evidence was also offered to the court on March 31, 2003. At the conclusion of the hearing on March 31, 2003, the court denied the instant motion. The purpose of this memorandum and order is to memorialize and explain the court's decision.
On March 5, 2003 Pickard informed the court that he wanted to renew his prior motion to suppress. He asserted that he had recently discovered some new evidence on the issues raised in that motion. He asserted that the new evidence came from Gordon Todd Skinner, the government's key witness in this case. Skinner had concluded his ten days of testimony on February 12, 2003. The court scheduled a hearing for March 6, 2003. Following the hearing, the court directed the parties to file briefs concerning the new evidence. Pickard and the government submitted briefs to the court.
During the trial, Pickard testified in his own behalf. He provided the following testimony concerning the suppression issues: (1) he had visited the missile base in Wamego on several occasions and left personal belongings there; (2) he had authority around the base and the right to exclude others from the base because Graham Kendall, the trustee of the trust that owned the base, had given him a power of attorney; (3) he had the key and access codes to the base; (4) he had directed Skinner not to engage in any illegal activities at the base; and (5) he also told Skinner not to consent to a search of the base by law enforcement officers. On March 31, 2003, following the conclusion of the trial, Pickard indicated that he had even more evidence to offer on the issues of suppression. He proffered more evidence from Skinner on the suppression issues.
The court must first determine whether it is appropriate to reopen the suppression hearing in light of the "new" evidence. The decision whether to reopen a suppression hearing lies within the discretion of the court. United States v. Quiroz-Carrasco, 565 F.2d 1328, 1330 (5th Cir.1978). In making this determination, the court should consider whether the moving party has produced newly discovered evidence that was unknown to the party, and could not through due diligence reasonably have been discovered by that party, at the time of the original hearing. See Anthony v. United States, 667 F.2d 870, 875 (10th Cir.1981); see also United States v. Gonzalez, 182 F.3d 933, 1999 WL 381114 (10th Cir.1999) (table case) (suppression hearing should not be reopened to consider testimony of cab driver who testified at trial when he was available to testify at suppression hearing); United States v. Childress, 721 F.2d 1148, 1151 (8th Cir. 1982) (district court properly denied motion to reopen suppression hearing where defendant waived his right to testify at suppression hearing and had not established good cause to obtain relief from waiver).
Both witnesses who have now offered evidence were available to testify at the initial suppression hearing. The defendant *1213 has not suggested that Skinner could not have been called to testify at the initial hearing. In addition, there was absolutely no reason why the defendant could not have presented the testimony that he offered at trial at the suppression hearing. In light of these circumstances, the court does not believe that it is appropriate to reopen the suppression hearing. However, even if we did so, we would continue to deny the defendant's motion to suppress for the following reasons.
In the order of March 27, 2002, the court determined that (1) Gordon Todd Skinner had authority to consent to a search of the missile base; (2) Skinner voluntarily consented to a search of the missile base by law enforcement agents on October 27, 2000; and (3) defendants lacked standing to challenge the search because they did not have an objective expectation of privacy inside the underground base. The court also found that the seizure of items from the search executed pursuant to the search warrant need not be suppressed because (1) probable cause existed to support the issuance of the search warrant; (2) none of the alleged omissions in the affidavit for the search warrant alter the probable cause determination; and (3) the search warrant did not violate the particularity requirements. Finally, the court determined that the government had met the requirements for the issuance of a warrant authorizing video surveillance.
Pickard suggests initially that Skinner did not have authority to consent to a search of the missile base property. In his motion, he argues: "Agents in this case were unreasonable in their belief that Skinner, the confidential source, had apparent authority to invite them onto the property. Agents were unlawfully on the property during their `tour' where they posed as `potential buyers' and all information gained therefrom was obtained illegally." This argument is apparently based on the belief that the agents improperly posed as buyers for the base in representations to Kendall and that trust documentation may have shown some interest by Pickard. The defendant next suggests that he had a legitimate expectation of privacy in the missile base. This is based upon a view of the evidence that Pickard (1) "had the authority to exclude others from the property," (2) had stayed at the property on several occasions after he was granted power of attorney; (3) had keys and pass-codes to the property; and (4) kept some of his personal belongings there. Finally, the defendant has suggested that the affidavit in support of the search warrant was defective because it contained omissions of material information, misstatement of facts, and false statements. This argument is apparently based upon the following statements which the defendant contends are contrary to those contained in the affidavit in support of the search warrant: (1) agents directed Skinner to place certain items in open view for the "tour" on October 27, 2000, and (2) agents opened containers on the base while on the "tour."
In the court's earlier order, we set forth the law and the facts concerning consent as follows:
Consent is a well-recognized exception to the warrant requirement of the Fourth Amendment. Schneckloth v. Bustamonte, 412 U.S. 218, 219, 93 S.Ct. 2041, 36 L.Ed.2d 854 (1973). The government has the burden to establish that Skinner consented and had the authority to consent to the tour and searches of the decommissioned missile silo site. U.S. v. Rith, 164 F.3d 1323, 1329 (10th Cir.) cert. denied, 528 U.S. 827, 120 S.Ct. 78, 145 L.Ed.2d 66 (1999). The government's proof must demonstrate that Skinner had use of the property as someone with joint access and control *1214 for most purposes. Id., quoting United States v. Matlock, 415 U.S. 164, 172 n. 7, 94 S.Ct. 988, 39 L.Ed.2d 242 (1974). While the evidence in this case demonstrates that title to the missile site was not in Skinner's name, he clearly had access and control over the property whether as the owner or as someone with permission from the owner. He had the keys and the access codes to the buildings on the property, and he had free rein to come and go.
The court is not persuaded that any of the evidence offered by the defendant counters the aforementioned findings. The court believes that the credible evidence in the record fully supports these findings. The testimony offered by Skinner did nothing to challenge any of these conclusions. Accordingly, the court does not find it necessary to reconsider its prior rulings on consent.
Any suggestion by the defendant that Skinner's statements to the trustee of the property that the agents were buyers does not invalidate the court's earlier findings. Skinner's motives in making these statements are inconsequential to the ultimate conclusion. The facts fully support that Skinner had authority to consent to a search of the missile base premises and the property that was there.
The defendant has asserted that the officers failed to fully explore the trust documents to determine if Skinner had authority over the missile base. We must disagree. There has been no showing that the trust documents demonstrate anything different than what the court has found. Skinner made no representations that the trust documents suggested that he lacked authority to consent to a search of the premises.
The defendant has again argued that he had an expectation of privacy that allowed him to challenge the searches at the missile base. In the prior order, the court made the following findings concerning this issue:
Defendants have the burden of establishing that their right to privacy was violated. Rakas v. Illinois, 439 U.S. 128, 130 n. 1, 99 S.Ct. 421, 58 L.Ed.2d 387 (1978). Otherwise, there can be no Fourth Amendment violation which justifies suppression of evidence. Defendants must prove that they had a subjective expectation of privacy in the searched premises and that society is prepared to recognize that expectation as legitimate. Minnesota v. Carter, 525 U.S. 83, 119 S.Ct. 469, 142 L.Ed.2d 373 (1998); U.S. v. Gordon, 168 F.3d 1222, 1226 (10th Cir.) cert. denied, 527 U.S. 1030, 119 S.Ct. 2384, 144 L.Ed.2d 786 (1999). The burden is heightened in cases such as the one at bar where the missile site was not a dwelling for defendants but a place to store business property. See Gordon, 168 F.3d at 1226.
....
There is ... an insufficient basis to find that defendant Pickard had a legitimate expectation of privacy which was violated by the tour and the searches. There is no evidence that defendant Pickard had an ownership interest in the land or buildings. There is no evidence that defendant Pickard often visited or occupied the location. He appeared to exercise no control over who did occupy the premises or who had access to the property stored there. He was not in possession of the keys or access codes to the buildings when he first arrived in November 2000. Indeed, at one point, he purchased bolt cutters and used them to gain access to the missile silo. Defendant Pickard had a one-sentence document granting him power of attorney which was apparently drafted so that he could exercise some authority over the property in case something happened to Skinner. There is no evidence that this *1215 document was ever employed by defendant Pickard. We do not believe either defendant Pickard or a reasonable representative of society would consider the power of attorney sufficient to justify an expectation of privacy at the missile site.
Pickard may have had some records and other property stored at the missile site. But, this was done by Skinner, not by Pickard or at Pickard's bidding. Pickard has not claimed an ownership interest in the missile site or outbuildings. Nor does this appear to be the kind of bailment situation which would produce a legitimate expectation of privacy. There is no evidence that defendant Pickard arranged for the property to be stored at the Wamego missile site as opposed to the Salina missile site or that the property was stored there with any formal or informal understanding limiting who had access to the property.
In sum, certainly there was no privacy interest which was violated during the tour where no boxes or containers were disturbed. In addition, we cannot find a legitimate expectation of privacy in general because there is no evidence that defendant Pickard arranged for the private storage of the property at the Wamego missile site, only that he arranged to receive a vague power of attorney for the site.
Nor was there a legitimate expectation of privacy sufficient to support a challenge against the nonverbal video surveillance. The surveillance being challenged occurred inside the underground missile base. According to the testimony of Agent Nichols, Skinner was inside the base with Pickard or Apperson, whenever they were inside the base. Tr. 183. Skinner was aware of and consented to the video surveillance. The base was not a temporary or permanent residence for either defendant at the time of the surveillance. As already discussed, defendants had very little connection with the property in the months immediately prior to November 2000. Their history or experience on the land before then is not plainly established in the record. In November 2000, defendants were only visiting the base for the purpose of evacuating equipment and other materials. They had hotel rooms in Manhattan, Kansas where they stayed overnight. Given all of these circumstances, we find that defendants did not have an objective expectation of privacy inside the underground base when Skinner was present. See U.S. v. Nerber, 222 F.3d 597 (9th Cir.2000) (defendants had no reasonable expectation of being free of video surveillance in hotel room rented by government agents when informants, who consented to the surveillance, were in the room).
The court did not find the testimony of the defendant credible on the facts concerning his expectation of privacy at the missile base. In fact, the court found the testimony offered by Pickard on these matters was a complete fabrication. The testimony was at odds with the vast majority of the evidence presented to the court. Moreover, outside of some corroboration provided in the proffer made by Pickard on March 31, 2003 concerning some additional testimony from Skinner, there was nothing to support his testimony. The proffer provided by the defendant on March 31, 2003 is indeed curious. The proffer consisted of two unsigned affidavits from Skinner. Defense counsel represented that Skinner agreed with the contents of the affidavits. However, some of the information contained in those affidavits is directly in conflict with evidence that Skinner offered previously at trial and with testimony that he offered during the hearing on March 6, 2003. The court does not find any of the information contained in these affidavits credible. Moreover, the court does not find that the testimony of Skinner on March 6, 2003 obligates reconsideration *1216 of any of these findings. At that time, he offered nothing to suggest that any of these were incorrect. In fact, he reaffirmed several of the findings made by the court.
The defendant has again noted the power of attorney document in support of his expectation of privacy argument. Once again, the court is not persuaded that this document shows any expectation of privacy for Pickard. There has been no credible evidence that Pickard ever employed this document to exercise any control over the base.
The court also finds nothing to support the contention that the trust documents might provide some support for the defendant's position. The defendant has the burden of proving standing. The defendant has not offered any credible evidence to support his contention that the trust documents might provide some basis for this theory. At the hearing on March 6, 2003, Skinner did not testify that Pickard had any interest other than the power of attorney. Skinner did testify that the agents left some of the trust documents at the base, but he did not indicate that any of them would have supported the idea that Pickard had any expectation of privacy at the base or that Skinner did not have authority to consent to a search of the base.
The defendant also argues that the search warrant contained omissions of material information, misstatement of facts, and false statements. The court previously considered this argument in its prior order. There has been nothing presented that causes the court to reconsider its prior ruling.
The court finds no evidence to support the contention that law enforcement officers sought to manipulate the placement of the can of ergotamine tartrate(ET).[3] Skinner testified directly that no specific instructions were given to him concerning the placement of the can. Nevertheless, the court is lost as to the legal significance of this fact even if it were true. The evidence has sufficiently demonstrated that Skinner had control over the missile base and the personal property located there, including the ET. No one else has claimed any ownership in the personal property. During the matters leading to the search warrant, Skinner was voluntarily complying with all requests made by law enforcement. Accordingly, even if he were directed to place the can in a place where it could be seen, the defendant's Fourth Amendment rights were not violated.
The defendant has also suggested, based upon the testimony of Skinner and his subsequent affidavits, that the affidavit provided to the magistrate contained false statements. This contention appears to be based upon Skinner's testimony that Agent Karl Nichols, a DEA special agent and former DEA forensic chemist, opened the can of ET and placed his finger in it on October 27, 2000. This statement was contrary to the statements made by Agent Nichols in the affidavits in support of the search warrant and his testimony during the trial and the instant hearing. The court does not find the testimony of Skinner on this issue credible. The court does not believe that a trained DEA chemist would subject himself to possible convulsions by opening such a dangerous can of chemicals. The court also notes that Skinner testified that the events of October 27, 2000 were very stressful to him. The stress of the situation may have affected his ability to remember accurately what occurred. In sum, the court does not find *1217 factual support for this particular aspect of the defendant's motion. Moreover, the court fails to find any other support for the position that law enforcement agents provided false or misleading information to the magistrate in the affidavits in support of the search warrants.
The defendant has also suggested that the government has somehow confused the issue of his standing to object to the searches that occurred at the missile base. This argument is apparently based upon the contention that law enforcement officers failed to adequately examine, consider and retain the trust documents concerning ownership of the missile base. Again, there has been no credible evidence produced that supports the position that the trust documents provided any interest for Pickard.
In sum, the court finds no basis to reconsider its earlier order. The defendant's renewed motion to suppress shall be denied.
IT IS THEREFORE ORDERED that defendant's renewed motion to suppress (Doc. # 297) be hereby denied.
IT IS SO ORDERED.
NOTES
[1] Although defendant Apperson joined in this motion during hearings, the court believes that he has offered nothing to counter the following findings made in the court's prior order:
There is no proof in the record that defendant Apperson had a subjective expectation of privacy in the premises in question. Defendant Apperson does not allege that any of the items stored on the premises belonged to him. He does not assert that he spent any time on the premises prior to the events of early November 2001. No indicia of ownership or control have been demonstrated. We also find no grounds which would lead a reasonable person to believe that defendant Apperson had a legitimate expectation of privacy at the decommissioned missile site.
Accordingly, the court shall deny this motion as it concerns defendant Apperson.
[2] The defendant has also suggested that the court should consider the testimony he offered during trial in deciding the instant motion. The court will address this testimony during the course of this opinion.
[3] The court shall refer to the substance contained in the can as ET because, at the time of the search warrant, all parties believed that is what was in the can. Subsequently, it was discovered, however, that the substance was actually ergocrystine. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1557176/ | 673 F. Supp. 1043 (1987)
CHEMICAL WASTE MANAGEMENT, INC., and SCA Chemical Services, Inc., Plaintiffs,
v.
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY, et al., Defendants.
Civ. A. No. 87-2411-S.
United States District Court, D. Kansas.
November 5, 1987.
Supplement to Memorandum November 18, 1987.
*1044 J. Brian Molloy, Mary F. Edgar, Susan D. Sawtelle, Douglas H. Green, Piper & Marbury, Washington, D.C., Robert L. Driscoll, Lindsay L. Wood, Stephen J. Owens, Stinson, Mag & Fizzell, Kansas City, Mo., Roger D. Stanton, Stinson, Mage & Fizzell, Overland Park, Kan., Joan Z. Bernstein, Roger C. Zehntner, Philip L. Comella, Chemical Waste Management, Inc., Oak Brook, Ill., for plaintiffs.
Janice Miller Karlin, Asst. U.S. Atty., Kansas City, Kan., John A. Amodeo, Environmental Defense Sec., U.S. Dept. of Justice, Washington, D.C., for defendants.
MEMORANDUM AND ORDER
SAFFELS, District Judge.
I. INTRODUCTION
This is an action challenging certain procedures employed by defendant Environmental Protection Agency (EPA) in determining that plaintiffs are not in compliance with federal regulations concerning the processing and destruction of hazardous waste. The consequence of noncompliance in this instance renders plaintiffs' waste management facility ineligible to receive and process hazardous wastes from "Superfund" sites (i.e., hazardous substances spill and waste disposal sites at which the cleanup is proceeding under E.P.A. direction pursuant to the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), 42 U.S.C.A. §§ 9601-9675 (1982 & Supp.1987)). Plaintiffs first moved for a temporary restraining order. On August 10, 1987, this court issued a brief order granting limited injunctive relief against the EPA. The order prohibited the EPA from asserting that plaintiffs' waste management facility was not in compliance with a certain EPA *1045 guideline known as the "off-site policy,"[1] but only for the purpose of preventing the general contractor at a CERCLA site (the Martha Rose Chemical site in Holden, Missouri) from using the alleged noncompliance as a shield in barring plaintiffs from participating in the taking of bids to process hazardous wastes removed from the site. On September 16-18, 1987, the court held a hearing on plaintiffs' request for a preliminary injunction preventing the EPA from relying upon the off-site policy in rendering plaintiffs' facility ineligible to receive Superfund wastes. The court has reviewed the testimony offered by the parties, and each side has submitted extensive post-hearing memoranda. The matter is now ready for adjudication.
II. FACTS
Plaintiff Chemical Waste Management, Inc. ("Chem Waste"), according to its brochure, is the world's largest environmental services company involved with the management of hazardous wastes. It operates twenty-six facilities in the United States, ranging from mere transportation centers to full-scale treatment, recovery, incineration and disposal plants. The facility that is the subject of the present litigation is near Chicago, Illinois (the "Chicago facility"). This facility includes one of only six incinerators in the country capable of destroying polychlorinated biphenyls ("PCBs").[2] The incinerator is operated by Chem Waste's wholly owned subsidiary, plaintiff SCA Chemical Services, Inc. The physical location of the Chicago facility had previously been used as a processing site for industrial wastes during the 1970s, and dumps still exist in the vicinity of the facility. In 1980, SCA took over operation of the facility and in 1981, the Illinois Environmental Protection Agency (IEPA) executed a compliance agreement with the Chicago Regional Port District to allow the site to be restored by SCA in contemplation of its present use. SCA restored the facility, which included adding the incinerator.
Plaintiffs' incinerating buildings sit on the eastern edge of a man-made, earthen pier that juts westward into Lake Calumet. Located on the pier itself are four separated lagoons, known as surface water impoundments. Two of the impoundments hold "scrubber water" that has been used in the incinerating process and piped to the lagoons, thereby allowing the water to settle before it is reused. A third impoundment is used for storage of storm water. The previous occupier of the pier had used the pier to store chemicals in units called "bio-beds." As part of its duties under the 1981 agreement, SCA cleaned up and covered those units. They are referred to as solid waste management units in EPA terminology. Hydrologically upgradient from SCA's facility lie several old landfills and illegal hazardous waste dump sites, none of which are owned by plaintiffs. The impoundments are therefore surrounded on three sides by lake water that has been exposed to numerous hazardous wastes over the years, and the impoundments also border the solid waste management units and other hazardous waste sources. To determine whether they are releasing any hazardous substances, wells have been installed around them for the purpose of sampling and analyzing migration.
Once the site was restored, SCA sought a permit from the federal government to operate a hazardous waste management facility. At that point in time, in the early 1980s, a company desiring to operate in the field of toxic or hazardous wastes had a multitude of federal statutes with which to contend. Among those applicable in the present case are CERCLA, the Toxic Substances Control Act (TSCA), 15 U.S.C. §§ 2601-2629 (1982), and the Resource Conservation and Recovery Act (RCRA), 42 U.S.C. §§ 6901 et seq. (1982). RCRA and TSCA were passed by Congress within ten days of each other in October, 1976. TSCA is generally designed to cover the regulation of all chemical substances, but it contains *1046 a particularized focus on the disposal, manufacture, processing, distribution, and use of PCBs, in recognition of the seriousness of the threat that PCBs pose to the environment and human health. See Environmental Defense Fund v. Environmental Protection Agency, 636 F.2d 1267, 1271 (D.C.Cir.1980). It empowers the EPA to prohibit or condition the manufacture, distribution, and use of such chemicals. Stever, Law of Chemical Regulation and Hazardous Waste § 6.04, at 2-3 (1987) [hereinafter Stever]. RCRA established federal standards and requirements for solid and hazardous waste disposal, regulating all stages of hazardous waste management from generation to final disposal. Comment, Private Response-Cost Recovery Actions Under CERCLA, 34 Kan.L.Rev. 109, 110 & n. 10 (1985). It is the dominant hazardous waste regulatory force in the United States. Stever § 5.01, at 5-5 to -6. It is designed to accomplish three basic objectives: provide a system for tracking and preserving a record of the movement of hazardous waste from its origin to its ultimate disposal (i.e., cradle to grave), ensure that disposal of hazardous waste is accomplished by environmentally safe means, and provide an enforcement mechanism to ensure compliance with the first two objectives. Id. at 5-7. TSCA and RCRA were generally designed to look forward in time and prevent contamination of the environment by regulating generators and handlers of hazardous wastes. CERCLA, passed four years later, was designed to remedy environmental damages caused by past improper disposal practices. It has been described as follows:
CERCLA was designed "to bring order to the array of partly redundant, partly inadequate federal hazardous substances cleanup and compensation laws." It applies "primarily to the cleanup of leaking inactive or abandoned sites and to emergency responses to spills." ... And it distinguishes between two kinds of response: remedial actionsgenerally long-term or permanent containment or disposal programsand removal efforts typically short-term cleanup arrangements.
CERCLA authorized the federal government to respond in several ways. EPA can use Superfund resources to clean up hazardous waste sites and spills. 42 U.S.C. § 9611.... In addition, CERCLA authorizes EPA to seek an injunction in federal district court to force a responsible party to clean up any site or spill that presents an imminent and substantial danger to public health or welfare or the environment. 42 U.S.C. § 9606(a). In sum, CERCLA is not a regulatory standard-setting statute such as the Clean Air Act [or RCRA and TSCA].... Rather, the government generally undertakes pollution abatement, and polluters pay for such abatement through tax and reimbursement liability.
New York v. Shore Realty Corp., 759 F.2d 1032, 1040-41 (2d Cir.1985) (citations and footnotes omitted). See also Stever § 6.04, at 6-40 to -41. Under CERCLA, a state or other political subdivision may enter into a contract or cooperative agreement with the EPA, upon which both entities may take action on a cost-sharing basis. Shore Realty Corp., 759 F.2d at 1041 (citing 42 U.S.C. § 9604(c), (d)). If it institutes an acceptable program, a state can exercise concurrent (though not equal) authority over the regulation of hazardous waste management.
In March, 1982, the EPA acknowledged that SCA had fulfilled all the requirements for a "Part A Hazardous Waste Permit" under RCRA, also referred to as achieving "interim status." 42 U.S.C. § 6925(e). Facilities existing at the time that RCRA was passed received interim status; then, the facility could operate under interim status until such time that permanent status (i.e., a "Part B Hazardous Waste Permit") was granted or denied. Id. §§ 6926, 6925(a)-(d). In the present case, the SCA facility is still operating under interim status, and a decision on permanent status is anticipated in the near future.
In September, 1983, the EPA determined that plaintiffs' application for thermal destruction of PCBs satisfied the required technical criteria for an incinerator under TSCA. This allowed SCA to proceed with *1047 incineration of PCBs. The EPA warned that the approval could be withdrawn at any time if the EPA had reason to believe that operation of the incinerator presented an unreasonable risk of injury to health or the environment, although the approval has, in fact, never been withdrawn, and SCA's TSCA permit remains valid.
Therefore, as of September, 1983, the SCA incinerator was federally licensed to, and had the capability to, treat every form of hazardous waste then being handled by such facilities, from both privately administered and EPA-directed sources. Although the court will not list them in detail, the Chicago facility was then and is now subject to a multitude of regulations concerning the manner in which substances were transported to the facility, destroyed or contained, and disposed of. There are conditions under which waste destruction at the incinerator has to cease, much like the shutdown of a nuclear reactor in the event of a malfunction. The facility is subject to regular monitoring by independent examiners. By necessity, this business is heavily regulated, but the interplay of dual federal-state jurisdiction in the area, along with the complexity and sometimes redundant nature of the various federal statutes and regulations, have made the field of toxic and hazardous waste management an extremely onerous one as far as compliance is concerned.
In July, 1985, the EPA found the plaintiffs' facility to be in noncompliance with a guideline known as the "off-site policy." The off-site policy was officially titled "Procedures for Planning and Implementing Off-Site Recovery Actions," and it set forth criteria for selecting off-site RCRA land disposal facilities to receive waste generated during CERCLA removal or remedial actions. The policy was initiated in a memorandum issued by Acting EPA Assistant Administrator Jack McGraw, on May 7, 1985. The policy is not a regulation and was not subjected to promulgative procedures such as notice and comment. Rather, it is a mere internal EPA business decision. A facility not in compliance with the policy is prohibited from receiving hazardous wastes from a CERCLA site. The purpose of the off-site policy is to prevent CERCLA-generated wastes from contributing to future environmental problems (i.e., to prevent a disposal facility from itself becoming a CERCLA/Superfund site) and to minimize the potential for future federal liability. Implementation of the policy was announced in May, 1985, and it became enforceable one month later. The EPA contemplated that the policy might have to be amended after public comments were received and the regional offices had several months' experience with implementing it, although the EPA did not believe that it had any additional promulgative duty to acknowledge or remedy any criticism. Under the policy, in order to qualify for accepting CERCLA waste, the following general requirements had to be met:
(1) A facility could have no significant violations of RCRA or other applicable federal environmental laws; and
(2) There could be no other significant environmental conditions at the facility that affected the satisfactory operation of the facility.
The policy included additional requirements for CERCLA eligibility, requirements that basically incorporated RCRA and other regulations and which need not be detailed here. "Significant violations" is not defined, but apparently includes Class I violations (defined in a December 21, 1984 memorandum that has not been submitted to the court) and violations of state or federal environmental laws.
The SCA-Chicago facility is subject to the off-site policy because the facility is categorized as a land disposal facility. The definition of a land disposal facility includes landfills, land treatment, waste piles, surface impoundments, and underground injection wells, but not an incinerator itself. The Chicago facility has surface impoundments that hold the scrubber water used in the incinerating process. Other land disposal units are on the grounds surrounding plaintiffs' facility, but those existed prior to plaintiffs' initiation of operations. Since it began incinerating waste, the only waste that the facility has received has been destined for the incinerator and *1048 thus has been destroyed. The facility has not received any waste for land disposal since plaintiffs began operating there.
Plaintiffs' incinerator has been rated by the EPA as destroying the PCB wastes that it receives to the extent of 99.9999%. In other words, after the incinerator has burned the waste, less than one part in one million of the residue consists of PCBs. This exceeds every applicable federal or state standard. Therefore, the surface impoundments that have caused the facility to come within the off-site policy receive, from the incinerator, water that contains less than one-part-in-one-million PCBs, although the evidence did not establish other wastes contained in the scrubber water. Again, the area also has within its proximity many other sources from which hazardous wastes could migrate to the surface impoundments.
The specific violation relied upon by the EPA in 1985 in finding plaintiffs' facility to have been in noncompliance with the off-site policy was groundwater contamination. Apparently, the EPA determined that the facility's surface impoundments may be leaking hazardous wastes into the groundwater, or at least that there was insufficient information to establish that a release had not occurred. This determination rendered plaintiffs' Chicago facility ineligible to receive CERCLA wastes, although the facility continued to receive and process identical kinds of hazardous wastes from non-CERCLA sites.[3] In subsequent tests, SCA concluded that no hazardous waste or hazardous waste constituents had entered the ground-water from the regulated surface impoundments, based on the following simplified explanations:
(1) Groundwater data taken prior to the incinerator's commencement in 1982 showed a higher concentration of the suspect wastes than in 1985. This indicated that the facility had not in fact released wastes into the groundwater, but rather the wastes already present in 1982 that had accumulated due to the prior misuse of the land surrounding plaintiffs' facility accounted for the presence (and gradual subsidence) of hazardous wastes;
(2) Some of the suspect wastes found by the EPA to be present in the groundwater had a boiling point lower than the average temperature of the regulated unit; in other words, those particular wastes would be destroyed in the surface impoundments before they had the opportunity to leak into the groundwater, leading to the inescapable conclusion that the impoundments could not be the source of the contamination;
(3) Other suspect wastes alleged to have been released from the surface impoundments were also present in groundwater and water from nearby Lake Calumet. This supported the conclusion that the wastes were there before SCA began incinerating, and that the facility had not contributed to the contamination.
The IEPA analyzed the data submitted by plaintiffs and reached a similar conclusion. The IEPA specifically determined plaintiffs to be in compliance with Title 35, Subtitle G, Section 725.193 of the Illinois Administrative Code dealing with assessment requirements, and this determination was forwarded to the EPA, which disagreed both with the IEPA's own interpretation of Illinois law and with IEPA's conclusion that no release had occurred. Although the EPA had no authority to dictate Illinois' enforcement of state environmental protection laws, the EPA did assert a right to make its own independent interpretation of Illinois law and to use that interpretation in denying plaintiffs access to CERCLA waste. This was summarized in a letter from William Muno, Chief of the RCRA Enforcement Section of Region V of the EPA, to Michael Nechvatal of the IEPA:
[T]he U.S. EPA strongly recommends that the Illinois EPA require SCA to conduct quarterly determinations of rate, extent and the concentration of hazardous waste and hazardous waste constituents *1049 until closure or issuance of a permit which addresses such constituents in the ground-water.
For your information, in discharging my responsibilities relative to U.S. EPA's CERCLA Offsite Policy, I will not recommend the use of this facility by the CERCLA program because of SCA's failure to provide the Illinois EPA with all the information required by 35 Ill.Adm. Code 725.193(d)(4).
Subsequently, on July 16, 1986, Muno informed SCA and the Illinois EPA that the SCA Chicago facility was in compliance with CERCLA and RCRA, a determination based ostensibly on new data submitted in June, 1986. The EPA interpreted this data as failing to establish that conditions of the facility adversely affected or the environment. The facility thus became eligible to receive CERCLA wastes again.
The testimony at trial revealed an additional, though related reason why plaintiffs' facility was off-limits to CERCLA wastes in July, 1985, having to deal with groundwater monitoring. There are two stages of monitoringdetection monitoring and assessment monitoring. All land disposal facilities (of which the SCA Chicago facility was categorized as one) are required by RCRA regulations to have a groundwater monitoring system if they manage hazardous waste. Detection monitoring is the initial phase of testing the groundwater for contamination. Detection monitoring utilizes a statistical test to determine whether there may have been a release of hazardous wastes or constituents. The test analyzes data obtained from at least one hydrologically upgradient well and three downgradient wells. Plaintiffs' evidence showed that detection monitoring is not responsive for its intended purpose, and its extremely sensitive trigger causes most facilities to fail the test whether or not there has been a release. Upon failing detection monitoring, a facility must undergo assessment monitoring, which utilizes additional clinical analysis or perhaps more test wells, and it constitutes a generally more subjective and accurate procedure of determining groundwater contamination. Despite the fallibility of detection monitoring, the EPA automatically disqualified any facility that went into assessment monitoring from receiving CERCLA wastes. In the EPA's view, being in assessment monitoring meant either that a proper assessment program had not been implemented or that a release had in fact occurred, regardless of the basis for the facility's failing to pass the detection monitoring procedure. The off-site policy therefore included, at least tacitly, the requirement that a CERCLA-eligible facility must not be in assessment monitoring. Plaintiffs' facility was in assessment monitoring in 1985. Pursuant to IEPA's direction, the facility went back into detection monitoring in mid-1986, essentially concurrent with the facility's return to eligibility.
From July, 1986 until May, 1987, SCA's Chicago facility once more received and processed hazardous wastes from CERCLA sites. During this general time period, several significant changes occurred in the method employed by EPA to determine CERCLA eligibility. One change involved the EPA's amending its application of the off-site policy in several respects. First, in July, 1986, J. Winston Porter, the Assistant Administrator for Solid Waste and Emergency Response at EPA, informed the regional administrators by memorandum that facilities in assessment monitoring should not be automatically deemed ineligible under the off-site policy. Rather, Porter advised that when a facility went into assessment monitoring, the EPA should evaluate the data that caused the facility to fail detection monitoring, and the facility should be rendered ineligible only if:
(1) there is a probable release to groundwater, and
(2) the release is significant in that it will affect satisfactory operation of the facility or may pose a significant threat to public health and the environment.
(emphasis in original). If the available information does not support such a determination, the facility remains eligible.
Second, in June, 1986, the EPA made a change in how it viewed releases. Under the policy as originally stated, a violation of the policy could be triggered by a significant *1050 violation relating to groundwater contamination, regardless of the location of the release. Subsequently, the EPA realized that a release could come from a dump located near, though not a part of, an eligible facility, or else from a surface impoundment or other unit unrelated to the receiving or incinerating of CERCLA wastes. Because most incinerators in the country had associated with them surface impoundments that leaked, under the original policy virtually no facility would be eligible to receive the massive quantities of CERCLA wastes. Therefore, the EPA decided that only releases from the receiving unit (incinerator) would trigger a violation of the off-site policy (although there remained violations not related to releases that could render a facility ineligible). In the July, 1986 memorandum, Porter further clarified that the evidence must support a probable release to groundwater. In Porter's own words, this meant that the data must give the particular EPA region the basis for "a fairly strong presumption that there was in fact a release." William Muno of Region V contradicted both this interpretation of "probable" and the common sense meaning of the word when he testified that "probable" means that the event could have happened. The evidence strongly suggests that if Muno could not rule out the existence of a release or other violation at a facility, then the facility would be ineligible. This is a far different standard than the one set by Porter, the man with the ultimate EPA authority to set the policy. The discrepancy is significant because it was Muno who had and who exercised the actual power to render the SCA-Chicago facility ineligible.
A third significant event occurred on October 17, 1986, when Congress codified aspects of the off-site policy, as follows:
In the case of any removal or remedial action involving the transfer of any hazardous substance or pollutant or contaminant offsite, such hazardous substance or pollutant or contaminant shall only be transferred to a facility which is operating in compliance with section 3004 and 3005 of the Solid Waste Disposal Act [42 USCS §§ 6924 and 6925] (or, where applicable, in compliance with the Toxic Substances Control Act or other applicable Federal law) and all applicable State requirements. Such substance or pollutant or contaminant may be transferred to a land disposal facility only if the President determines that both of the following requirements are met:
(A) The unit to which the hazardous substance or pollutant or contaminant is transferred is not releasing any hazardous waste, or constituent thereof, into the groundwater or surface water or soil.
(B) All such releases from other units at the facility are being controlled by a corrective action program approved by the Administrator under subtitle C of the Solid Waste Disposal Act.
The President shall notify the owner or operator of such facility of determinations under this paragraph.
42 U.S.C.S. § 9621(d)(3). This provision was part of the 1986 Superfund Amendments and Reauthorization Act (SARA). Although this was considered to be a codification of the off-site policy, the EPA maintains the position that the off-site policy as originally stated and subsequently amended remains in effect, side-by-side with SARA. However, the EPA apparently views SARA as a more stringent regulation than the off-site policy. Gene Lucero, who is the National Program Official for the enforcement programs under CERCLA and RCRA and who was responsible for drafting the off-site policy and representing the EPA in discussions with Congress concerning SARA, noted the following differences between the two:
(1) SARA requires full compliance at the receiving unit before the facility is available to receive CERCLA wastes, the off-site policy permits a facility to receive CERCLA wastes as long as it has entered a compliance agreement with EPA and is making progress to remedy the violation;
(2) SARA prohibits any release from a receiving unit, while the old policy deals only with significant environmental problems or releases;
*1051 (3) Under SARA, a facility at which any release has occurred must be under a corrective plan, while the off-site policy required a plan only for significant violations;
(4) Under the off-site policy, if the EPA had received no tangible evidence of a release, the facility could remain eligible, while under SARA, the regional administrator has to make an affirmative determination on the basis of a reasonable investigation that no releases have occurred (i.e., that the evidence does not establish the probability of a release).
It appears that the EPA now classifies CERCLA sites as either pre- or post-SARA. This is based on 42 U.S.C.S. § 9621 note, which provides that CERCLA section 121 (including the codification of the off-site policy, referred to herein as SARA) shall not apply to EPA records of decision[4] made prior to 30 days after enactment of the statute (October 17, 1986), November 16, 1986. Thus, if the EPA made a decision concerning a Superfund site prior to November 16, 1986, EPA applied the 1985 off-site policy standards. Decisions subsequent to November 16, 1986 would be based on SARA. The effect that this distinction has in the present case will be discussed below.
The fourth significant change concerned the manner in which the EPA informed facilities of off-site policy violations. Under the original policy, there was apparently no formal method of notifying a facility that it was no longer eligible to receive CERCLA waste, and in fact, as to plaintiffs' ineligibility from July, 1985 to July, 1986, there is some indication that plaintiffs learned of their change in status through private sources and not the EPA. The only way for someone outside the EPA to determine if a facility was in compliance was to call the EPA and ask. In a memorandum dated May 12, 1986, Mr. Porter noted that comments received concerning the off-site policy criticized the lack of notice and opportunity to respond before a final determination of ineligibility was made. Porter recognized the following competing concerns in this regard:
(1) The need to ensure that wastes are not sent to facilities that do not meet the criteria of the policy;
(2) Accommodation of notice and fairness concerns;
(3) Avoidance of interference with enforcement actions that are the basis for decisions made under the policy; and
(4) Resource limitations of EPA regional offices.
Accordingly, Porter issued the following guidelines:
(1) Regions should provide written notice to facilities of their status under the policy, particularly when that status constitutes the existence of a significant violation. Such notice effectuates the facility's ineligibility to receive CERCLA waste.
(2) The notice should provide an opportunity for the facility to respond in writing. The EPA would not consider comments relating to the application of the policy to the facts as stated. In other words, the facility could not contest the EPA's determination that a significant violation had occurred, but it could only object to the consequence of the violation as alleged by the EPA.
(3) EPA would respond only to those comments that addressed application of the policy, but not to those regarding the merits of the enforcement action.
(4) If the determination of ineligibility is based on conditions other than a significant violation, the EPA should consider and respond to comments concerning the validity of its findings unless those conditions are the subject of an enforcement action.
The only way to be heard on the merits of a determination of ineligibility when the basis is a significant violation was in the forum provided as part of an enforcement *1052 action.[5] In addition, Porter testified in deposition that an ineligible operator could go to the EPA for an informal conference with regional officials. If no enforcement action was in place, there was effectively no challenge to a determination of ineligibility except to make a written comment as to which the EPA did not feel obligated to respond. The EPA has continued to utilize this procedure subsequent to SARA, in great part because SARA does not mandate any specific notice and hearing procedures.[6]
With the extended outline provided above in mind, the court now turns to the events that triggered the present litigation. At some time prior to or during the summer of 1986 (possibly before the SCA facility became re-eligible to receive CERCLA wastes in July), a pipeline running between the incinerating buildings and the surface impoundments suffered a break, and some scrubber water was released (the significance of which will be explained below). The IEPA had permitted plaintiffs to go back into detection monitoring in the summer of 1986, a decision with which the EPA disagreed. Although the EPA did not have to concur with the IEPA's decision, the EPA could pursue direct federal enforcement if it believed such action was warranted. The EPA did not do this because it knew that once in detection monitoring, the SCA facility would fail and would be forced back into assessment monitoring anyway. William Muno, the chief of RCRA enforcement for Region V and the person with the actual direct authority to render the facility ineligible under CERCLA, believed that there was no way for the SCA facility to pass detection monitoring.
In March, 1987, the IEPA informed plaintiffs that they had not submitted certain information as part of an annual report due March 1, including the following:
(1) A report containing the results of the groundwater quality assessment program which includes, but is not limited to, the calculated (or measured) rate of migration of hazardous waste or waste constituents in the groundwater;
(2) The existence of an adequate groundwater assessment program.
On May 4, 1987, the EPA notified plaintiffs that because the SCA facility was in significant noncompliance with the Illinois groundwater monitoring requirements, the facility was ineligible to receive CERCLA wastes.
On June 16, 1987, the EPA issued another notification to plaintiffs, stating an additional reason for ineligibility: the presence of hazardous waste and waste constituents in the groundwater at the SCA facility. The letter referenced the pipeline break as one possible source of hazardous wastes.[7] It also referenced EPA's belief that the solid waste management units at the facility had impacted groundwater quality at the facility. The letter advised that the facility would remain ineligible "until such a time that a Consent Agreement and Final Order (CAFO) is signed to correct ground-water monitoring violations at the facility and releases at the facility are controlled by a corrective action program approved by the Administrator."
Subsequently, plaintiffs submitted the necessary documentation to correct the deficiencies found by the EPA in the March, 1987 letter. The EPA continues to maintain that the facility is ineligible to receive hazardous waste from CERCLA sites under the off-site policy based on plaintiffs' failure to comply with the June 16, 1987 letter's requirements. On this same day, June 16, 1987, J. Winston Porter informed Region V (which had made the ineligibility determination) that the SCA facility would *1053 remain eligible to receive CERCLA waste from the Bridgeport, New Jersey site despite Region V's application of the off-site policy. Porter based his decision on the fact that the March, 1987 determination of violation did not involve the incinerator unit. This turnabout theoretically reflected the pre-SARA/post-SARA distinction referenced earlier in this Memorandum and Order, as follows.
Apparently, EPA's application of the original off-site policy demonstrated a willingness to differentiate between a violating unit and a unit in compliance with the policy. Therefore, if releases or monitoring violations occurred at a surface impoundment, they would not necessarily render the entire facility ineligible. Under SARA, if any part of the facility is not in compliance with the applicable law, the facility is ineligible until the violating units are being controlled by a corrective action program. Since the sole function of the SCA facility is to receive and incinerate waste, and because the incinerator was not the violating unit, the EPA could exercise its discretion and continue to allow incineration of CERCLA wastes under the off-site policy. This is what Porter did. In fact, the SCA facility remains eligible, to this date, to receive waste from CERCLA sites at which the record of decision was made prior to November 16, 1987 (i.e., pre-SARA sites). Because of EPA's continued assertion that a violation exists somewhere at the SCA facility, EPA has determined that it must prohibit the facility from receiving post-SARA CERCLA wastes.
It is important to note EPA's procedure for informing those parties seeking to dispose of CERCLA wastes of the eligibility of the SCA facility. If a party contacts the EPA and simply requests SCA-Chicago's eligibility status, the party is told that the facility is ineligible. If, however, the party specifically distinguishes between pre- and post-SARA wastes, the EPA discloses SCA-Chicago's pre-SARA eligibility. Apparently, there exists many sites at which pre-SARA hazardous wastes have yet to be removed and destroyed, so there is a substantial stake to be had in the pre-SARA hazardous waste market.
The court must add a caveat to this discussion, however, because Gene Lucero, the man in EPA whose office actually was responsible for drafting the off-site policy and helping Congress with SARA, testified that even under SARA, the EPA has begun to determine whether the significant violation is directed at the receiving unit; if not, then the facility may remain eligible. Lucero stated that this is being done to maintain consistency among pre- and post-SARA sites.
The situation discussed immediately above, along with the live testimony of the EPA officials, establishes that even in the EPA's own determination, there is no physical reason why the SCA incinerator cannot safely destroy PCBs or other hazardous wastes from CERCLA sites. The evidence was uncontroverted that the concentrations of hazardous waste constituents in the groundwater beneath the SCA incinerator today are the same as or lower than those that were there when the facility regained its eligibility status in 1986, and much lower than when the facility began operating in 1982. As discussed earlier in this Memorandum and Order, the evidence also established that William Muno, the man with the actual power to render SCA-Chicago ineligible, operated under a standard by which a facility that went into assessment monitoring or that showed any other indication of an off-site policy/SARA violation would be ineligible unless the existence of a release could be ruled out. This procedure forced the facility to prove a negative instead of requiring the EPA to positively establish the probability of a release, the latter standard being that established by J. Winston Porter, the man in EPA with the ultimate authority to set and enforce off-site policy. In fact, the SCA-Chicago facility is ineligible today to receive CERCLA wastes because William Muno could not rule out the possibility of a release from the solid waste management units, and not because the EPA has verified data supporting a finding that a probable release has occurred.
In the EPA's view, until plaintiffs come forward with an appropriate corrective action *1054 program, pursuant to SARA section 121(d)(3), the facility will remain ineligible for post-SARA wastes, even though it has established only the possibility of a release and even though that possible release does not come from the receiving unit. Implementation of such a correction action plan is included in the plaintiffs' pending Part B RCRA permit. The proposed permit would require plaintiffs to conduct a RCRA facility investigation for the solid waste management units. Issuance of the permit and compliance with its requirements by plaintiffs would presumably bring them back to eligibility, although the culmination of the Part B permit process has not been reached and may not occur for months. In fact, the EPA has represented to the court that if the plaintiffs formally commit to the corrective action plan outlined in the Part B permit (which Johan Bayer of Chem Waste stated the plaintiffs have agreed to do), then even without actual approval of a Part B permit, plaintiffs' facility will be eligible to receive CERCLA wastes. Defendants thus assert that plaintiffs "hold the key to attaining eligibility."
Several factual matters remain. First, defendants contend that plaintiffs have adequate procedural protection concerning application of the off-site policy. They argue that plaintiffs can appeal the corrective action requirements of the Part B permit once the permit is issued. The second option is to go ahead and commit to the corrective action plan with the EPA. The final option is no option at all, because EPA contends that plaintiffs would have been entitled to a hearing had the EPA issued an order under 42 U.S.C. § 6928(h) dealing with corrective action, and that such an order was not issued because EPA believed plaintiffs would voluntarily negotiate a corrective action order.
Finally, there is the matter of harm that plaintiffs will suffer if an injunction does not issue. The facts have already demonstrated that there is a substantial likelihood that EPA Region V has steered business away from SCA-Chicago by informing persons making inquiry about the facility's status that it is ineligible. The record contains no indication that this practice has been discontinued. The court has no doubt that plaintiffs' status of ineligibility to receive post-SARA CERCLA wastes is financially injurious. Simply put, they have lost and are continuing to lose hazardous waste business. This is an area in which the costs of clean-up and disposal are discussed in the billions and tens of billions of dollars. New CERCLA sites are a certainty. Plaintiffs' stake in all of this is huge, since they have one of only several PCB-licensed incinerators and incineration is the preferred method of handling hazardous wastes such as these. The court recognizes that it is difficult for the plaintiffs to discover exactly how much damage has occurred because they cannot determine how many inquiries to the EPA would have led to plaintiffs' receiving a contract for waste destruction, due in part to the EPA's failure to keep a record of inquiries. Plaintiffs have presented sufficient evidence, however, concerning the O-H Materials, Fermilab, and Rose Chemical sites to establish, for the purposes of this motion for preliminary injunction, that the damage they stand to suffer is not speculative, but real and substantial.
III. DISCUSSION
The first legal issue to be decided is whether this court has subject matter jurisdiction over the lawsuit. Defendants contend that in the 1986 amendments, specifically section 113(h) (42 U.S.C. § 9613(h)), Congress deprived the federal courts of jurisdiction to conduct a review of decisions such as the off-site policy. That statute reads:
No Federal court shall have jurisdiction under Federal law other than under section 1332 of title 28 of the United States Code (relating to diversity of citizenship jurisdiction) or under State law which is applicable or relevant ... to review any challenges to removal or remedial action selected under section 104 [42 U.S.C. § 9604], or to review any order issued under section 106(a) [42 U.S.C. § 9606(a)], in any action except one of the following [none of which are applicable in the present case].
*1055 The court simply believes that this statute does not apply to the present case, although the broad language of the statute appears to invite its usage. The off-site policy announced in 1985 and reprinted at 50 Fed.Reg. 45933 specifically relies upon CERCLA section 106(a), which gives EPA the authority to take action and issue orders "as may be necessary to protect public health and welfare and the environment" if the EPA determines that a potential threat exists because of an actual or threatened release of a hazardous substance from a facility. 42 U.S.C. § 9606(a). But several fundamental reasons persuade the court to retain jurisdiction over this lawsuit, despite section 113(h).
First, as a technical matter, the present ineligibility of the SCA-Chicago facility derives from SARA section 121(d)(3), 42 U.S.C. § 9621(d)(3), and not from the off-site policy. The facility is receiving wastes from sites whose records of decision are governed by the off-site policy. So in a strict sense, section 113(h) is facially inapplicable.
Second, the legislative history of section 113(h) establishes that it was designed to preclude piecemeal review and excessive delay of cleanup. This lawsuit involves quite the opposite. The policy enforced by the EPA in determining CERCLA eligibility has resulted in documented delays in effectuating the cleanup at CERCLA sites. This is thoroughly demonstrated in 18 [Current Developments] Env't Rep. (BNA) 846 (July 24, 1987), in which the author writes that "[c]leanup actions at certain superfund hazardous waste sites are being delayed for months because of disposal restrictions under the [EPA's] `offsite policy,' according to several agency officials." The author notes that several remedial actions have had to be stopped because of a lack of disposal capacity. The source of this information is the EPA itself.
In this lawsuit, the plaintiffs do not seek any remedy that will result in a delayed cleanup, but rather seek relief that could speed up the disposal of hazardous wastes. The court has no illusions that plaintiffs are operating under some altruistic motive for the betterment of the environment, but they are certainly not attempting to hinder a removal or remedial action. Because plaintiffs are not attempting to delay a cleanup, the court believes that their legal action is expressly preserved by section 206 of the same Act that created section 113(h):
This Act does not affect or otherwise impair the rights of any person under Federal, State, or common law, except with respect to the timing of review as provided in section 113(h) [42 U.S.C. § 9613(h)]....
42 U.S.C. § 9659(h).
Last, section 113(h) implicitly contemplates that in foreclosing a lawsuit in federal court, an aggrieved party will still have an opportunity to be heard in an action following the completion of the cleanup. This situation is inapposite to the present lawsuit. The plaintiffs are not persons potentially responsible for the existence of a hazardous waste Superfund site who are attempting to seek preenforcement review of an EPA cleanup plan, a process that can delay the cleanup for months or years. It is perfectly understandable to preclude such persons from seeking judicial review of the plan until after the cleanup, when the merits of the plan and the liability of all parties can be determined in such a way as to protect innocent parties' rights. In the present case, the plaintiffs are merely seeking review of EPA decisionmaking outside the context of a particular cleanup plan, and to the extent that plaintiffs are correct in asserting that they are presently being foreclosed from receiving a substantial dollar amount of hazardous waste business because of EPA's wrongful actions, there exists no effective protection of their rights except for this lawsuit. The court will not read section 113(h) in such a way as to eliminate any opportunity for the plaintiffs to be heard.
For the foregoing reasons, defendants' motion to dismiss on jurisdictional grounds shall be denied.
The court will now turn to the essence of plaintiffs' requested relief. Plaintiffs ask this court to make the following generalized legal conclusions:
(1) EPA's imposition of sanctions upon mere allegation has denied plaintiffs *1056 their rights to notice and an opportunity to be heard guaranteed by the due process clause of the Constitution;
(2) The off-site policy is a legislative rule because it is mandatory upon the EPA. Since the off-site policy was not promulgated pursuant to notice-and-comment rulemaking as required by the Administrative Procedure Act, 5 U.S.C. § 553, the policy is unlawful;
(3) The off-site policy and CERCLA section 121(d)(3) are vague and ambiguous on their face and as applied, and therefore violate the due process clause;
(4) EPA's actions in applying the off-site policy have not conformed to EPA's own regulations and have been arbitrary, capricious, and an abuse of discretion, thereby making them unlawful under the authority of 5 U.S.C. § 706.
The court must preface its decision with an expression of wariness in granting any relief that will send hazardous waste to a facility that the EPA has determined should not be receiving that waste. The courts should not be in the business of managing hazardous waste. Such decisions must be left to those persons with the expertise and experience in the area. Too much is at stake for a court to presume that it can step in and make principled decisions concerning hazardous waste when it has taken decades of time, thousands of manhours (including the greatest minds in this country), and billions of dollars to reach the point where we are just now beginning to turn the corner in the field of hazardous waste control. Congress has a system in place, and that system does not necessarily include input from this court.
Having said this, the court must conclude that the off-site policy is one of the most confusing and haphazard directives that this court has ever seen. Contradictions and inconsistencies are the rule, not the exception. The following facts prove this only too clearly:
(1) William Muno of EPA Region V applies a standard by which a facility is ineligible to receive CERCLA wastes when the evidence is insufficient to rule out the existence of a release; contrariwise, J. Winston Porter previously emphasized to the regions that a region must be able to determine that a release probably occurred before a facility became ineligible.
(2) On June 16, 1987, the plaintiffs received a letter from Region V reiterating their ineligibility, even while Region V was simultaneously receiving a letter from EPA headquarters counter-manding the ineligibility determination and directing that SCA-Chicago was eligible to receive and incinerate CERCLA waste. The upshot of this is that SCA-Chicago's eligibility to burn hazardous waste is, in the final analysis, based not upon the potential effect on the environment or the public health, but rather a technicality concerning the time period when the source of the hazardous waste came under EPA's jurisdiction.
(3) EPA's application of the off-site policy completely contradicts the express terms of CERCLA section 121(d)(3) concerning the eligibility of a facility's nonviolating incinerating unit to receive and destroy hazardous waste when a separate and unrelated unit on the facility's grounds is in violation of a regulation, yet an EPA representative testified that the EPA would begin interpreting section 121(d)(3) the same as the off-site policy, in complete derogation of the statute's express language.
(4) A hazardous waste management company attempting to conduct business in the transportation and disposal of waste and efficiently manage its affairs was previously not only denied timely notification of CERCLA ineligibility, but in some instances became aware of the factmonths after the EPA's determination from a third party. Even now, although an ineligibility determination may be based upon information that is months old, a facility is given no advance notice or any opportunity to question the determination before it is implemented (although the record contains an indication that the EPA intends to correct this).
(5) Detection monitoring, which was originally utilized by the EPA as an absolute indication of eligibility depending on whether a facility failed it, is used as a *1057 major source of information leading to a determination of eligibility, despite uncontroverted evidence proving not only that it often produces a false result, but also that it gives no consideration to circumstances such as plaintiffs have, that is, the presence of other likely sources of groundwater contamination unrelated to the operation of the incinerator.
(6) As mentioned earlier in this Memorandum and Order, a state can have concurrent regulatory authority over hazardous waste management. Illinois in fact has an approved program. At one point in time, in March, 1986, the IEPA had determined plaintiffs' facility to be in full compliance with Illinois law and had communicated this to the EPA; yet at the same time the EPA determined the facility to be ineligible for CERCLA wastes because plaintiffs were not in compliance with that same Illinois law under EPA's interpretation.
(7) Although the absence of a threat to the environment was sufficient to bring the facility back into eligibility in 1986, it was not sufficient in 1987.
The court can place no blame upon the EPA for instituting a policy that eliminates potential outlets for hazardous waste even if such a policy is primarily responsible for actually halting cleanup actions. It is the EPA's job to ensure that hazardous waste disposal facilities are not themselves becoming future CERCLA sites, even though this may mean a hindrance to cleanup of existing sites. The court also cannot at this time fault EPA for acting upon a mistaken belief that a release had occurred at plaintiffs' facility when plaintiffs' voluntarily built the incinerator in a quagmire of hazardous wastes. The court does find something wrong, however, in a government agency's adopting a policy and then applying it inconsistently or rendering it so vague and ambiguous as to provide private parties no guidance on how to follow it. The court believes that this is the heart of the present dispute.
The standard for a preliminary injunction requires a moving party to establish: (1) the substantial likelihood of eventually prevailing on the merits; (2) irreparable injury absent issuance of the injunction; (3) that the injury requiring entry of an injunction outweighs whatever damage the injunction would cause the opposing party; and (4) that the injunction, if issued, would not be adverse to the public interest. Tri-State Generation v. Shoshone River Power, Inc., 805 F.2d 351, 355 (10th Cir.1986).
The facts have established the existence and probable continuance of injury. Plaintiffs will not be able to recoup their losses in a subsequent damage action, because the Federal Tort Claims Act (FTCA) does not provide a remedy in the form of money damages for defects in administrative procedures. When a regulatory agency's action involves considerations of public policy and where there is room for policy judgment and decision, the agency's conduct falls within the discretionary function exception to the FTCA. 28 U.S.C. § 2680(a); Berkovitz by Berkovitz v. United States, 822 F.2d 1322, 1325 (3d Cir.1987). See also id. at 1326-27 (discussing how Congress intended to prevent judicial second-guessing of legislative and administrative decisions grounded in social, economic, and political policy) (citing, among others, United States v. S.A. Empresa De Viacao Aerea Rio Grandense (Varig Airlines), 467 U.S. 797, 104 S. Ct. 2755, 81 L. Ed. 2d 660 (1984)). Therefore, plaintiffs' injury is irreparable.
The court also finds a substantial likelihood of plaintiffs' prevailing on the merits. At the very minimum, plaintiffs will be able to prove that the off-site policy and EPA's application of CERCLA section 121(d)(3) are vague and ambiguous. The terms used in those two directives are themselves vauge and ambiguous, but certainly their application establishes a standard that informs no oneneither private parties nor even EPA's different regions of the conduct required to become or remain eligible to receive CERCLA wastes. "When prohibiting conduct by government regulation, the regulation must be sufficiently clear so `that ordinary people can understand what conduct is prohibited' and so it `does not encourage arbitrary and discriminatory enforcement.'" Great American Houseboat Co. v. United States, 780 F.2d 741, 746 (9th Cir.1986) (quoting Kolender v. Lawson, 461 U.S. 352, 357, 103 S. Ct. 1855, 1858, 75 L. Ed. 2d 903 (1983)). A *1058 less strict vagueness analysis is appropriate when "'the regulated enterprise may have the ability to clarify the meaning of the regulation by its own inquiry, or by resort to an administrative process.'" Great American Houseboat, 780 F.2d at 747 (quoting Village of Hoffman Estates v. Flip-Side Hoffman Estates, Inc., 455 U.S. 489, 498, 102 S. Ct. 1186, 1193, 71 L. Ed. 2d 362 (1982)). Under these standards, the court believes that there is a substantial likelihood that plaintiffs will establish the EPA's application of the off-site policy and SARA as impermissibly vague and violative of due process. Pursuant to 5 U.S.C. § 706(2)(D), the court could then hold unlawful and set aside the agency's action, assuming that there exists some property or liberty right of which plaintiffs are being deprived. The court has no hesitation in finding that the RCRA and TSCA permits created a property right in receiving hazardous wastes from CERCLA sites that cannot be taken away without due process. Because the vagueness and ambiguity of the EPA's administration of the policy is so clear, the court will not address the other contentions made by plaintiffs, including the denial of notice and hearing, violation of the Administrative Procedure Act's requirements of notice-and-comment rulemaking, and EPA's arbitrary and capricious violation of its own regulations, although the court finds substantial merit in at least the latter two of these.
The court believes that the third and fourth requirements for a preliminary injunction are intimately related and must be considered in tandem. The public's interest in this matter and the potential harm to the EPA, should the injunction issue, are one and the same. If the court enjoins the EPA from rendering the SCA-Chicago facility ineligible, hazardous wastes that otherwise would be prevented from going to the facility would then be allowed to go there. The court would uncategorically refrain from entering this injunctive relief if such a consequence had any arguably potential, adverse effect upon the economy or the public health. The evidence has established exactly the conversethere are no known conditions at the SCA-Chicago facility posing a threat to human health or the environment, and the facility is in fact receiving pre-SARA CERCLA wastes (with EPA's blessing) and non-CERCLA hazardous wastes, both of which are identical in composition to wastes taken from post-SARA CERCLA sites. It makes no sense.
Even considering all of the findings made above, however, the court simply will not at this moment issue an injunction preventing the EPA "from applying or enforcing the Off-Site Policy or CERCLA § 121(d)(3) to preclude the SCA Incinerator from incinerating hazardous wastes, hazardous substances and PCBs from CERCLA sites," as requested by plaintiffs. The potential ramifications of such an order are too great to permit a blanket injunction without first attempting an alternative dispute resolution. The court realizes that substantial financial interest are at stake, but so is the integrity of an agency that has been entrusted with the responsibility of ensuring that these United States are habitable for the next generation of Americans. The court will therefore make the following recommendations.
The court recognizes that even since the filing of this lawsuit, the EPA has begun considering clarifications of and changes in the off-site policy and SARA, as well as consolidating the application of the two in a consistent manner. The court recommends that the EPA disclose the alternatives under consideration (including proposed effective dates) and receive constructive comments from plaintiffs. A good dialogue will go far in resolving the present dispute. The court finds especially promising the comments in Jack McGraw's affidavit concerning notice and informal hearings prior to an ineligibility determination, and the status of implementation of this procedure would be particularly relevant to many issues in this lawsuit.
The court also recommends that the EPA voluntarily suspend the ineligibility of the SCA-Chicago facility for post-SARA wastes unless and until it can positively establish a probable release or other environmental condition that poses a threat to human health or the environment. The court wishes to stress that plaintiffs have *1059 established a substantial likelihood of success on the merits and that, because of the uncontroverted evidence showing the lack of a threat to human health or the environment, the court is prepared to enter the preliminary injunction sought by plaintiffs. The court will hold a brief hearing on Monday, November 16, 1987 at 9:30 a.m. to determine whether progress toward these ends is such that the need for an injunction has been eliminated. If the court finds that the parties have not reached a satisfactory (though perhaps temporary) resolution by that date, the court will afford plaintiffs a more direct form of relief.
IT IS BY THE COURT THEREFORE ORDERED that defendants' motion to dismiss be denied. IT IS FURTHER ORDERED that plaintiffs' motion for preliminary injunction remain under advisement pending the status of this case as determined by the court after the hearing referenced above.
SUPPLEMENT TO MEMORANDUM
On November 16, 1987, at 10:00 a.m., the court convened a status hearing concerning the progress of negotiations in this case. The hearing was conducted in open court. Plaintiffs represented that meetings between the parties had occurred and that, although some constructive conversations had taken place, plaintiffs' ultimate goal of regaining eligibility for CERCLA post-SARA wastes had not been realized.
It appears that the EPA has formally instituted the notice and hearing procedures previously set forth in an affidavit by Jack McGraw. See original opinion note 6. The EPA represented that these procedures became effective on Friday, November 13, 1987, and that they will be subject to rulemaking requirements of publication in the Federal Register and receiving of comments before final publication in the Code of Federal Regulations. The document released by EPA on November 13 implements not only a notice and hearing requirement, but also makes clarifications and modifications of the method by which EPA determines a facility to be in compliance with the off-site policy and SARA. The document also attempts to coordinate interpretation and application of SARA and the off-site policy. The court will not comment on this document except to say that it represents what appears to be a good faith effort to address and correct deficiencies previously discussed in the November 5 Memorandum and Order. Plaintiffs point out, however, that despite this herculean effort by the EPA, the SCA-Chicago facility remains unjustly ineligible to receive post-SARA waste.
As a further justification of the determination of ineligibility, EPA Region V officials have purportedly discovered new releases from the surface water impoundments. EPA has represented that these releases were unknown at the time of the previous hearings in this case. Plaintiffs argue that the information relied upon in determining that a release had occurred is the same information that was available in April, 1987 and upon which the SCA-facility's present ineligibility is based. In other words, plaintiffs' response to this relevation of a new release is that it is a reinterpretation of old data and is being used only to forestall the entry of an injunction. Plaintiffs contend that in any event, the purported release involves no threat to human health or the environment and that only those violations constituting such a threat should be the basis for a determination of ineligibility.
The EPA represented that this matter was close to a resolution on Friday, November 13, 1987, when the plaintiffs offered to begin a RCRA facility investigation at the SCA-Chicago facility in exchange for EPA lifting the facility's ineligible statue. The EPA now contends that plaintiffs have backed away from this proposal and intend to rely upon the RCRA Permit B procedures for instituting any facility investigation, a contradiction in that plaintiffs have previously belittled the role that the permitting process can play in resolving the present dispute.
As can be plainly seen from the preceding paragraphs, the parties came into court on Monday, November 16, 1987, still miles apart, but the potential for joint resolution was there. For that reason, the court instructed the parties to undertake one more *1060 day of negotiation and report to judge's chambers at 9:00 a.m. on Tuesday, November 17, 1987. Shortly before the scheduled 9:00 a.m. conference, the parties informed the court that they were close to a settlement and requested additional time. The court permitted the parties to continue negotiations for another day.
The court recognizes the immediacy of the situation and the need for timely action in light of plaintiffs' alleged injuries. The court has always been prepared to institute any orders necessary to further the interests of justice in the case and has not intended by its course of conduct to withhold from plaintiffs any of their legal rights. The court does recognize the considerations mandating against interference with "an administrative agency that has developed a close understanding of the various interests," see Atchison, Topeka & Santa Fe Ry. Co. v. Wichita Bd. of Trade, 412 U.S. 800, 819-21, 93 S. Ct. 2367, 2380-81, 37 L. Ed. 2d 350 (1973), and the doctrine requiring compelling circumstances before a mandatory preliminary injunction can be entered. See Citizens Concerned for Separation of Church & State v. City and County of Denver, 628 F.2d 1289, 1299 (10th Cir.1980), cert. denied, 452 U.S. 963, 101 S. Ct. 3114, 69 L. Ed. 2d 975 (1981). For these reasons, the court has sought to encourage the nonattorneys, who have the actual expertise in the area of hazardous wastes, to reach an agreement that will most benefit all parties concerned, including the public. Such decisions are best left in the hands of those trained to make them.
Accordingly, on the afternoon of November 18, 1987, the parties informed the court that they had breached their impasse and were prepared to make certain stipulations. Pursuant to the parties' request, the court will enter the following stipulated order:
1. Plaintiff SCA Chemical Services, Inc., shall prepare and submit to EPA within twenty (20) days from the date of this Order a schedule for submission and implementation of a work plan for a facility-wide RCRA Facility Investigation ("RFI") at the SCA incinerator facility in Chicago, Illinois. "RCRA" refers to the Resource Conservation and Recovery Act, as amended, 42 U.S. C. § 6901 et seq., and "RFI" refers to an investigation to determine the nature and extent of releases, if any, of hazardous wastes and constituents from regulated units, solid waste management units, and other source areas at the SCA incinerator in Chicago, Illinois, and to gather all necessary data to support a Corrective Measures Study.
2. Plaintiffs and defendants agree to negotiate within fourteen (14) days an agreed scope of work program for the RFI, to be modeled on the draft scope of work appended to the RCRA Section 3008(h) draft order prepared by EPA Region V in this matter. Any disputes concerning the scope of work that are outstanding on the fourteenth day following the entry of this Order shall be resolved by this court. The RFI work plan to be submitted by plaintiffs on the date to be set out in the schedule must conform to the scope of work as finally agreed.
3. The parties agree to negotiate a Consent Decree in settlement of plaintiffs' request for preliminary injunctive relief, to include but not to be limited to, terms regarding RFI obligations and procedures, and a mechanism for the resolution of disputes. If agreement cannot be reached on a Consent Decree by the 45th day from the date of this Order, then the parties will so inform the court, at which time either party may petition the court for appropriate relief.
4. If the Consent Decree referenced in paragraph 3 is agreed to by the parties, then its terms concerning corrective action will be proposed as a modification to the draft RCRA Part B permit now pending for the SCA incinerator in Chicago. Such Consent Decree will remain binding and in force until the corrective action component of the RCRA Part B permit is issued and in force, at which time the permit conditions will supersede the terms of the Consent Decree.
5. The SCA incinerator in Chicago is as of this date eligible under the off-site *1061 policy of EPA and Section 121(d)(3) of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, to accept, treat, store and dispose of all CERCLA wastes.
6. The parties shall report to the court concerning the status of their settlement negotiations on or before December 1, 1987.
IT IS SO ORDERED.
NOTES
[1] Discussion of this policy begins infra p. 1047.
[2] See Yaffe Iron & Metal Co. v. United States Envt'l Protection Agency, 774 F.2d 1008, 1010 n. 1 (10th Cir.1985) for a good explanation of PCBs and their regulation.
[3] The EPA has never attempted to prohibit the SCA incinerator from destroying non-CERCLA hazardous wastes.
[4] A record of decision authorizes the expenditure of Superfund monies to implement a remedial plan. Stever § 6.06[2][4][ii][C], at 6-82.
[5] No enforcement action has been instituted concerning the relevant facts of this case.
[6] The SPA has submitted an affidavit of Jack McGraw, in which he states that the EPA intends to permit a facility to comment and object to a violation before the facility is actually rendered ineligible. The affiant expressed the intention of distributing a memorandum to all EPA regions concerning this change in policy, but the court is unaware of the present status or implementation of this.
[7] The past release from the pipeline was remedied by July, 1986 when the EPA determined that the SCA facility was again eligible to receive CERCLA wastes. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2129428/ | 770 F. Supp. 558 (1991)
Quentin R. SCHROEDER and Frances M. Schroeder, dba Chickies Hallmark Shoppe, Plaintiffs,
v.
STATE FARM FIRE AND CASUALTY COMPANY, an Illinois Corporation, and Does I-X, Defendants.
No. CV-N-90-570-ECR.
United States District Court, D. Nevada.
July 9, 1991.
*559 Steve L. Dobrescu, Ely, Nev., for plaintiffs.
Benson, Haefner & Enzenberger, Reno, Nev., for defendants.
ORDER
EDWARD C. REED, Jr., Chief Judge.
In May, 1990, plaintiffs discovered damage to their building. At the time, they were insured by defendant under an "all-risk" type of policy. Pursuant to this policy, plaintiffs are covered for every loss except those specifically excluded. After defendants denied coverage on the claim, plaintiff filed a complaint (document # 1A) in Nevada state court, which was subsequently removed to this court (document # 1) on the basis of diversity. Plaintiffs allege that defendant breached the insurance policy by denying coverage. Further, plaintiffs assert, defendant acted in bad faith in investigating the claim and refusing coverage.
In this order, we address only the facts relevant to plaintiffs' first cause of action. The facts surrounding defendant's investigation of the claim are not relevant to the pending motions because we are not addressing plaintiffs' bad faith claim. On February 8, 1991, we entered an order (document # 11) bifurcating the insurance coverage claim from the bad faith claim, and staying discovery on the bad faith claim.
Both sides are in agreement as to the facts. Plaintiffs own a Hallmark shop in Ely, Nevada. Sometime before May 26, 1990, a city water service pipe, running underground to plaintiffs' shop, ruptured due to old age, rust and corrosion. As a result, water escaped from the pipe, saturating the soil beneath plaintiffs' building. The water caused the cementing agent in the soil to dissolve and collapse under load. The soil settled downward, causing the building to shift, resulting in damage to plaintiffs' building. At no time did water enter plaintiffs' building and cause damage.
On May 3, 1991, defendant filed a motion (document # 16) for summary judgment as to plaintiffs' first cause of action, breach of the insurance policy. On May 21, 1991, plaintiffs filed (document # 17) an opposition to defendant's motion and cross motion for summary judgment. On June 3, 1991, defendant filed (document # 19) a reply to plaintiffs' opposition and opposition to plaintiffs' cross motion for summary judgment. On June 17, 1991, plaintiffs filed a reply (document # 21) to their cross motion for summary judgment.
*560 In a minute order dated July 1, 1991, we denied plaintiffs' motion for certification to the Nevada Supreme Court of whether Nevada recognizes the doctrine of "efficient proximate cause." Consequently, the parties' motions for summary judgment are ripe for adjudication.
Since the parties agree on the facts, we must decide, given the facts, whether the insurance policy contains a provision or provisions excluding coverage on plaintiffs' loss. If the policy contains such an exclusion or exclusions, defendant is entitled to summary judgment. If the policy does not contain an exclusion covering plaintiffs' loss, plaintiffs are entitled to summary judgment.
Section I, page 6, "Losses Not Insured," provides in relevant part:
We do not insure under any coverage for any loss which would not have occurred in the absence of one or more of the following excluded events. We do not insure for such loss regardless of: (a) the cause of the excluded event; or (b) other causes of the loss; or (c) whether other causes acted concurrently or in any sequence with the excluded event to produce the loss:
b. earth movement, meaning the sinking, rising, shifting, expanding or contracting of earth, all whether combined with water or not. Earth movement includes but is not limited to earthquake, landslide, erosion, and subsidence but does not include sinkhole collapse (emphasis added).
Defendant asserts that this provision excludes plaintiffs' loss from coverage. Under the language of the provision, defendant appears correct. In this case, plaintiffs would not have sustained damage had the soil beneath their building not collapsed. While the soil would not have collapsed had the pipe not ruptured, causing water to escape and saturate the soil, the language underlined above indicates that so long as earth movement was involved, coverage is denied.
Plaintiff asserts that water damage, not earth movement, caused the damage to the building. Further, an argument exists that earth movement relates to natural causes only. Even if water damage "caused" plaintiffs' loss, which we will discuss below, the collapse of the soil was at least a cause acting "concurrently or in any sequence" with the "water damage." Thus, coverage would not lie.
Whether earth movement may include soil collapse resulting from a non-natural cause poses a more difficult question. In Village Inn Apartments v. State Farm Fire and Casualty Insurance Co., 790 P.2d 581 (Utah Ct.App.1990), a Utah court of appeals faced the same issue. In Village Inn, an underground pipe ruptured, causing water to saturate the soil beneath plaintiffs' apartment building, in turn causing damage to the building. Plaintiffs asserted that earth movement referred only to natural phenomena and did not include the effects of a ruptured pipe.
The court rejected this argument because of the language underlined above and the language reading "all whether combined with water or not." That is, the policy in Village Inn contained the same language here. The court found that since earth movement included a situation where water was involved and where such movement could be caused by another event, "earth movement" had to include both natural and non-natural processes. Id. at 583.
We find this analysis persuasive. If one event, here the rupturing of a water pipe, can cause soil to collapse, such a chain of events includes earth movement. Especially since earth movement is defined to include the subsidence of soil, no matter how caused, earth movement can include non-natural events. Since subsidence is the sinking, falling, or lowering of something, earth movement clearly was involved here.
In Village Inn, plaintiffs also argued that "earth movement" was ambiguous, and should be construed against the insurer. The court rejected that argument. In Village Inn, the insurance policy did not contain the language bolded above, further defining earth movement. Since subsidence clearly occurred in our case, earth movement happened. Consequently, the language in the policy defining and explaining earth movement is not ambiguous.
*561 Millar v. State Farm Fire and Casualty Insurance Co., 167 Ariz. 93, 804 P.2d 822 (Ct.App.1990), involved facts identical to those before us. Further, the policy in Millar contained the identical language set out above. In concluding that earth movement includes non-natural phenomena, the court relied on Village Inn and also relied on the broadness of the definition of "earth movement." Finally, the court concluded that the definition of earth movement in the policy was exactly what occurred in the case. This is also true of our case. We conclude, therefore, that the ruptured pipe and saturated soil caused earth movement below plaintiffs' property.
Plaintiffs argue that the "efficient proximate cause" doctrine allows them to recover in this case. That doctrine, developed in California, provides that when a loss is sustained by a sequence or concurrence of at least two causes, one covered under the policy and the other excluded under the policy, the cause setting the chain of events in motion is the cause to which the loss is attributed. Thus, if the "first" cause is covered, the loss is covered even if an uncovered loss is involved in the chain of events.
Nevada has not ruled on whether it recognizes the "efficient proximate cause" doctrine. Ordinarily, we would have to decide whether the state would be likely to recognize the doctrine. In this case, however, we need not make such a determination because we conclude that even if the doctrine exists in Nevada, the parties have contracted out of the doctrine.
For purposes of argument, we assume that Nevada recognizes the doctrine and that a covered loss was the efficient proximate cause of plaintiffs' damage. Nonetheless, the language underlined above nullifies the efficient proximate cause doctrine in this case. The doctrine basically states that when more than one cause is involved in a loss, if the cause setting the chain of events in motion was a covered cause, the loss is covered.
The language underlined above, however, states exactly the opposite of the doctrine. That language basically states that when more than one cause is involved in a loss, regardless of the sequence of the causes, if at least one cause is excluded, the loss is not covered. Consequently, if contracting out of the doctrine does not violate public policy, the efficient proximate cause doctrine does not save plaintiffs.
In this case, we conclude that the parties could, as they did, contract out of the efficient proximate cause doctrine without violating public policy. In Millar, supra, the court held that identical language enabled the insurer to avoid the efficient proximate cause doctrine. The court concluded further that the parties could contract out of the doctrine. The court recognized, as do plaintiffs here, that two other state courts, Washington and California, had held that the parties could not contract out of the doctrine. In the Washington case, however, the state had adopted the doctrine before the parties entered the contract and the exclusion would unlawfully allow the insurer to avoid the rule.
We are persuaded by the Millar case. First, we can see no public policy reason for disallowing parties to contract out of this particular doctrine. Further, and more important, we are not even sure that the doctrine exists in Nevada. Thus, there is certainly no legislative statement that insurers should not be able to include language in insurance policies similar to the language underlined above. Consequently, we conclude that the parties could contract out of the efficient proximate cause doctrine, and that they did contract out of the doctrine.
Plaintiffs assert that other provisions in the policy specifically provide for coverage in this case because they are not subject to other exclusions in the policy. Provision 2d, page 8 of the policy, provides:
We do not insure for loss either consisting of, or directly and immediately caused by, one or more of the following: smog, wear, tear, rust, corrosion, fungus, mold, decay, deterioration, hidden or latent defect or any quality in property that causes it to damage or destroy itself. But if accidental direct physical loss by any of the "Specified Causes of *562 Loss" or by building glass breakage results, we will pay for that resulting loss.
The specified cause of loss plaintiffs assert entitles them to recover under this provision, water damage, is defined at Page 1, Definitions, number 14:
accidental discharge or leakage of water or steam as the direct result of the breaking or cracking of any part of a system or appliance containing water or steam.
Implicit in plaintiffs' argument is that their building sustained water damage. We do not agree with plaintiffs that they sustained water damage. No water entered plaintiffs' building. Plaintiffs did not suffer flooded property, and no part of plaintiffs' building was damaged directly by water. Rather, water caused soil subsidence, which in turn caused plaintiffs' building to shift, causing damage to the building. Consequently, plaintiffs cannot take advantage of provision 2d. For the same reasons, plaintiffs cannot take advantage of provision 2f. Soil subsidence, not water damage, caused plaintiffs' building to settle.
Plaintiffs also argue that the notice they received highlighting certain provisions of their policy gave them reasonable expectations that defendant would cover an accident such as occurred here. The notice, however, also stated that plaintiffs must read the entire policy, especially the losses not insured section, and that earth movement is not a covered loss. In Millar, supra, the plaintiffs made a similar notice argument. The court noted that insureds have reasonable expectations that every loss will be covered. Id. 804 P.2d at 826. Since the policy explained covered and uncovered losses, the plaintiffs knew or should have known that they had to read the policy to determine what losses were not covered. Id. In this case, the notice of changes gave plaintiffs ample notice that earth movement was not covered.
In light of our conclusion, we need not address defendant's arguments that other provisions in the policy would exclude coverage. We note finally that we must decide this case according to the terms of the insurance policy. While plaintiffs go uncompensated by defendant in this case, such result is dictated by the policy. Of course, plaintiffs still may have recourse against a potential defendant responsible for the ruptured pipe.
IT IS, THEREFORE, HEREBY ORDERED that defendant's motion (document # 16) for summary judgment as to plaintiffs' first claim for relief is GRANTED. Plaintiffs' cross-motion (document # 17) for summary judgment as to plaintiffs' first claim for relief is DENIED.
IT IS FURTHER ORDERED that our disposition of plaintiffs' first claim for relief renders plaintiffs' second claim for relief moot. Since defendant properly denied coverage, they are entitled to judgment on the bad faith claim as a matter of law. The clerk, therefore, shall enter judgment in favor of defendant and against plaintiffs. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2450533/ | 278 F.Supp.2d 783 (2003)
In the Matter of the COMPLAINT OF DANOS & CUROLE MARINE CONTRACTORS, INC., as charter/owner pro hac vice of an 18 foot long aluminum vessel bearing registration number LA 1739 EJ, in a Cause for Exoneration From or Limitation of Liability
Nos. CIV.A.02-2969, CIV.A.02-3189.
United States District Court, E.D. Louisiana.
July 18, 2003.
Randolph J. Waits, Matthew F. Popp, Emmett, Cobb, Waits & Kessenich, New Orleans, LA, for Stone Energy Corporation, as owners of an 18 foot long aluminum *784 vessel bearing registration number LA 1739 EJ, in a cause for exoneration from or limitation of liability, petitioner.
Bertrand M. Cass, Jr., William K. Terrill, II, Deutsch, Kerrigan & Stiles, L.L.P., for Danos & Curole Marine Contractors, Inc.
Timothy John Falcon, Falcon Law Firm, Marrero, LA, for Penny Robin, individually and on behalf of the estate of Ryan Robin & the estate of the minor children of the marriage, Brittany Robin, Ashlyn Robin and Ryan Robin, Jr., Floyd Robin, Beatrice Robin, claimants.
Gerald J. Arceneaux, Marrero, LA, for Paige Robin, on behalf of the minor, Justin Bankston, Troy Vercher, major son of the decedent, Ryan Robin, claimants.
ORDER
PORTEOUS, District Judge.
Before the Court is a Motion in Limine to Exclude the Coast Guard Investigation, filed by Claimants in the above-captioned matter. This motion was set for hearing on July 2, 2003, and is to come before this Court for non-jury trial on August 25, 2003. Having considered the law, the memoranda of the parties, and the applicable jurisprudence, this Court is now ready to rule.
I. BACKGROUND AND PROCEDURE
This case arises from an allision between a Carolina Skiff and the M/V RITA II in Barataria Bay on or about September 19, 2002 at approximately 0540. Later that same day, at approximately 1100, United States Coast Guard Chief Warrant Officer Jo Wildman, accompanied by Officer Chris Hogan of the United States Coast Guard 8th District Office, performed a Maritime Casualty Investigation pursuant to 46 U.S.C. § 6301, et. seq. The investigation involved an inspection of the Carolina Skiff and its running light wiring. A report entitled "Report of Investigation Into Circumstances Surrounding the Incident Involving RITA II Collision on 09/19/2002" was subsequently issued.
II. ARGUMENTS OF THE PARTIES
Claimant asks that the report and photographs be excluded from trial pursuant to 46 U.S.C. § 6308. Respondents pray that while the written report shall be excluded under federal statutes, the resulting photographs should not be excluded as they are not covered under 46 U.S.C. § 6308. Additionally, respondents pray that the written report of the U.S. Coast Guard be admissible for impeachment purposes. In the alternative, the respondents ask that the Court defer a ruling on the uses of the report for impeachment purposes until a later date.
III. LAW AND ANALYSIS
On September 19, 2002, Chief Warrant Officer Wildman conducted an investigation into an allision on Barataria Bay pursuant to 46 U.S.C. § 6301, et. seq. The product of this investigation was a written report issued by Officer Wildman. Plaintiff now seek a motion in limine in regards to the report and the subsequent deposition of Officer Wildman. 46 U.S.C. § 6308(a) states,
Notwithstanding any other provision of law, no part of a report of a marine casualty investigation conducted under section 6301 of this title, including findings of fact, opinions, recommendations, deliberations, or conclusions, shall be admissible as evidence or subject to discovery in any civil or administrative proceedings, other than an administrative proceeding initiated by the United States. Any employee of the Department of Transportation, and any member of the Coast Guard, investigating a *785 marine casualty pursuant to section 6301 of this title, shall not be subject to deposition or other discovery, or otherwise testify in such proceedings relevant to a marine casualty investigation, without the permission of the Secretary of Transportation. The Secretary shall not withhold permission for such employee or member to testify, either orally or upon written questions, on solely factual matters at a time and place and in a manner acceptable to the Secretary if the information is not available elsewhere or is not obtainable by other means. [emphasis ours]
Subsequent to the investigation by Officer Wildman, the running light wiring was stripped from the vessel, and different wiring was substituted, materially altering the condition and appearance of the wiring which was the subject of the Coast Guard Report. The original wiring was not recovered, and the alteration of the wiring took place prior to inspection by any other parties. As such, Officer Wildman is the only person able to provide information as to the condition of various aspects of the condition of the vessels.
The Court will now examine four areas involved with the investigation report:
1. Written Report of Officer Wildman
The statute is strict in its limitations regarding the written report. The written report will not be admissible at trial. Eckstein Marine Service, Inc., v. The Crescent Marine Towing, Inc., 1999 WL 58264 (E.D.La.1999)(Duval, J.); Conagra Inc., v. Weber Marine, Inc., 1999 WL 705546, *2 (E.D.La.1999).
2. Photographs of the vessels
It is this Court's finding that the photographs do not provide findings of fact, opinions, recommendations, deliberations, nor conclusions, in stead, they merely illustrate the condition of the objects depicted in the photos as they existed on September 19, 2002 at the time that the pictures were taken. See also, 6 C.F.R. § 5.49. While the Court agrees with the assertions of the Claimant that the list provided in 46 U.S.C. § 6308(a) is illustrative and not exclusive, the Court does not believe that the photographs are the type of conclusory items which the statute seeks to exclude. This Court declines to provide an expansive reading of 46 U.S.C. § 6308(a). Accordingly, the photographs shall be admissible, and all inferences drawn therefrom are to be left to the trier of fact.
3. Deposition Testimony of Officer Wildman
Under the statute, Officers may not testify or give deposition evidence without permission from the Secretary of the Navy. See also, 6 C.F.R. § 5.48(a)(1)(3); Conagra Inc., v. Weber Marine, Inc., 1999 WL 705546, *2 (E.D.La.1999). On May 30, 2003, Lieutenant Commander Shannon Gilreath notified counsel for Danos & Curole that the circumstances of the case warranted a deposition of Officer Wildman, who was subsequently deposed as to her personal observations of the navigation light wiring.[1] Interpretation of the language of the statute yields the reasoning that the Coast Guard Commander felt that there was no alternative source for material information other than from Officer Wildman; hence, Commander Gilreath permitted Officer Wildman's deposition. In civil litigation, Coast Guard employees may testify "as to personal known facts, not reasonably available from other sources, observed by the employee or uncovered during the employee's investigation...or *786 observed by the employee even if he or she did not investigate the accident." 49 C.F.R. § 9.9(b)(1). This Court finds that the limitations imposed by the Coast Guard on Officer Wildman were sufficient and her deposition testimony is admissible at trial.
4. Use of the Written Report for Impeachment Purposes
In accord with other courts in this jurisdiction, this Court defers ruling on the use of the written report for impeachment purposes. F.R.E. 608; Eckstein Marine Service, Inc., v. The Crescent Marine Towing, Inc., 1999 WL 58264 (E.D.La.1999)(Duval, J.); In Re TT Boat, 1999 WL 169458 (E.D.La.1999)(Duval, J.). The factual allegations surrounding the condition of the wiring and subsequent removal move the Court to hold a ruling on the use of the report for impeachment until a later date.
Accordingly,
IT IS ORDERED that the Motion in Limine is GRANTED IN PART as to the written report of the Coast Guard Investigation;
IT IS FURTHER ORDERED that the Motion in Limine is DENIED IN PART as to the use of written report of the Coast Guard Investigation for purposes of impeachment; however, the Court will defer such a ruling on the use of the report for impeachment until a later time;
IT IS FURTHER ORDERED that the Motion in Limine is DENIED IN PART as to the deposition testimony of Chief Warrant Officer Jo Wildman;
IT IS FURTHER ORDERED that the Motion in Limine is DENIED IN PART as to the photographs taken by Coast Guard Investigators.
NOTES
[1] Danos & Curole's Opposition to Motion in Limine, p. 3, exhibit 3. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2449149/ | 56 F. Supp. 2d 679 (1999)
Nancy S. DEVINE, Plaintiff,
v.
AMERICAN BENEFIT CORPORATION, et al., Defendants.
Civil Action No. 2:97-1157.
United States District Court, S.D. West Virginia, Charleston Division.
July 13, 1999.
*680 Mark W. Kelley and Jon L. Brown, Payne, Loeb & Ray, Charleston, WV, for Nancy S. Devine.
Thomas V. Flaherty and Keith M. Kodosky, Flaherty, Sensabaugh & Bonasso, Charleston, WV, for ABC.
*681 John J. Polak and Susan M. Murray, Rose & Atkinson, Charleston, WV, and R. Terrence Rodgers, Allen, Guthrie & McHugh, Charleston, WV, for Association.
MEMORANDUM OPINION AND ORDER
HADEN, Chief Judge.
Pending are (1) Defendant American Benefit Corporation's (ABC) motion for attorney fees; and (2) a petition for award of attorney fees filed by Defendant Counter-Claimants Association of Community Mental Health/Mental Retardation Programs of West Virginia Benefit Plan Trust (the Trust) and its Trustees. The Court GRANTS as moulded the Trust's petition and DENIES ABC's motion. The Court further VACATES section II.D of its Memorandum Opinion entered November 13, 1998.
I. FACTUAL BACKGROUND
In a lengthy Memorandum Opinion dated November 13, 1998 the Court granted Defendants' motions for summary judgment and denied Plaintiff's corresponding motion. To summarize, the Court concluded:
1. Plaintiff's counsel misled the Court initially by unjustifiably omitting critical language from a paragraph of the Plan counsel was relying upon in seeking denial of the Trust's subrogation rights;[1]
2. Plaintiff's counsel unjustifiably, and indeed without a legal or factual basis, accused Defendants of fraud and concealment;
3. The Trust was entitled to subrogation in the amount of $9,654.00, plus interest, subject to any necessary set-off;[2]
4. Plaintiff was not entitled to a statutory penalty under 29 U.S.C. § 1132(c); and
5. Defendants were entitled to attorney fees and costs pursuant to 29 U.S.C. § 1132(g)(1) and Quesinberry v. Life Insurance Co. of North America, 987 F.2d 1017 (4th Cir.1993) (en banc).
In response to the Opinion, both ABC and the Trust filed itemized requests for attorney fees. When the briefing on the two requests concluded, the Court examined the filings and ordered further briefing on "the proper allocation of responsibility for the fees to be awarded." Order of Mar. 25, 1999. Specifically, the Court gave notice to Plaintiff's counsel it was considering imposing a fee shifting award against counsel, given certain misstatements and omissions occurring in the case. The matter is now ripe for disposition.
In Devine's response filed during the briefing, the Court was presented with further information concerning her ability to satisfy the award:
Plaintiff is an employee of Shawnee Hills. Her current gross earnings are $884.80 and her current net earnings are $589.43 for 80 hours or two weeks of work. A copy of one of her recent pay stubs is attached as Exhibit A.
In addition, Ms. Devine states that she has incurred significant medical bills for medical care and treatment for herself. Ms. Devine has engaged an attorney to assist her in a divorce matter. She also currently has one son attending college and one who will be entering college after one more year of high school. Thus, Ms. Devine is simply financially unable to pay any large sum for costs, expenses or attorney fees associated *682 with the above referenced matter.
Pl.'s resp. at 2.
II. DISCUSSION
A. Entitlement to Fees and Costs
In its November 13 Memorandum Opinion, the Court concluded both ABC and the Trust were entitled to attorney fees pursuant to 29 U.S.C. § 1132(g). In doing so, the Court considered the five applicable factors contained in Quesinberry v. Life Insurance Co. of North America, 987 F.2d 1017, 1029 (4th Cir.1993) (en banc):
1. The degree of the opposing party's culpability or bad faith;
2. The ability of the opposing party to satisfy an award of attorney fees;
3. Whether an award of attorney fees against the opposing party would deter other persons acting under similar circumstances;
4. Whether the party requesting attorney fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA itself; and
5. The relative merits of the parties' positions.
Id. at 1029; Sedlack v. Braswell Servs. Group, Inc., 134 F.3d 219, 227 (4th Cir. 1998); Denzler v. Questech, Inc., 80 F.3d 97, 104 (4th Cir.1996); Wheeler v. Dynamic Engineering, Inc., 62 F.3d 634, 641 (4th Cir.1995); Hussey v. E.I. DuPont De Nemours & Co. Pension & Ben. Plan, 963 F. Supp. 576, 582 (S.D.W.Va.1997). In applying the factors, this Court observed:
As stated in Custer, "The factors simply constitute the nucleus of an inquiry which seeks to identify that unusual case in which the judge may shift fees to further the policies of the statute." Custer, 12 F.3d at 422. The test is not a rigid one, but rather a general set of guidelines for the district court to utilize in measuring the propriety of a fee award. Id. Quesinberry further stated some of the factors "`may not be apropos in a given case'" and that "`[i]n particular types of cases, or in any individual case, ... other considerations may be relevant as well.'" Id. (emphasis added) (quoting Iron Workers Local # 272 v. Bowen, 624 F.2d 1255, 1266 (5th Cir.1980)).
Devine v. American Benefit Corp., 27 F. Supp. 2d 669, 677 (S.D.W.Va.1998) (emphasis added).
The new information on Ms. Devine's ability to pay, without question, should have been presented to the Court during the initial briefing on attorney fees. Nonetheless, the Court believes the interests of justice now require consideration of this new information in relation to the Quesinberry factors.[3]
*683 In its Opinion, but on very limited information from parties, the Court cautioned:
The second factor concerns the Court greatly. According to her lawyer's argument asserting entitlement to fees from the Defendants, Devine is "a simple working woman ... (who) has no ability to satisfy any award of attorneys fees." Pl.'s resp. at 16. The Court accepts that representation. Nonetheless, the Court cannot turn a blind eye to the significant and needless expense occasioned to the Trust, and consequently its participants and beneficiaries, in defending this case. The Court further cannot ignore the apparent lack of any basis for suing ABC in the first place. Nonetheless, the Court will treat this factor as neutral.
Devine, 27 F.Supp.2d at 678 (emphasis added).
Based on the limited facts appearing in the summary judgment briefing, the Court accepted Plaintiff's counsel's skeletal representation on ability to pay and compared it to the then more obvious burdens occasioned on the Trust and ABC. Now cognizant in detail of the extreme financial hardship an award would work on Ms. Devine and her family, however, the Quesinberry calculus plainly favors a denial of fees under section 1132(g). With the new information, this case is not one of those "unusual" actions where fees are warranted under ERISA.
Even were the Court to leave its strong analysis of factors 1 and 3-5 intact, the second factor, the ability of the opposing party to satisfy an award of attorney fees, now overwhelms the analysis. Accordingly, the Court VACATES Section II.D of its November 13, 1998 Memorandum Opinion and DENIES both the Trust's and ABC's request for attorney fees and costs pursuant to section 1132(g)(1).
Although the Court has vacated its award of fees under section 1132(g), it notes the Trust is yet entitled to recover a portion of its fees under the mandatory provisions of the Plan. The relevant provision reads:
Should the Plan be required to file or initiate a civil action to enforce its right of subrogation, it shall be entitled to recover all costs associated with such enforcement including, but not limited to, all attorney's fees and expenses incurred by the Plan in connection with such enforcement.
Plan at 6 (emphasis added). As the underscored language states, the recovery of fees is limited to fees incurred "in connection with" enforcing the Plan's right of subrogation.
The Court requested the Trust to segregate within its fee request the amounts attributable to enforcing its right of subrogation versus time expended on other issues. In response, the Trust's lawyer filed an affidavit reflecting that apparently $10,575.50 was spent by the firm on issues arising from the Plan's subrogation provision. Although liquidated, the Court believes his amount is subject nevertheless to a determination of reasonableness. Cf. Allen v. United States, 606 F.2d 432, 435, 436 (1979) (stating "A court abuses its discretion if it allows a fee without carefully considering the factors relevant to fair compensation" and noting a court's "supervisory power to award no more than reasonable compensation.").
B. Imposition of Sanctions in the form of Attorney Fees
The Court has considered imposing sanctions on Plaintiff's counsel in the form of some, or all, of the fees requested by the Trust. The obvious vehicle for these sanctions, Rule 11, Federal Rules of Civil Procedure, however, does not contemplate an award of attorney fees by the Court acting sua sponte. Rule 11(c)(2) provides:
*684 (2) Nature of Sanction; Limitations. A sanction imposed for violation of this rule shall be limited to what is sufficient to deter repetition of such conduct or comparable conduct by others similarly situated. Subject to the limitations in subparagraphs (A) and (B), the sanction may consist of, or include, directives of a nonmonetary nature, an order to pay a penalty into court, or, if imposed on motion and warranted for effective deterrence, an order directing payment to the movant of some or all of the reasonable attorneys' fees and other expenses incurred as a direct result of the violation.
Fed.R.Civ.P. 11(c)(2). Several courts, including our own Court of Appeals, albeit in an unpublished opinion, interpret this subdivision of the Rule to prevent a court from sua sponte imposing attorney fees as a sanction against one who contravenes Rule 11. Duggan v. Everd, No. 95-2242, 1996 WL 145230, at * 1 (4th Cir. Apr.1, 1996); Nuwesra v. Merrill Lynch, Fenner Smith, Inc., 174 F.3d 87, 88 (2d Cir.1999) (holding the district court "had no authority under Rule 11(c)(1)(B) to award attorneys' fees sua sponte.") (per curiam); Thornton v. General Motors Corp., 136 F.3d 450, 455 (5th Cir.1998) (per curiam); Johnson v. Waddell & Reed, Inc., 74 F.3d 147, 152 n. 3 (7th Cir.1996) (per curiam). Defendants, after ample time to pursue sanctions by motion, have failed to so file. Accordingly, an award of fees pursuant to Rule 11 is not a currently available option for the Court.
Further, case law and the difficult posture of the case counsel against attempting to impose sanctions pursuant to 28 U.S.C. § 1927 or the Court's inherent powers. These sanctions, in the Court's estimation, would require (1) an evidentiary hearing; (2) an examination of otherwise privileged communications between Devine and her lawyers to gauge responsibility for, and knowledge of, the conduct that occurred in this case from the inception of the subrogation dispute five years ago to present day; and (3) detailed findings of bad faith. Chaudhry v. Gallerizzo, 174 F.3d 394, 411 n. 14 (4th Cir.1999) ("section 1927 also requires `a finding of counsel's bad faith as a precondition to the imposition of fees.'") (quoting Brubaker v. City of Richmond, 943 F.2d 1363, 1382 n. 25 (4th Cir.1991)); Strag v. Board of Trustees 55 F.3d 943, 955 (4th Cir.1995) (observing "the special sanction of attorneys' fees [under the Court's inherent powers] is appropriate in three circumstances: (1) where a party's litigation efforts directly benefit others, (2) where a party has willfully disobeyed a court order, and (3) where a party has acted in bad faith, vexatiously, wantonly, or for oppressive reasons."). Such in-depth collateral development of what is essentially an attorney fee dispute, however, is discouraged. Trimper v. City of Norfolk, 58 F.3d 68, 74 (4th Cir.1995) (stating "`[a] request for attorney's fees should not result in a second major litigation.'") (quoting Hensley v. Eckerhart, 461 U.S. 424, 437, 103 S. Ct. 1933, 76 L. Ed. 2d 40 (1983)).
Further, and more importantly, the depth of inquiry would place Devine in a position adverse to her current lawyers and vice-versa. She would, at great further personal cost, be forced to obtain substitute counsel, assuming she would find an attorney willing to enter the mix at this late stage and under these circumstances, to pursue her interests and to avoid a prohibited conflict-of-interest. See Resp. to Show Cause Order at 2 (Plaintiff's counsel stating its response brief was filed "to the extent Plaintiff's Counsel can avoid creating a conflict-of-interest."). The Court does not deem these additional burdens to Ms. Devine to be consistent with the interests of justice. Accordingly, the Court will not award sanctions under these circumstances.
In determining a sanctions order would be ineffective, and perhaps further negatively affect Ms. Devine in this instance, the Court nonetheless does not wish to place her in a "Catch-22" situation. The *685 Court stresses strongly its view that some of the legal and factual positions advanced by Devine's counsel were wholly lacking in merit and, in some cases, appear to have exceeded the reasonable boundaries of acceptable litigation sparring. As aptly stated by the Trust, "[t]his litigation, and its attendant cost, could have and would have been avoided in its entirety had Mrs. Devine been advised to cooperate with the [Trust and ABC.]" Reply at 4. Accordingly, although Devine is now saddled with a fee award pursuant to the Plan, she may thus yet have a claim against her lawyers as a result for amounts she now owes.
C. Reasonableness of the Fees and Costs Requested
In determining the reasonable amount of fees and costs to which the Trust is entitled, the Court is guided by the twelve factors set forth in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 717-19 (5th Cir.1974). See, e.g., Hensley, 461 U.S. at 434 n. 9, 103 S. Ct. 1933; Trimper, 58 F.3d at 73; Daly v. Hill, 790 F.2d 1071, 1077 (4th Cir.1986).[4] These factors are used to initially calculate the reasonable hourly rate and the reasonable number of hours expended by counsel. Trimper, 58 F.3d at 73. The resulting product or "lodestar" fee obtained by multiplying these two figures is presumed to be fully compensatory. Id. at 73-74.
Trust attorneys John Pollack, Susan Murray and legal assistant Susan Watkins claimed initially a total of 79.5, 9 and 7 hours respectively at respective rates of $150.00, $85.00 and $50.00. This amounts to a total fee request of $13,040.00. As noted supra, however, this amount is reduced to $10,575.50 to reflect the hours expended on the compensable subrogation portion of the case. Attorney Pollack also seeks $395.74 in expenses.
While the Court has reviewed equally all of the Johnson factors, it appears factors one, two, three and eight are particularly relevant.
Concerning the first factor, the time and labor expended, several entries are quite vague, making it difficult to ascertain exactly what transpired during the relevant work periods. By example, there is mention of a number of conferences and documents reviewed that are not further described. This is particularly significant, given the Court's admonition to counsel in its prior Opinion to provide "a reasonable description of the work" performed. Devine, 27 F.Supp.2d at 678 n. 14.
The second factor, the novelty and difficulty of the questions presented, poses great difficulty for the Court. Distilled to its essence, the relevant portion of the case dealt with a simple, unambiguous subrogation provision under which the Trust was clearly entitled to relief.[5] Indeed, the Trust itself states in its reply that it had a "clear and unequivocal entitlement to the repayment of the subrogated benefits at issue." Reply at 2. Further, the factual development of the case was straightforward, with a very discrete number of relevant documents and no substantial discovery reflected on the docket sheet. In fact, not a single deposition was taken.
*686 The third factor is related to the second. The skill required to perform properly the legal services was not great. Again, this action involved the application of simple facts to simple law. The work expended on the case exceeded what was reasonably necessary. In some cases, it may very well have been duplicative but it is difficult to tell given the vagueness of some of the time entries.
The eighth factor is of paramount importance, the amount in controversy and the results obtained. Brodziak v. Runyon, 145 F.3d 194, 196 (4th Cir.1998). It is also very straightforward. The Trust prevailed completely on its simple claim and was awarded $9,654.00 plus interest.
Devine does not challenge the requested hourly rates and the Court finds the same reasonable. After considering all twelve applicable factors, however, the Court cannot make a similar finding for the hours requested.
Based on the Court's line-by-line consideration of the fee requests, its supervisory vantage point since the case's inception and consideration of all of the applicable factors and reasonableness generally, the following reductions are ORDERED:
Requested Awarded Hourly Rate Lodestar
John Pollack 79.50 18.0 $150.00 $2,700.00
Susan Murray 9.00 3.0 $ 85.00 $ 255.00
Susan Watkins 7.00 6.0 $ 50.00 $ 300.00
_________
TOTAL FEES $3,255.00
TOTAL COSTS $ 395.74
_________
__________
III. CONCLUSION
Based on the foregoing, the Court GRANTS as moulded the Trust's petition and DENIES ABC's motion. The Trust is AWARDED $3,650.74 in fees and costs. The Court further VACATES section II.D of its Memorandum Opinion entered November 13, 1998.[6]
The Clerk is directed to send a copy of this Memorandum Opinion and Order to counsel of record. Further, counsel for the Plaintiff is directed to provide her with a copy of the Opinion as well.
NOTES
[1] Plaintiff's counsel now concede in their response to Defendants' fee requests that "with all due candor to the Court, Plaintiff and Plaintiff's counsel were obviously mistaken that any ambiguity existed in the exclusionary or subrogation language." Resp. at 10.
[2] To date, counsel has not advised the Court of any necessary set-off.
[3] The Court's prior finding of liability for fees does not prevent it from now reconsidering the award. The Order finding liability was interlocutory in nature. The Court of Appeals for the District of Columbia Circuit recently recognized:
In keeping with the principle that a finding of liability is not final until the court has specified the relief to be awarded, every circuit to address the question has held that an order finding liability for attorney's fees is not final until the amount has been determined. Century 21 Real Estate Corp. v. Century 21 Real Estate, Inc., 929 F.2d 827, 830 (1st Cir.1991); Echols v. Parker, 909 F.2d 795, 798 (5th Cir.1990); Phelps v. Washburn Univ. of Topeka, 807 F.2d 153, 154 (10th Cir.1986) (per curiam); Becton Dickinson & Co. v. District 65, United Auto., Aerospace and Agric. Implement Workers of Amer., 799 F.2d 57, 61 (3d Cir.1986); Morgan v. Union Metal Mfg., 757 F.2d 792, 795 (6th Cir.1985); see also Crowley v. Shultz, 704 F.2d 1269, 1272 (D.C.Cir.1983).
Gilda Marx, Inc. v. Wildwood Exercise, Inc., 85 F.3d 675, 677 (D.C.Cir.1996) (emphasis added); see also Coble v. Piedmont Farm Credit, No. 94-2346, 1995 WL 469437, at *1 (4th Cir. Aug.9, 1995).
Being interlocutory in character, the Court's initial finding of liability for fees is subject to reconsideration sua sponte. Bragg v. Robertson, 183 F.R.D. 494, 495-96 (S.D.W.Va.1998) ("[T]he Court retains power to amend interlocutory orders to achieve complete justice. `An interlocutory order is subject to reconsideration at any time prior to entry of a final judgment.'") (quoting Fayetteville Investors v. Commercial Builders, Inc., 936 F.2d 1462, 1469 (4th Cir.1991)).
[4] The twelve factors considered by the Court are (1) the time and labor expended; (2) the novelty and difficulty of the questions presented; (3) the skill required properly to perform the legal service; (4) the preclusion of other employment opportunities for the attorney due to the attorney's acceptance of the case; (5) the customary fee for like cases; (6) whether the fee is fixed or contingent; (7) time limitations imposed by the client or the circumstances; (8) the amount in controversy and the results obtained; (9) the experience, reputation, and ability of the attorney; (10) the "undesirability" of the case; (11) the nature and length of the attorney's professional relationship with the client; and (12) awards in similar cases. Trimper, 58 F.3d at 73; Daly, 790 F.2d at 1075 n. 2.
[5] The most challenging legal issue in the case involved a discussion of the split of authority amongst the circuits on the "de facto" administrator theory, an issue not briefed by either party, but one that was raised by the Court sua sponte. Devine, 27 F.Supp.2d at 677 n. 10.
[6] One further issue bears observation before final dismissal. In its prior Memorandum Opinion, the Court stated as follows:
Section 1132(g)(1) provides "(1) In any action under this subchapter (other than an action described in paragraph (2)) by a participant, beneficiary, or fiduciary, the court in its discretion may allow a reasonable attorney's fee and costs of action to either party." Id. Devine does not dispute that Defendants all fall within the definition of "fiduciary," § 29 U.S.C. 1002(21).
Devine, 27 F.Supp.2d at 677 n. 11 (emphasis added). The Court observes Devine might have disputed the issue, considering the arguable dicta in HealthSouth Rehabilitation Hospital v. American National Red Cross, 101 F.3d 1005, 1009 (4th Cir.1996), concerning the fiduciary status of a third party administrator. The issue, of course, is now moot. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2450793/ | 414 F. Supp. 2d 210 (2006)
Adil KHAN, Plaintiff,
v.
UNITED STATES of America, Defendants.
No. 05 CV 2015(ADS)(ARL).
United States District Court, E.D. New York.
February 11, 2006.
*211 Adil Khari, Fort Dix, NJ, Pro Se Petitioner.
Roslynn Mauskopf, United States Attorney for the Eastern District of New York, by Bonnie S. Klapper, Assistant U.S. Attorney, Central Islip, NY, for Defendant.
MEMORANDUM OF DECISION AND ORDER
SPATT, District Judge.
Adil Khan ("Khan" or the "Petitioner") filed this petition, pro se, pursuant to 28 U.S.C. § 2255 to vacate, set aside, or correct his sentence. Khan was sentenced by this Court on March 9, 2004, following his *212 December 13, 2002 plea of guilty to the crime of conspiracy to defraud the Internal Revenue Service in violation of 18 U.S.C. § 371. The Petitioner's principal claims are: (1) his counsel was ineffective in failing to object to the imposition of sentencing enhancements; and (2) his sentence was unconstitutional in light of United States v. Booker, 543 U.S. 220, 125 S. Ct. 738, 160 L. Ed. 2d 621 (2005), the Supreme Court decision that rejected the mandatory application of the Federal Sentencing Guidelines. Having reviewed the submissions of the parties as well as portions of the original criminal record, the court concludes that the petition must be denied.
I. BACKGROUND
Khan was convicted on his plea of guilty to a one-count information for conspiracy to defraud the Internal Revenue Service. The offense arose out of Khan's involvement in a fraudulent tax return scheme in which he would obtain personal identification information from the accountant he worked for and use the information to file false returns. Upon submitting the false returns to the IRS, Khan would receive unlawful refunds. Khan's scheme included co-conspirators who would cash the fraudulently obtained checks for a percentage of the refund. In total, Khan submitted more than 1.9 million dollars in fraudulent refund requests, but was only successful in obtaining approximately $350,000.
On December 13, 2002, Khan entered into a plea agreement ("Plea Agreement"), which stated that the defendant's sentence was governed by the United States Sentencing Guidelines ("U.S.S.G."). The Plea Agreement estimated that the defendant's adjusted offense level for this offense would be 19, based upon the following calculations. There was a base offense level of 18 for receiving fraudulent funds in the amount of $350,000; a 4 point enhancement under U.S.S.G. § 3B1.1(a) for his role in the offense; and a three point reduction for acceptance of responsibility. The Plea Agreement calculated that an adjusted offense level of 19 carried a range of imprisonment of 30-37 months, "assuming that the defendant is within criminal history category I." The Plea Agreement contained a disclaimer that the estimates were not binding on the United States Attorney, the Probation Department, or the Court.
The Plea Agreement further stated that "the defendant will not file an appeal or otherwise challenge the conviction or sentence in the event that the Court imposes a term of imprisonment of 37 months or below." The Plea Agreement also stated that the waiver would be binding on the defendant "even if the Court employs a Guidelines analysis different . . ." from the one estimated in the Plea Agreement. At the plea allocution, United States Magistrate Judge Arlene R. Lindsay advised the defendant that if the Court "were to sentence you to 37 months or less, that you also give up your right to appeal the sentence of the Court. Do you understand that?" Khan replied, "Yes." Transcript of Plea December 13, 2002 at 15.
Prior to sentencing, the Presentence Investigation Report ("PSR") from the Probation Department recommended that Khan be sentenced at a total offense level of 23, which calls for a range of 46-57 months imprisonment. The higher offense level was based on the Probation Department's determination that Khan should be held accountable not only for the actual loss of $350,000, but also for the intended loss. This combined amount was estimated at $1,856,206. In addition, the Probation Department enhanced his sentence recommendation 4 levels based on its conclusion that the defendant supervised five or more individuals according to U.S.S.G. § 3B1.1(a), and that the offense involved *213 sophisticated means according to § 2T1.1(b)(2).
On February 27, 2004, Khan appeared for sentencing and his counsel challenged the use of the intended loss in calculating the offense level in the PSR. Defense counsel also challenged the PSR's determination that the offense involved sophisticated means, but did not challenge the determination that Khan played a supervisory role in the offense. Following the arguments of defendant's counsel, the Court adjourned the sentence in contemplation of scheduling a Fatico hearing to determine the amount of the intended loss.
On March 4, 2004, Khan waived his right to a Fatico hearing on the issue of the intended loss and proceeded to sentencing. On March 9, 2004, the Court sentenced the Petitioner. The Court determined that the Guideline range was a total offense level 21, criminal history category I, with a term of imprisonment of 37 to 46 months. This level was based on the enhancement for his role as a supervisor, but the Court did not adjust his offense level under the sophisticated means enhancement. The Court sentenced Khan to a term of 37 months in custody, 3 years supervised release, restitution in the amount of $325,007.45, and a fine in the amount of $5,000.
Khan did not appeal his conviction and filed this petition with prison officials on April 9, 2005.
II. DISCUSSION
A. Section 2255 Statute of Limitations
As an initial matter, the Court must determine whether Khan's claims are timely under the Antiterrorism and Effective Death Penalty Act of 1996 ("AEPA"). Pursuant to 28 U.S.C. § 2255, ¶ 6, a federal prisoner has one year to file a habeas petition, measured from the latest of:
(1) the date on which the judgment of conviction becomes final;
(2) the date on which the impediment to making a motion created by governmental action in violation of the Constitution or laws of the United States is removed, if the movant was prevented from making a motion by such governmental action;
(3) the date on which the right asserted was initially recognized by the Supreme Court, if that right has been newly recognized by the Supreme Court and made retroactively applicable to cases on collateral review; or
(4) the date on which the facts supporting the claim or claims presented could have been discovered through the exercise of due diligence.
28 U.S.C. § 2255.
The date on which a judgment becomes final is at the "conclusion of direct review or the expiration of the time for seeking such review." 28 U.S.C. § 2244(d)(1)(A); see Moshier v. United States, 402 F.3d 116, 118 (2d Cir.2005). Under Federal Rule of Appellate Procedure 4(b)(1), in order for a defendant to timely seek review of his conviction he must file a notice of appeal within ten days of the date of the entry of judgment. Fed. R.App. P. 4(b)(1).
In this case, the time for Khan to timely seek review of his March 9, 2004 conviction, was March 23, 2004, which is 10 days later, excluding intermediate Saturdays and Sundays. See Fed. R.App. P. 26(a). Accordingly, Khan had until March 23, 2005 to file his petition. Khan's petition declares that he gave the document to prison officials on April 9, 2005 for forwarding to the court. The Court received the petition on April 21, 2005.
Under the so-called "Prison Mailbox Rule," a pro se prisoner's petition is deemed "filed" at the moment of delivery *214 to prison authorities for forwarding to the district court. Noble v. Kelly, 246 F.3d 93, 97 (2d Cir.2001); see also Houston v. Lack, 487 U.S. 266, 108 S. Ct. 2379, 101 L. Ed. 2d 245 (1988); Walker v. Jastremski, 430 F.3d 560, 562 (2d Cir.2005). Thus, the Court considers Khan's petition filed on April 9, 2005, which falls outside the one-year statute of limitations under 28 U.S.C. § 2255.
Khan claims that his petition is timely within the one-year period allowed to assert rights following the decision by the Supreme Court in Booker. In doing so, Khan recognizes that the Second Circuit has held that Booker is not applied retroactive to cases on collateral review. Guzman v. United States, 404 F.3d 139, 144 (2d Cir.2005). Nonetheless, in an attempt to circumvent the time-bar of his late-filed ineffective assistance of counsel claim, Khan argues that the statute of limitations in section 2255 and the "doctrine of retroactivity" are two separate and distinct affirmative defenses. In other words, Khan's argument asks this Court to undertake a two-step analysis by initially finding his petition timely as asserting "new rights" under Booker and then addressing the merits of both his Booker and ineffective assistance of counsel claims. Although Khan admits that his Booker claim would immediately fail because the case is not applied retroactively, he believes that the merits of his ineffective assistance claim should be addressed without separately analyzing it for timeliness, even though the claim, if asserted alone, would be time-barred.
The Petitioner's well-crafted argument rests on faulty logic at both steps. In analyzing the timeliness of a petition under 28 U.S.C. § 2255, ¶ 6(3), the recognition of a new right by the Supreme Court and the application of that right retroactively are inseparable. Paragraph 6(3) of section 2255 allows a petition to be filed after the expiration of the one year time limit measured from the date the judgment became final, but only if two conditions apply. First, the petition must be filed within a year of "the date on which the right asserted was initially recognized by the Supreme Court. . . ." Second, that right must also be "made retroactively applicable to cases on collateral review." 28 U.S.C. § 2255, ¶ (3). In other words, "if th[e] [Supreme] Court decides a case recognizing a new right, a federal prisoner seeking to assert that right will have one year from th[e] Court's decision within which to file his § 2255 motion. He may take advantage of the date in the first clause of ¶ 6(3) only if the conditions in the second clause are met." Dodd v. United States, ___ U.S. ___, 125 S. Ct. 2478, 2482, 162 L. Ed. 2d 343 (2005).
The Petitioner's interpretation ignores the second condition concerning the requirement that the decision be applied retroactively to cases on collateral review. Such a construction misconstrues the plain meaning of the statute, and in practice would permit prisoners to file habeas petitions within a year of almost every Supreme Court decision concerning criminal law. The Court doubts Congress intended such a consequence when it enacted the AEDPA.
Every circuit court to address collateral challenges under Booker, including the Second Circuit, has decided that the case did not establish a "watershed" rule so as to warrant retroactive application. See In re Zambrano, 433 F.3d 886 (D.C.Cir.2006); In re Elwood, 408 F.3d 211, 213 (5th Cir. 2005); Guzman v. United States, 404 F.3d 139, 144 (2d Cir.2005); In re Olopade, 403 F.3d 159, 164 (3d Cir.2005); United States v. Fowler, 133 Fed.Appx. 922, 922-23 (4th Cir.2005); Varela v. United States, 400 F.3d 864, 868 (11th Cir.2005); United States v. Price, 400 F.3d 844, 845 (10th *215 Cir.2005); Humphress v. United States, 398 F.3d 855, 860 (6th Cir.2005); McReynolds v. United States, 397 F.3d 479, 481 (7th Cir.2005). This procedural barrier is fatal to the Petitioner's attempt at using Booker to revive his late-filed habeas petition.
Assuming Booker was applied retroactively, the Petitioner raises an interesting issue regarding whether a finding of timeliness on that claim requires the Court to consider all of the claims in the petition without independently analyzing each one for timeliness. Several courts have held, and a learned treatise argues, that a strict reading of 28 U.S.C. § 2241, the statute of limitations for prisoners in state custody that mirrors the statute of limitations in section 2255 petitions, requires a court to consider all the claims in a petition once one of the claims is considered timely under the statute. Walker v. Crosby, 341 F.3d 1240 (11th Cir.2003); Oquendo v. Crosby, No. 3:03CV743, 2005 WL 2353890, *2 (M.D.Fla. Sept. 26, 2005); Sykosky v. Crosby, No. 3:04CV416, 2005 WL 1334600, at *2, fn. 2 (N.D.Fla. June 6, 2005); Daniels v. McAdory, No. 04 C 888, 2004 WL 906013, at *3 (N.D.Ill. Apr. 27, 2004); Shuckra v. Armstrong, No. 3:02CV583, 2003 WL 1562097, at *4 (D.Conn. March 21, 2003); 1 Randy Hertz & James S. Liebman, Federal Habeas Corpus Practice and Procedure § 5.2b at 266-67 (4th ed.2001).
In Walker, the Eleventh Circuit held that a single limitation period applies to the entire habeas application so long as one claim fits into one of the four subcategories delineated in the AEDPA statute of limitations. "The statute provides a single statute of limitations, with a single filing date, to be applied to the application as a whole." Walker, 341 F.3d at 1243. The court rested its conclusion on the text and structure of the AEDPA. "The statute directs the court to look at whether the `application' is timely, not whether the individual `claims' within the application are timely." Id. The court also relied on the Supreme Court's decision in Artuz v. Bennett, 531 U.S. 4, 121 S. Ct. 361, 148 L. Ed. 2d 213 (2000), which held that a state prisoner's habeas petition may be considered "properly filed," even though it contains claims that are procedurally barred.
However, in Fielder v. Varner, 379 F.3d 113, 118 (3d Cir.2004), the Third Circuit thoroughly analyzed the issue and disagreed with Walker on several grounds. First, the court found that reading the statute in that manner subjects the interpretation of the statute as a whole to internal inconsistencies. The statute states that the limitation period should begin to run "from the latest of four possible triggers. In the case of multiple claims, the statute is silent as to which trigger the court should adopt, the earlier or the later. Nothing in the statute requires the court to automatically pick the later date over the earlier date. In petitions with multiple claims, Walker instructs the court to pick the later date, even though the statute is silent on the issue. On the other hand, if each claim is analyzed individually for timeliness, there is no need for the court to blindly pick the earlier or later date. Id. at 118-19.
Second, the Third Circuit criticized the Walker interpretation as contrary to common sense. "In both civil and criminal cases, statutes of limitations are applied on a claim-by-claim or count-by-count basis. . . . [N]o one, we assume, would argue that, in a civil case with multiple federal claims, the statute of limitations must begin on the same date for every claim. Rather, each claim must be analyzed separately." Id. at 119.
Finally, the Third Circuit found that permitting late-filed claims to survive would produce "strange" results. "Specifically, *216 the Walker interpretation has the strange effect of permitting a late-accruing federal habeas claim to open the door for the assertion of other claims that had become time-barred years earlier. . . . Neither Fielder nor the Walker Court has explained why Congress might have wanted to produce such results, and we cannot think of any plausible explanation." Id. at 120.
The Court agrees with the Third Circuit's interpretation of the statute of limitations and declines to adopt the Petitioner's position that his late-filed ineffective assistance of counsel claim can be considered because it is paired with a claim that is "newly recognized" by the Supreme Court. As such, both of Petitioner's claims in this petition are untimely.
Khan also argues that the Court should consider the petition timely under equitable tolling principles. Equitable tolling is only applicable in "rare and exceptional circumstances." Walker v. Jastremski, 430 F.3d 560, 564 (2d Cir.2005); Doe v. Menefee, 391 F.3d 147, 159 (2d Cir.2004); Smith v. McGinnis, 208 F.3d 13, 17 (2d Cir.2000). The one-year statute of limitations of the AEDPA may be equitably tolled where "extraordinary or exceptional circumstances" prevented the petition from being filed in a timely manner, but only if the prisoner "acted with reasonable diligence throughout the period he seeks to toll." McGinnis, 208 F.3d at 17. The burden is on the petitioner to show that the Court should toll the statute of limitations. See Hizbullahankhamon v. Walker, 255 F.3d 65, 75 (2d Cir.2001). Examples of instances where courts have tolled the statute include "egregious attorney misconduct, the intentional confiscation of legal papers by prison authorities, serious physical or mental illness which prevents the petitioner from filing, or where a petitioner, through no fault of his own, first learns of the outcome of a final appeal after the time for seeking habeas has expired." Garcia v. Portuondo, 334 F. Supp. 2d 446, 458-59 (S.D.N.Y.2004) (footnotes and quotations omitted).
Khan states that he was under the false assumption that he had 90 days from the date his judgment of conviction was entered to file a petition for certiorari with the Supreme Court. In support, Khan notes that in United States v. Fanfan, No. 03-47, 2004 WL 1723114 (D.Me. June 28, 2004), the Supreme Court granted certiorari before the First Circuit Court of Appeals decided the appeal from the district court decision. See United States v. Fanfan, 542 U.S. 956, 125 S. Ct. 12, 159 L. Ed. 2d 838 (2004) (granting certiorari). The Petitioner's reliance on Fanfan is misplaced. In that case a valid notice of appeal was filed prior to the expiration of the ten day limit to timely seek review of the conviction. See Fed. R.App. P. 4(b)(1). Here, the Petitioner never filed a notice of appeal. As a consequence, the judgment of conviction became final after ten days, foreclosing any possibility of a writ of certiorari, and beginning the tolling of the one-year habeas statute of limitations.
Although the petitioner claims that he "reasonably believed" that he had 90 days from the time his judgment of conviction was entered, ignorance of the law is not a sufficiently extraordinary or exceptional circumstances to warrant equitable tolling of the statute of limitations. See Ayala v. Fischer, No. 04 Civ. 3404, 2004 WL 2435523, at *1, 2004 U.S. Dist. LEXIS 21955, at *1 (S.D.N.Y. Nov. 2, 2004). "Neither a plaintiff's unfamiliarity with the legal process nor his lack of representation during the applicable filing period merits equitable tolling." Turner v. Johnson, 177 F.3d 390, 391-92 (5th Cir.1999); see also Valverde v. Stinson, 224 F.3d 129, 133 (2d Cir.2000); Huang v. United States, No. 03-3755, 2003 WL 22272584, at *2, 2003 *217 U.S. Dist. LEXIS 17409, at *6-7 (S.D.N.Y. Oct. 2, 2003);. Accordingly, the Court finds that the Petitioner's claims are time-barred under the AEDPA.
B. Waiver of Right to Challenge Sentence
Khan faces another procedural hurdle before this Court can consider the merits of his habeas petition. Khan's plea agreement contained a waiver of his right to appeal or otherwise challenge his sentence if he received a sentence of 37 months or less. "It is by now well established that a knowing and voluntary waiver of the right to appeal is generally enforceable." United States v. Hernandez, 242 F.3d 110, 113 (2d Cir.2001); see also United States v. Haynes, 412 F.3d 37, 39 (2d Cir.2005); United States v. Morgan, 406 F.3d 135, 137 (2d Cir.2005); United States v. Garcia, 166 F.3d 519, 521 (2d Cir.1999); United States v. Chen, 127 F.3d 286, 289 (2d Cir.1997); United States v. Yemitan, 70 F.3d 746, 747 (2d Cir.1995); United States v. Salcido-Contreras, 990 F.2d 51, 53 (2d Cir.1993) ("In no circumstances . . . may a defendant, who has secured the benefits of a plea agreement and knowingly and voluntarily waived the right to appeal a certain sentence, then appeal the merits of a sentence conforming to the agreement.").
A defendant may also waive his right to bring a petition pursuant to section 2255. See Frederick v. Warden, Lewisburg Corr. Facility, 308 F.3d 192, 195-96 (2d Cir.2002); Garcia-Santos v. United States, 273 F.3d 506, 508-09 (2d Cir.2001); Muniz v. United States, 360 F. Supp. 2d 574, 577 (S.D.N.Y.2005). Further, courts have held that a section 2255 motion to vacate is considered a way to "otherwise challenge" a conviction. See United States v. Pipitone, 67 F.3d 34, 39 (2d Cir.1995) ("Whatever linguistic distinction may be made between an `appeal' and a § 2255 petition, we are loathe to countenance so obvious a circumvention of a plea agreement"); Diaz v. United States, 02-cv-3036 (RR), 2002 WL 31545835, at *1-2, 2002 U.S. Dist. LEXIS 19916, at *3-4 (E.D.N.Y. Sept. 27, 2002); Yoon v. United States, No. 99-CV-5661 (RR), 2000 WL 516403, at *1, 2000 U.S. Dist. LEXIS 5176, at *2 (E.D.N.Y. March 17, 2000).
The Second Circuit has recognized a very narrow set of exceptions to the general rule on the enforceability of waivers, such as where: (1) the waiver was not made knowingly, voluntarily, and competently; (2) the sentence imposed was based on constitutionally impermissible factors; (3) the government breached the plea agreement; or (4) the court failed to enunciate any rationale for the sentence. See United States v. Gomez-Perez, 215 F.3d 315, 319 (2d Cir.2000).
Applying these principles, the Petitioner's express waiver of the right to "file an appeal or otherwise challenge the conviction or sentence in the event that the Court imposes a term of imprisonment of 37 months or below" appears to preclude his section 2255 challenge to the 37 month sentence he received. There is no reason to conclude that Khan's waiver was anything but knowing and voluntary. The Petitioner was instructed at the plea hearing by the Magistrate Judge as to the consequences of such provision. In addition, the Petitioner does not argue that the sentence was based on constitutionally impermissible factors. See United States v. Djelevic, 161 F.3d 104, 107 (2d Cir.1998) (holding that a section 2255 petitioner who has waived his right to collaterally attack his sentence may not "dress up" his sentence challenges as constitutional violations); Santana v. United States, No. 04 Civ. 1111(SAS), 2005 WL 180932, at *3 (S.D.N.Y. Jan. 26, 2005). Further, the Court clearly explained the rationale for *218 its sentence. Thus, there is no basis for permitting the Petitioner to circumvent the express waiver of the right to "otherwise challenge the conviction or sentence" in the Plea Agreement.
C. Ineffective Assistance of Counsel Claim
Khan argues that his counsel, David Touger, Esq., was ineffective because he did not challenge the recommendation in the PSR to add a four point enhancement for his role in the offense under U.S.S.G. § 3B1.1(a). In order to prevail on an ineffective assistance of counsel claim, a petitioner must establish that his counsel performed deficiently and that the deficiency caused actual prejudice to his defense. Strickland v. Washington, 466 U.S. 668, 687, 104 S. Ct. 2052, 80 L. Ed. 2d 674 (1984); Dunham v. Travis, 313 F.3d 724, 730 (2d Cir.2002). Under the first prong, the court must "indulge a strong presumption that counsel's conduct falls within the range of reasonable professional assistance." Strickland, 466 U.S. at 689, 104 S. Ct. 2052, 80 L. Ed. 2d 674. The petitioner may prove the deficiency prong by establishing that his attorney's conduct fell "outside the wide range of professionally competent assistance. . . ." Id. at 690, 466 U.S. 668, 104 S. Ct. 2052, 80 L. Ed. 2d 674. He may establish prejudice by showing a "reasonable probability" exists that, but for the deficiency, "the result of the proceeding would have been different." Id. at 694, 466 U.S. 668, 104 S. Ct. 2052, 80 L. Ed. 2d 674. "A reasonable probability is one sufficient to undermine confidence in the outcome of the trial or appeal." Dunham, 313 F.3d at 730 (citing Strickland, 466 U.S. at 694, 104 S. Ct. 2052, 80 L. Ed. 2d 674). Also, the Second Circuit has instructed that a reviewing court should be "highly deferential" to counsel's performance, because "`it is all too easy for a " court, examining counsel's defense after it has proved unsuccessful, to conclude that a particular act or omission of counsel was unreasonable.'" Pratt v. Greiner, 306 F.3d 1190, 1196 (2d Cir.2002) (quoting Strickland, 466 U.S. at 689, 104 S. Ct. 2052, 80 L. Ed. 2d 674).
Section 3B1.1(a) of the Guidelines states that "[i]f the defendant was an organizer or leader of a criminal activity that involved five or more participants or was otherwise extensive . . ." the offense level should be increased by four levels to reflect his aggravating role in the offense. U.S.S.G. § 3B1.1(a); see, e.g., United States v. Persico, 164 F.3d 796, 804 (2d Cir.1999).
Here, the PSR specifically mentions four participants that worked for Khan, Imran Qurashi, Mohammad Malik Saeed, Mohsin Atta, and Abdul Rehman. In addition, the PSR states that "Khan asked various known and unknown individuals to receive and negotiate refund checks." This record sufficiently supports the upward sentencing adjustment for a supervisory role. It is reasonable to assume that counsel did not object to the role enhancement because, given the statements contained in the PSR, such an objection would have been futile.
Further, counsel's overall representation of the Petitioner rebuts the claim of ineffective representation. See Kimmelman v. Morrison, 477 U.S. 365, 386, 106 S. Ct. 2574, 91 L. Ed. 2d 305 (1986). As evidenced by the objections made during the sentencing proceedings, when defense counsel believed he could support challenges to the PSR, he made them. Counsel objected to the loss calculation and successfully objected to the PSR's recommendation that the Court impose an enhancement for sophisticated means.
For all these reasons, Khan's Booker and ineffective assistance of counsel claim must be rejected as both procedurally barred and without merit.
*219 III. CONCLUSION
For the reasons stated above, Khan's motion to vacate, set aside, or correct his sentence pursuant to 28 U.S.C. § 2255 is DENIED. Pursuant to Rule 22(b) of the Federal Rules of Appellate Procedure and 28 U.S.C. § 2253(c)(2), a certificate of appealability is DENIED, as the Petitioner fails to make a substantial showing of a denial of a constitutional right. Miller-El v. Cockrell, 537 U.S. 322, 336, 123 S. Ct. 1029, 1039, 154 L. Ed. 2d 931 (2003); Lucidore v. New York State Div. of Parole, 209 F.3d 107, 112 (2d Cir.2000).
The Clerk of the Court is directed to close this case.
SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2449737/ | 18 F. Supp. 2d 775 (1998)
J.L. SPOONS, et al., Plaintiffs,
v.
CITY OF BRUNSWICK, et al., Defendants.
No. 1:97CV3269.
United States District Court, N.D. Ohio, Eastern Division.
June 1, 1998.
*776 J. Michael Murray, Steven D. Shafron, Berkman, Gordon, Murray, Palda & DeVan, Cleveland, OH, for J.L. Spoons, Inc. and Centre Plaza, Inc.
Timothy T. Reid, Reid, Berry & Stanard, Cleveland, OH, for City of Brunswick, Patrick Beyer, Joseph McDermott, Tadeusz Kiernozek, Duane Kuehn, Patrolman Weinhardt, Patrolman Steward and Gregory Rightnour.
Chester T. Lyman, Jr., Office of Atty. Gen., Columbus, OH, for Ohio Department of Public Safety, Mitchell J. Brown and Ray Robinson.
MEMORANDUM AND ORDER
ALDRICH, District Judge.
The plaintiffs, J.L. Spoons, Inc. and Centre Plaza, Inc., bring this 42 U.S.C. § 1983 action challenging the constitutionality of City of Brunswick Sexually Oriented Business Ordinance 150-96, which became effective December 25, 1996. The plaintiffs previously sought a preliminary injunction to prevent the City of Brunswick from enforcing the ordinance so as to prevent the opening and operation of Tiffany's Cabaret, a nightclub which features female topless dancers. On February 23, 25 and 26, 1998, this Court held *777 a preliminary injunction hearing. On March 16, 1998, this Court granted the plaintiffs' motion for a preliminary injunction. The parties have since filed post-hearing briefs informing the Court of their positions regarding any remaining claims, as well as their opinions as to whether any additional proceedings are necessary to reach a final decision on the merits. Based on the testimony and evidence presented at the preliminary injunction hearing and the legal arguments provided by counsel, this Court finds that it is able to reach a final decision on the merits as to most sections of the Ordinance without further proceedings.[1]
I. Background
Beginning in 1987, J.L. Spoons, Inc. operated a nightclub named "Cheeters" located at 1245 Pearl Road in Brunswick, Ohio. On August 11, 1995, the building housing "Cheeters" was destroyed by fire. According to the testimony of Joseph Strazzanti, an owner of J.L. Spoons, Cheeters was divided into two levels. On the upper level, Cheeters' patrons were presented with dance performances by women in bikinis. On the lower level, Cheeters presented non-obscene dance performances by women who were topless and wearing G-strings. The City of Brunswick denies having any knowledge of topless dancing at Cheeters.
After the fire, J.L. Spoons and Centre Plaza, Inc., the owner of the property on which J.L. Spoons' business is located, planned to quickly rebuild and resume J.L. Spoons' business. An architect was engaged to render drawings and a site plan of the new facility. Upon completion, the site plan was submitted to the City of Brunswick Planning Commission in September of 1995. The site plan did not indicate that the facility would be used as a nightclub featuring topless dancers. The City approved the final site plan, subject to some minor revisions, at its February 1996 meeting.
According to Strazzanti's testimony, sometime after the site plan was approved, Centre Plaza entered into a construction contract, obtained a loan to finance the construction, and entered into a lease with J.L. Spoons, its anchor tenant for the new building. J.L. Spoons intends to do business as Tiffany's Cabaret, similar to the establishment of the same name located in the Flats in Cleveland. Tiffany's Cabaret is a full service restaurant and bar that features topless female dancers in G-strings.
On November 25, 1996, the City of Brunswick enacted Ordinance 150-96, which requires the licensing and regulation of "sexually oriented businesses," namely "adult cabarets." Tiffany's Cabaret falls under the ordinance's definition of "adult cabaret." If enforced, the Brunswick Ordinance would prevent Tiffany's Cabaret from opening at its current location.
The stated purpose of the Brunswick Ordinance is "to regulate sexually oriented businesses in order to promote the health, safety, morals, and general welfare of the citizens of the City, and to establish reasonable and uniform regulations to prevent the deleterious location and concentration of sexually oriented business within the City." Brunswick Ordinance 150-96 § 1. The Ordinance is generally divided into three sections: (1) provisions governing the licensing of sexually oriented business and their employees (§§ 4-11); (2) provisions governing the location of sexually oriented businesses (§ 12); and (3) provisions governing the substantive operation of such businesses (§§ 13-15).
II. Brunswick Ordinance 150-96
A. Licensing Scheme
Federal courts, including the Supreme Court of the United States, have held that topless dancing of the kind sought to be performed in the present case is a form of expression within the outer perimeters of the First Amendment.[2]See, e.g., Barnes v. Glen Theatre, Inc., 501 U.S. 560, 565-566, 111 *778 S.Ct. 2456, 115 L. Ed. 2d 504 (1991); Schad v. Borough of Mt. Ephraim, 452 U.S. 61, 66, 101 S. Ct. 2176, 68 L. Ed. 2d 671 (1981). Such expression may be regulated through licensing laws, but those laws must contain certain procedural safeguards to ensure that First Amendment rights will not be violated. See FW/PBS v. City of Dallas, 493 U.S. 215, 110 S. Ct. 596, 107 L. Ed. 2d 603 (1990); Freedman v. Maryland, 380 U.S. 51, 85 S. Ct. 734, 13 L. Ed. 2d 649 (1965).
The plaintiffs in this case have argued, among other things, that the licensing scheme contained in Brunswick Ordinance 150-96 constitutes an impermissible prior restraint on protected expression because the scheme fails to provide adequate procedural safeguards. This claim is properly characterized as a facial challenge to the licensing scheme. Such facial challenges are allowed when a "licensing scheme vests unbridled discretion in the decisionmaker" as to whether to allow or deny expressive activity. FW/PBS, 493 U.S. at 223, 110 S. Ct. 596; see also City of Lakewood v. Plain Dealer Publishing Co., 486 U.S. 750, 755-56, 108 S. Ct. 2138, 100 L. Ed. 2d 771 (1988). "Failure to place time limitations on a decision maker is a form of unbridled discretion." East Brooks Books, Inc. v. City of Memphis, 48 F.3d 220, 224 (6th Cir.) (relying on Freedman, 380 U.S. at 56-57, 85 S. Ct. 734), cert. denied, 516 U.S. 909, 116 S. Ct. 277, 133 L. Ed. 2d 198 (1995). Therefore, a facial challenge is appropriate when a licensing scheme creates a risk of delay "such that `every application of the statute create[s] an impermissible risk of suppression of ideas.'" FW/PBS, 493 U.S. at 224, 110 S. Ct. 596 (quoting City Council of Los Angeles v. Taxpayers for Vincent, 466 U.S. 789, 798 n. 15, 104 S. Ct. 2118, 80 L. Ed. 2d 772 (1984)).
In FW/PBS v. City of Dallas, the United States Supreme Court, applying the majority of the procedurals protections outlined in Freedman v. Maryland, 380 U.S. 51, 85 S. Ct. 734, 13 L. Ed. 2d 649 (1965), held that a Dallas ordinance regulating sexually oriented businesses was invalid. The Supreme Court explained that "a licensing scheme creates the possibility that constitutionally protected speech will be suppressed where there are inadequate procedural safeguards to ensure prompt issuance of the license." FW/PBS, 493 U.S. at 226, 110 S. Ct. 596. Specifically, the Supreme Court held that a licensing scheme must ensure that (1) the licensor must make the decision whether to issue the requested license within a specified and reasonable time during which the status quo is maintained; and (2) prompt judicial review must be available in the event the license is denied. Id. at 228, 110 S. Ct. 596.
The Brunswick Ordinance fails to provide either of these mandated procedural safeguards. First, the ordinance does not ensure that a decision regarding a license application will be made within a specified and reasonable time during which the status quo is maintained. Section 5(C) of the Ordinance does provide that "[w]ithin thirty days after receipt of a completed sexually oriented business application the City shall approve or deny the issuance of a license to an applicant." However, § 5(C)(6) provides that a license will not issue until and unless the health department, fire department and building official have approved the sexually oriented business as being in compliance with applicable laws and ordinances. Although § 5(E) requires that inspections by the fire department and building official be completed within 20 days of the receipt of the application, no time limit is placed on the health department to complete its inspection. In FW/PBS, the Supreme Court rejected a similarly constructed Dallas ordinance because it failed to provide for an effective limitation on the time within which the licensor's decision had to be made. Id. at 227, 110 S. Ct. 596. Like the Brunswick ordinance, the ordinance in FW/PBS did not set a time limit within which mandatory inspections had to be completed. Id. Although the City of Brunswick presented some testimony that the required health inspections would be completed by the Medina County Health Department within a few days of a request for a health inspection, there is no guarantee that such would be the case.
Second, the Ordinance does not provide for prompt judicial review in the event the license is denied. Instead, § 10(D) of the ordinance provides: "After denial of an application, *779 or denial of a renewal of an application, or suspension or revocation of any license, the applicant or licensee may seek prompt judicial review of such administrative action in any court of competent jurisdiction. The administrative action shall be promptly reviewed by the court." In effect, the ordinance requires a denied applicant to file a civil lawsuit pursuant to Chapter 2506 of the Ohio Revised Code in order to gain judicial review.
Three federal courts, including this Court, in the Northern District of Ohio have ruled that the procedures provided for in Chapter 2506 do not provide a constitutionally adequate avenue of prompt judicial review with respect to a locality's decision to restrain protected expressive activity. See Cleveland's P.M. on the Boardwalk v. City of Cleveland, slip op., No. 1:92CV1412 (N.D.Ohio Aug. 12, 1992) (White, J.), vacated pursuant to settlement; Cascade News, Inc., et al. v. City of Cleveland, et al., slip op., No. 1:92CV0758 (N.D.Ohio June 15, 1992) (Aldrich, J.); Avenue Grille, Inc. v. Rootstown Township, et al., slip op., No. 5:94CV0067 (N.D.Ohio April 19, 1995) (O'Malley, J.). Plainly speaking, the process a denied applicant must go through before receiving a judicial decision on the merits simply takes too long. For example, § 2506.02 allows the officer or body from which the appeal is taken up to forty days to file a transcript of "all the original papers, testimony, and evidence offered, heard, and taken into consideration in issuing the final order, adjudication, or decision appealed from." Furthermore, Chapter 2506 does not require a court to rule on the merits of an appeal within a specified period of time; rather, the appeal proceeds as any other civil action proceeds. Cleveland's P.M. at 5. Finally, the ability of the applicant appealing the denial of a license to obtain a temporary restraining order or preliminary injunction pending a final outcome of the lawsuit pursuant to Rule 65 of the Ohio Rules of Civil Procedure does not alter the conclusion that the Brunswick Ordinance does not provide an avenue for prompt judicial review. Cascade News at 14.
In summary, the Brunswick Ordinance simply does not provide for an effective limit on the time within which the licensor's decision must be made, nor does it provide an adequate avenue for prompt judicial review. The failure to provide these procedural safeguards against the suppression of protected expression renders the Ordinance's licensing scheme unconstitutional against those businesses, including Tiffany's Cabaret, which are engaged in or would like to be engaged in First Amendment protected activity.
B. Location Restrictions
In addition to ruling on the constitutionality of the Ordinance's licensing scheme, the parties also request that this Court determine whether the Ordinance's location restrictions in § 12 are valid. Section 12 makes it a first degree misdemeanor for a person to operate a sexually oriented business in a location not permitted by § 12. The defendants argue that § 12's location restrictions are content-neutral and aimed at preventing the adverse secondary effects resulting from the existence and operation of sexually oriented businesses. The defendants further argue that § 12's location restrictions allow for sufficient alternative avenues of communication to pass muster under the First and Fourteenth Amendments in accordance with the holding in City of Renton v. Playtime Theatres, Inc., 475 U.S. 41, 106 S. Ct. 925, 89 L. Ed. 2d 29 (1986). The plaintiffs, of course, argue the reverse.
Even if this Court assumed that the Ordinance is aimed at preventing adverse secondary effects and not at prohibiting certain protected expression, the Court finds it cannot determine whether sufficient alternative avenues of communication exist as required by Renton because § 12 does not provide sufficient information to accurately determine where sexually oriented businesses could locate. In other words, § 12 is impermissibly vague.
As the Supreme Court of the United States held in Grayned v. City of Rockford, 408 U.S. 104, 108, 92 S. Ct. 2294, 33 L. Ed. 2d 222 (1972):
It is a basic principle of due process that an enactment is void for vagueness if its prohibitions are not clearly defined. Vague laws offend several important values. *780 First, ... we insist that laws give the person of ordinary intelligence a reasonable opportunity to know what it prohibited, so that he may act accordingly.... Second, if arbitrary and discriminatory enforcement is to be prevented, laws must provide explicit standards for those who apply them. A vague law impermissibly delegates basic policy matters to policemen, judges, and juries for resolution on an ad hoc and subjective basis, with the attendant dangers of arbitrary and discriminatory application. Third, but related, where a vague statute "abut(s) upon sensitive areas of basic First Amendment freedoms," it "operates to inhibit the exercise of (those) freedoms." Uncertain meanings inevitably lead citizens to "steer far wider of the unlawful zone" ... than if the "boundaries of the forbidden areas were clearly marked."
Id. at 109, 92 S. Ct. 2294 (internal citations omitted). Based upon the standard for vagueness established by the Supreme Court, § 12 is clearly unconstitutionally vague.
Section 12 fails to define or explain key terms necessary to determining an appropriate location for a sexually oriented business. First, it is a criminal offense to operate a sexually oriented business, and a license will not be issued, "in any zoning district where entertainment is permitted as defined and described in the Brunswick Zoning Code." Brunswick Ordinance § 12(A). However, "entertainment" is not defined anywhere in the current Brunswick zoning code nor in the code in effect at the time the Ordinance was enacted. Rather, the City's Chief Building official, Tex Combs, testified that he has the discretion to decide whether a particular use falls within the definition of "entertainment," a decision he would make on a case-by-case basis. Transcript I at 131.[3]
Second, § 12(B)(2) of the Ordinance prohibits an adult use from locating within 1,000 feet of a "public or private educational facility." Those terms are undefined in the Ordinance. Presumably because the Ordinance provided no explicit standards, Mr. Combs testified that it was within his discretion to determine what constituted a "public or private educational facility." Transcript I at 132-133. The breadth of his discretion, and the potential for diverse interpretations as to this provision's application, is revealed by Mr. Combs' testimony that, in his opinion, a karate instruction school would constitute a "public or private educational facility." Transcript I at 133.
Third, § 12(C)(4) requires an adult cabaret to be more than 500 feet from "any entertainment business which is oriented primarily toward children or family entertainment." Brunswick City Manager, Robert Trimble, acknowledged that these terms were undefined and stated that he had the discretion to determine whether or not the adult cabaret satisfied this distance requirement. Transcript I at 182. Brunswick City Engineer, Robert Weikel, forthrightly stated, "I do not know exactly know how to interpret [§ 12(C)(4) ] myself...." Transcript II at 357.
In addition to failing to define key terms, this Court finds the meaning of an entire subsection, § 12(I) undecipherable. Likewise, Brunswick officials who were asked to explain that provision could not do so in a defensible manner. Transcript I at 137-138, 185-186. Subsection 12(I) reads as follows:
A sexually oriented business lawfully operating is a permitted use by the location, subsequent to the grant or renewal of the sexually oriented business license, of a use listed in subsection B of this Section within 2,000 feet of the sexually oriented business. This provision applies only to the renewal of a valid license, and does not apply when an application for a license is submitted after a license has expired or been revoked.[4]
Finally, § 12 of the Ordinance fails to adequately describe how the distance between *781 an adult use and the uses set out in § 12(C) are to be measured.[5] Specifically, the Ordinance fails to specify whether the distances should be measured from the property line of the adult use or from the building line of the adult use to a use listed in § 12(C). Section 12(C)(4) also fails to specify whether the appropriate measuring mark is the property line or the building line of an entertainment business oriented primarily towards children or family entertainment.
This Court must determine the constitutionality of § 12 as it stands.[6] The Court finds that § 12 contains several undefined key terms, provides no explanation as to the appropriate measuring procedure in certain subsections and, with regard to one subsection, is entirely undecipherable. These flaws in the law not only prevent this Court from making a Renton determination; they also render § 12 void for vagueness because persons of ordinary intelligence must guess at its meaning and could differ as to its application.
In light of this Court's holding that the licensing scheme in the Brunswick Ordinance is constitutionally infirm because it lacks adequate procedural safeguards and that the location restrictions are void for vagueness, the Court finds it unnecessary to address the issue of whether the type of entertainment provided by Tiffany's Cabaret is a grandfathered use.
C. Severance of Licensing Scheme and Location Restrictions Provisions
Brunswick Ordinance 150-96 contains a severability provision which reads: "If any section, subsection, or clause of this ordinance shall be deemed to be unconstitutional or otherwise invalid, the validity of the remaining sections, subsections, and clauses shall not be affected." Through their pleadings, the defendants are, in effect, requesting this Court to sever those provisions of the Ordinance which this Court deems unconstitutional from any remaining provisions of the Ordinance. Given this Court's finding that the Ordinance's licensing scheme and location restrictions are unconstitutional, the only remaining provisions are those governing the substantive operation of sexually oriented businesses (§§ 13-15), which must be read in conjunction with the preamble and the purpose and findings section (§ 1), the definitions section (§ 2) and the classification section (§ 3).
The United States Supreme Court has held that when a state statute is at issue, severability is a matter of state law. Leavitt v. Jane L., 518 U.S. 137, 139, 116 S. Ct. 2068, 135 L. Ed. 2d 443 (1996); see also Women's Medical Professional Corp. v. Voinovich, 130 F.3d 187, 202 (6th Cir.1997). Ohio courts ask the following three questions to determine whether invalid statutory provisions are properly severed from valid provisions of a statute:
(1) Are the constitutional and unconstitutional parts capable of separation so that each may read and may stand by itself?
(2) Is the unconstitutional part so connected with the general scope of the whole as to make it impossible to give effect to the *782 apparent intention of the Legislature if the clause or part is stricken out? (3) Is the insertion of words or terms necessary in order to separate the constitutional part from the unconstitutional part, and to give effect to the former only?
State ex rel. Maurer v. Sheward, 71 Ohio St. 3d 513, 644 N.E.2d 369, 377 (Ohio1994) (quoting Geiger v. Geiger, 117 Ohio St. 451, 160 N.E. 28, 33 (Ohio1927)); see Women's Medical Professional Corp., 130 F.3d at 202 (applying the Geiger three-part test to determine severability of state statute).
The substantive operation provisions (§§ 13-15) of Brunswick Ordinance 150-96 may be read separately from the unconstitutional licensing and location provisions without the insertion of any words or terms. Additionally, the substantive operation provisions, standing alone, arguably further Brunswick's stated intent "to regulate sexually oriented businesses in order to promote the health, safety, morals, and general welfare of the citizens of [Brunswick]". Brunswick Ordinance 150-96 § 1. Thus, the Court finds that the unconstitutional licensing and location provisions of Brunswick Ordinance 150-96 are properly severed from the remainder of the Ordinance.[7]
III. Conclusion
For the aforementioned reasons, this Court finds and orders the following:
1) the licensing scheme provisions (§§ 4-11) and the location restrictions provision (§ 12) of Brunswick Ordinance 150-96 are unconstitutional, and the City of Brunswick, its officers, agents, and servants are permanently enjoined from enforcing said provisions of Brunswick Ordinance 150-96 against the plaintiffs; and
2) the unconstitutional licensing provisions (§§ 4-11) and location restrictions provision (§ 12) of Brunswick Ordinance 150-96 are severed from the remaining provisions of Brunswick Ordinance 150-96.
A hearing is hereby scheduled for June 17, 1998 at 9:00 a.m., in Courtroom 34, Key Tower, 127 Public Square, Cleveland, Ohio, to determine the constitutionality of the remaining provisions of Brunswick Ordinance 150-96, which include the substantive operations provisions (§§ 13-15). The issue of whether the Brunswick Ordinance was passed contrary to Brunswick's Charter may also be addressed at this hearing.
IT IS SO ORDERED.
NOTES
[1] The plaintiffs' third amended complaint also attacks the constitutionality of Ohio Adm.Code § 4301:1-1-52 ("Rule 52") and Brunswick Cod. Ord. § 612.12. The constitutionality of these statutes will be addressed by the Court at a later date.
[2] The City of Brunswick does not contend that the form of dancing involved in this matter is legally obscene or otherwise unprotected by the First Amendment.
[3] Transcript I refers to the transcript of the proceedings on February 23, 1998. Transcript II refers to the transcript of the proceedings on February 25 and 26, 1998.
[4] Subsection B prohibits a sexually oriented business from operating within 1,000 feet of a "church, synagogue[,][sic] mosque, temple or building which is used primarily for religious worship and related religious activities" and a "public or private educational facility."
[5] Section 12(C) reads as follows:
A person commits a first degree misdemeanor if the person operates or causes to be operated a sexually oriented business within 500 feet of: (1) A boundary of a residential district as defined in the Codified Ordinances of the City of Brunswick;
(2) A public park or recreational area which has been designated for park or recreational activities including but not limited to a park, playground, nature trails, swimming pool, reservoir, athletic field, basketball or tennis courts, pedestrian/bicycle paths, wilderness areas, or other similar public land within the city which is under the control, operation, or management of the city park and recreation authorities;
(3) The property line of a lot devoted to a residential use as defined in the Codified Ordinances of the City of Brunswick;
(4) An entertainment business which is oriented primarily towards children or family entertainment.
[6] If this Court were allowed to add a limiting construction or supply definitions of key terms perhaps § 12 could withstand constitutional scrutiny. However, "the general federal rule is that courts do not rewrite statutes." Eubanks v. Wilkinson, 937 F.2d 1118, 1122 (6th Cir.1991). "Federal courts lack authority and power to give a limiting, narrowing construction to a state statute." Id. at 1125.
[7] At this point, this Court would like to clarify that it has only reached a decision as to the constitutionality of the licensing and location provisions of Brunswick Ordinance 150-96. The Court has not yet reached a decision as to the constitutionality or validity of any other provisions of Brunswick Ordinance 150-96. The purpose of severing the unconstitutional licensing and location provisions is to allow the parties to present their arguments and evidence regarding the validity or invalidity of the remaining provisions to the Court. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2449794/ | 18 F. Supp. 2d 622 (1998)
Randall L. McDERMENT, et al., Plaintiffs,
v.
Delmar BROWNING, et al., Defendants.
No. CIV.A. 2:97-0484.
United States District Court, S.D. West Virginia, Charleston Division.
September 21, 1998.
*623 Jennifer N. Taylor, Campbell & Turkaly, Charleston, WV, for Plaintiffs.
*624 Travis S. Haley, Timothy A. McNeeley, Pullin, Knopf, Fowler & Flanagan, Charleston, WV, for Defendants.
MEMORANDUM OPINION AND ORDER
HADEN, Chief Judge.
Pending is Defendants' motion for summary judgment. The Court GRANTS in part and DENIES in part Defendants' motion.
I. FACTUAL BACKGROUND
At the outset, the Court notes the expansive gulf separating the parties' respective accounts of what occurred on the night in question. Defendants paint Plaintiff Randall L. McDerment as an unruly, intoxicated and lawless suspect with a history of violent behavior who attempted to evade them and then resisted mightily his capture. McDerment and others suggest he was minding his business, traveling on his own property and intending simply to tell his grandmother of a death in the family, when he was unexpectedly knocked from his ATV and violently attacked by police with excessive physical force and pepper spray. Recognizing the divergence of the parties' accounts, the Court is commanded by Rule 56, Federal Rules of Civil Procedure, to credit McDerment's version of events.
McDerment is a 36 year old illiterate and disabled individual who suffers from hearing loss and other physical and mental impairments. Psychiatric testing was performed on McDerment in 1997. The examining psychiatrist, Dr. Sidney C. Lerfald, opined as follows:
The assessment is that of Mental Retardation with a history of also the possibility of a learning disability. There is also a possible history of alcohol abuse. He has bilateral decreased hearing.
It is clear that he is not competent to exercise judgment over his own monies or medical decisions. He is certainly in need of a committee to be appointed for him since this is a non-reversible condition.
Ex. 4, Pl.'s motion for summ. jgt. McDerment also has a speech impediment which appears to be related to his hearing loss.
McDerment has never held a job, receives Social Security Disability Benefits and lives with his parents. At approximately midnight on May 12, 1995, McDerment left his residence and got on his four wheel all-terrain vehicle (ATV). He intended to go to his grandmother's house to inform her of a death in the family. Her house is close enough to his own such that he could "throw a rock and hit her house from where" he lives. Dep. of Randall L. McDerment at 17. McDerment never got on the main road, traveling the entire distance on his father's property.
Sometime during the evening, and prior to leaving home, McDerment drank two large cans of beer. McDerment asserts that while traveling across the bottom of his father's property on the ATV, two police cars came onto the bottom and a third one stayed alongside the main road near the property. McDerment heard no sirens and saw no flashing lights. The police officers left their vehicles and began pursuing McDerment on foot. He asserts they never asked him to stop. When asked why he did not stop when he saw the officers, McDerment responded as follows:
Well, I didn't have no reason to stop for. I wasn't doing nothing, it was an open field on private property and I wasn't doing nothing so why should I stop for? I had no reason to stop, so I just kept on going. I told them to kiss my ass, that I was on my own property. That's what I said, "Hell, leave me alone."
Id. at 21.
One officer, hidden behind a bush, and another officer apparently caught up with McDerment. He was sprayed in the eyes with Capstun, a burning pepper spray. Through the use of the pepper spray and physical force, McDerment was knocked from the ATV. McDerment asserts the pepper spray left him temporarily without vision. Prior to knocking him off the ATV, the deputies taunted McDerment by saying "Come here, big boy" and "Come here you old chicken shit." Trans. of Magis. Ct. Trial at 132.
While he was struggling to regain his sight and flailing his arms, the officers told him to get on his knees. While difficult to discern, *625 at some point after this, McDerment was sprayed again with the Capstun. McDerment told the deputies he was unable to get to his knees, given pins placed in his knees from a previous accident. The officers then kicked McDerment's legs out from under him, mounted his back and pulled his arms up behind him. McDerment claims at least three and perhaps four officers were involved in his arrest.
At approximately this time, McDerment's cousin came to investigate the situation and McDerment asserts his cousin was told by a female officer, presumably Defendant Sergeant Phyllis Cook, with gun drawn, to "get his ass back down ... where he came from." Id. at 27. McDerment asked why he was being arrested but the deputies did not respond.
Prior to the chase, one of the deputies, Defendant David W. Sutphin, told a fellow deputy, Defendant Delmar Browning, that he was familiar with McDerment. Deputy Sutphin and another deputy had picked McDerment up on a mental hygiene petition on an earlier occasion. Deputy Sutphin apparently knew of McDerment's impairments and the location of his residence.
The officers handcuffed McDerment and took him to a 911 detachment in Madison, on the opposite end of the county. He was administered a Breathalyzer test at approximately 1:00 a.m. The deputies then fueled the vehicle, stopped again at the 911 detachment and proceeded to the South Central Regional Jail in Charleston. When they arrived at the jail, the doctor on duty stated McDerment was "in bad shape" and could not be processed. Id. at 31. The deputies then proceeded back toward Boone County with McDerment.
On this return trip, they stopped at a tavern and left McDerment in the car while they investigated another complaint. After that, they proceeded to Boone Memorial Hospital in Madison. McDerment complained to the officers that his eyes were burning and that his arm was hurting. He asked for a rag and water. The officers refused, telling him the pain would go away. At the hospital, McDerment was examined, found to have some swelling in his arm, and his arm was put in a sling. X-ray reports were negative. Nothing unusual was noted when McDerment's eyes were examined.
The deputies and McDerment then traveled back to the South Central Regional Jail and arrived at 5:00 a.m. McDerment was released from the jail following his arraignment approximately three hours later. Several hours after his release, McDerment's father took him to a medical center in Charleston. It was noted that McDerment had a bruised arm and leg and some difficulty with his eyes. McDerment also visited the doctor since that time for continued complaints about his arm, leg and eyes. He claims that his arm still gets numb and aches at times. He also complains of having to put water in his eyes in the morning some times to get them opened and suffers from headaches. He still, however, rides his ATV, hunts, fishes and works on cars in his spare time.
McDerment was charged with DUI, resisting arrest and other offenses arising out of the incident. He was acquitted of all charges and filed this action.
McDerment's three Count complaint alleges (1) Deputy Browning, Deputy Sutphin and Sergeant Cook used excessive force against him and were deliberately indifferent to his serious medical needs; (2) supervisory liability against Sheriff Jennings P. Miller and the Boone County Commission; and (3) supplemental claims against Defendants for (a) assault and battery, (b) intentional infliction of emotional distress, (c) invasion of privacy, (d) negligence and (e) gross negligence. Defendants seek dismissal under a variety of legal theories.
II. DISCUSSION
A. The Summary Judgment Standard
Our Court of Appeals has often stated the settled standard and shifting burdens governing the disposition of a motion for summary judgment:
Rule 56(c) requires that the district court enter judgment against a party who, "after adequate time for ... discovery fails to make a showing sufficient to establish *626 the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial," To prevail on a motion for summary judgment, the [movant] must demonstrate that: (1) there is no genuine issue as to any material fact; and (2) it is entitled to judgment as a matter of law. In determining whether a genuine issue of material fact has been raised, we must construe all inferences in favor of the [the nonmovant]. If, however, "the evidence is so one-sided that one party must prevail as a matter of law," we must affirm the grant of summary judgment in that party's favor. The [nonmovant] "cannot create a genuine issue of fact through mere speculation or the building of one inference upon another," To survive [the motion], the [nonmovant] may not rest on [his] pleadings, but must demonstrate that specific, material facts exist that give rise to a genuine issue. As the Anderson Court explained, the "mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff[.]"
Harleysville Mut. Ins. Co. v. Packer, 60 F.3d 1116, 1119-20 (4th Cir.1995) (citations omitted); Shaw v. Stroud, 13 F.3d 791, 798 (4th Cir.), cert. denied, 513 U.S. 813, 115 S. Ct. 67, 68, 130 L. Ed. 2d 24 (1994); see also Cabro Foods, Inc. v. Wells Fargo Armored Service Corp., 962 F. Supp. 75, 77 (S.D.W.Va.1997); Spradling v. Blackburn, 919 F. Supp. 969, 974 (S.D.W.Va.1996).
"At bottom, the district court must determine whether the party opposing the motion for summary judgment has presented genuinely disputed facts which remain to be tried. If not, the district court may resolve the legal questions between the parties as a matter of law and enter judgment accordingly." Thompson Everett, Inc. v. National Cable Advertising, L.P., 57 F.3d 1317, 1323 (4th Cir.1995).
B. Excessive Force and Qualified Immunity
The parties rightly agree McDerment's excessive force claim is properly analyzed under the Fourth Amendment. As recently as a few days ago, our Court of Appeals observed "`[A]ll claims that law enforcement officers have used excessive force deadly or not in the course of an arrest, investigatory stop, or other "seizure" of a free citizen should be analyzed under the Fourth Amendment and its "reasonableness" standard.'" Vathekan v. Prince George's County, 154 F.3d 173, 177 (4th Cir.1998)(quoting Graham v. Connor, 490 U.S. 386, 395, 109 S. Ct. 1865, 104 L. Ed. 2d 443 (1989)).
Vathekan is one of the Court of Appeals' most recent statements concerning qualified immunity in the context of an alleged Fourth Amendment violation. The Court thus tracks Vathekan's observations on existing law.
In considering a claim of qualified immunity, the first task is to identify the specific right allegedly violated. The Court makes this determination with an awareness of Jean v. Collins, 155 F.3d 701, 707 (4th Cir.1998), and its admonition "a court must identify the right infringed at a high level of particularity."
Here, McDerment's claim is based on his Fourth Amendment right to be free from excessive force in the course of a Fourth Amendment seizure (1) brought about by officers who used substantial physical force and pepper spray against him knowing he was mentally and physically handicapped; and (2) knowing he was on his family's property at all times both prior to and during the seizure.
Next, the Court must determine whether the right was clearly established at the time of the incident. The inquiry is whether the established contours of the right were sufficiently clear at the time so as to plainly demonstrate to reasonable officers their actions violated McDerment's rights. There need not be a prior case holding identical conduct to be unlawful. The absence of such a case may even, in some cases, buttress the assertion that a government official's actions transgressed clearly established law. See Better Government Bureau, Inc. v. McGraw, 904 F. Supp. 540, 552 n. 16 (S.D.W.Va.1995)("`the absence of [many] reported *627 case[s] with similar facts demonstrates nothing more than widespread compliance with well-recognized constitutional principles.'") (quoting Eberhardt v. O'Malley, 17 F.3d 1023, 1028 (7th Cir.1994)(Posner, J.)). Rather, the unlawfulness of the conduct must simply be manifest under existing authority.
In judging entitlement to qualified immunity, the Court of Appeals in Vathekan stated as follows:
[T]he question is "whether a reasonable officer could have believed that the use of force alleged was objectively reasonable in light of the circumstances." "The immunity test and the test on the merits both rely on an objective appraisal of the reasonableness of the force employed." The objective reasonableness of force should be assessed "in full context, with an eye toward the proportionality of the force in light of all the circumstances."
Vathekan, at 179 (citations omitted).
Taking the facts, as it must, in the light most favorable to McDerment, the Court need not labor with a lengthy discussion of the case law. Plaintiff's version of the events is that (1) he was known by law enforcement officials to be mentally and physically handicapped; (2) he traveled by ATV exclusively on his family's property for about a stone's throw to his grandmother's house; (3) he was accosted by law enforcement officials without probable cause on private property; (4) he was knocked from his ATV with both physical force and pepper spray; (5) he was sprayed again while flailing his arms and trying to regain his sight; (6) he was kicked to his knees despite telling officers he could not get to his knees because of prior injuries; and (7) he was mounted by two officers and each pulled an arm behind his back and handcuffed him. On these facts, there is positively no basis for a finding of probable cause that McDerment posed a serious threat of harm to himself or others. McDerment was not committing a crime and was not significantly resisting arrest.
Looking to the proportionality of the force used in light of all the circumstances, and again taking McDerment's version of events as true, the objective unreasonableness, and indeed the unlawfulness and excess, of the officers' conduct should have been apparent to a reasonable law enforcement official under the law existing at the time.
The Court again stresses, however, there is a major divergence of opinion concerning what happened on the night in question. Final resolution of the question of qualified immunity thus depends on a factual determination of what actually happened. Consequently, "`the issue is inappropriate for resolution by summary judgment.'" Id. at 179 (quoting Rainey v. Conerly, 973 F.2d 321, 324 (4th Cir.1992)). As stated in Vathekan, "`summary judgment on qualified immunity grounds is improper as long as there remains any material factual dispute regarding the actual conduct of the defendants.'" Id.
Accordingly, the Court DENIES the motion for summary judgment on the issue of qualified immunity filed by Deputy Browning, Deputy Sutphin and Sergeant Cook.
C. Deliberate Indifference to Serious Medical Needs
Although McDerment was not a pretrial detainee at times relevant to his inadequate medical treatment claim, he agrees with Defendants his claim is properly analyzed under the rubric announced in Browning v. Snead, 886 F. Supp. 547 (S.D.W.Va. 1995). While the analytical propriety of settling the issue on this basis is questionable, the Court will decide the question as briefed. Cf. Mertens v. Hewitt Associates, 508 U.S. 248, 254-55, 113 S. Ct. 2063, 124 L. Ed. 2d 161 (1993)("Thus, although we acknowledge the oddity of resolving a dispute over remedies where it is unclear that a remediable wrong has been alleged, we decide this case on the narrow battlefield the parties have chosen, and reserve decision of that antecedent question."). In Browning, the Court stated as follows:
In this Circuit moreover, to prove a claim of failure to provide medical care under § 1983, a pretrial detainee is required to prove the officials involved exhibited a deliberate indifference to the detainee's serious medical needs. For an act or omission to rise to the level of deliberate indifference, *628 it "must be so grossly incompetent, inadequate or excessive as to shock the conscience or to be intolerable to fundamental fairness [and] may be demonstrated by either actual intent or reckless disregard." Moreover, "[a] defendant acts recklessly by disregarding a substantial risk of danger that is either known to the defendant or which would be apparent to a reasonable person in the defendant's position."
Id. at 555 (quoted authority and citations omitted).
Assuming McDerment has demonstrated the requisite seriousness of his medical condition at the time, a hefty assumption indeed, he has failed utterly to demonstrate the deputies' acts or omissions were "so grossly incompetent, inadequate or excessive as to shock the conscience or to be intolerable to fundamental fairness." Id.
Accordingly, the Court GRANTS Defendants' motion for summary judgment on the inadequate medical treatment claim.
D. Supervisory Liability of Defendant Sheriff Jennings P. Miller
It is well established supervisory officials may be held liable in certain circumstances for the constitutional injuries inflicted by their subordinates.
McDerment asserts Sheriff Miller is liable in his supervisory capacity because Miller (1) had no clear cut policy for deputies to complete "Use of Force" forms contemporaneous with an incident; (2) deputies are never questioned about the forms they have executed; and (3) there is widespread use of pepper spray by department officers. Like Defendants, McDerment argues the appropriate standard for determining supervisory liability is to be found in Shaw v. Stroud, 13 F.3d 791 (4th Cir.1994). Pursuant to Shaw, supervisory liability may be established by proving three elements:
We have set forth three elements necessary to establish supervisory liability under § 1983:(1) that the supervisor had actual or constructive knowledge that his subordinate was engaged in conduct that posed "a pervasive and unreasonable risk" of constitutional injury to citizens like the plaintiff; (2) that the supervisor's response to that knowledge was so inadequate as to show "deliberate indifference to or tacit authorization of the alleged offensive practices,"; and (3) that there was an "affirmative causal link" between the supervisor's inaction and the particular constitutional injury suffered by the plaintiff.
Id. at 799 (citations and quoted authority omitted).
McDerment's conclusory, one-page argument supporting Sheriff Miller's liability is wholly inadequate under Shaw's demanding standard. Foremost, there is little more than a scintilla of an inference Miller "had actual or constructive knowledge that his subordinate[s were] engaged in conduct that posed `a pervasive and unreasonable risk' of constitutional injury to citizens like" McDerment. Id.
Sheriff Miller is entitled to judgment as a matter of law on the supervisory liability cause of action. Accordingly, the Court GRANTS Defendants' motion for summary judgment on this claim.
E. Liability of The Boone County Commission
The Supreme Court restated recently its well-settled position on municipal liability in Board of Cty. Com'rs of Bryan Cty. v. Brown, 520 U.S. 397, 117 S. Ct. 1382, 137 L. Ed. 2d 626 (1997):
[A] municipality may not be held liable under § 1983 solely because it employs a tortfeasor....
Instead, ... we have required a plaintiff seeking to impose liability on a municipality under § 1983 to identify a municipal "policy" or "custom" that caused the plaintiff's injury....
As our § 1983 municipal liability jurisprudence illustrates, however, it is not enough for a § 1983 plaintiff merely to identify conduct properly attributable to the municipality. The plaintiff must also demonstrate that, through its deliberate conduct, the municipality was the "moving force" behind the injury alleged. That is, a plaintiff must show that the municipal *629 action was taken with the requisite degree of culpability and must demonstrate a direct causal link between the municipal action and the deprivation of federal rights.
Id. 117 S.Ct. at 1398-88 (emphasis added); Robertson v. City of Beckley, 963 F. Supp. 570, 576 n. 5 (S.D.W.Va.1997); Torian v. City of Beckley, 963 F. Supp. 565, 570 (S.D.W.Va. 1997).
In support of its claim against the Boone County Commission, McDerment asserts (1) the Commission had a policy and custom of encouraging the use of force against citizens to "subdu[e] suspects[,]" pl.'s mem. in resp. at 12; (2) it kept no records concerning the use of force; (3) it did not track the amount of pepper spray issued to deputies; and (4) individuals were sprayed by deputies frequently. McDerment asserts "The lack of any accountability, the widespread use and tacit approval of [pepper spray] use as an easy method of subduing citizens can all be said to be the motivating force behind the violation" of his rights. Id. The Court disagrees.
Once again, McDerment's brief and conclusory remarks do little to pin derivative liability on a Defendant that did not directly participate in the incident. McDerment has fallen well short of demonstrating the Commission "was the `moving force' behind the injury alleged." Id. 117 S.Ct. at 1385. Accordingly, the Commission is entitled to summary judgment, and the Court GRANTS Defendants' motion as to the Commission.
F. State Law Claims
Given the Court's discussion under Section II.B supra, summary judgment for Deputy Browning, Deputy Sutphin and Sergeant Cook on the supplemental claims is inappropriate.[1] Nonetheless, it appears McDerment's theory of liability against Sheriff Miller and the County Commission on the supplemental claims was based upon McDerment's view that the two Defendants "have already been shown to have encouraged a custom, policy and practice of the use of excessive force in violation of plaintiff's Fourth Amendment rights." Pl.'s resp. mem. at 14. As noted above, the record does not support that assertion as to either Sheriff Miller or the Commission. Accordingly, the Court deems the supplemental state claims as to Sheriff Miller and the County Commission abandoned.
Accordingly, the Court GRANTS Sheriff Miller and the County Commission's motion for summary judgment on the state claims and DENIES the same with respect to the deputies and Sergeant Cook.
III. CONCLUSION
Based on the foregoing, the Court (1) DENIES Defendants Browning's, Sutphin's and Cook's motion for summary judgment on the issue of qualified immunity; (2) GRANTS Defendants' motion for summary judgment on the inadequate medical treatment claim; (3) GRANTS Defendant Miller's and the County Commission's motion for summary judgment on the supervisory liability claim; (4) GRANTS Defendant Miller's and the County Commission's motion for summary judgment on the state claims; and (5) DENIES the same motion with respect to the Deputy Browning, Deputy Sutphin and Sergeant Cook.
The Clerk is directed to send a copy of this Memorandum Opinion and Order to counsel of record.
NOTES
[1] McDerment does not challenge Defendants' assertion that his invasion of privacy claim is governed by a one year statute of limitations. That assertion is consistent with West Virginia law. See syl. pt. 1, Slack v. Kanawha Cty. Housing and Redevel. Auth., 188 W.Va. 144, 145, 423 S.E.2d 547, 548 (1992) ("Invasion of privacy is a personal action that does not survive the death of the individual at common law or under W. Va. Code, 55-7-8a(a) (1959)). Consequently, a claim for invasion of privacy is governed by the one-year statute of limitations provided by W. Va. Code, 55-2-12(c) (1959)." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2449988/ | 117 F. Supp. 2d 318 (2000)
Rochelle SAKS, Plaintiff,
v.
FRANKLIN COVEY CO. and Franklin Covey Co. Client Sales, Inc., Defendants.
No. 99CIV.9588 (CM)(LMS).
United States District Court, S.D. New York.
October 2, 2000.
*319 Darnley Dickenson Stewart, Bernstein Litowitz Berger & Grossman LLP, New York, for Rochelle Saks, plaintiffs.
Amy J Beech, Epstein, Becker & Green, New York, NY, Steven C. Bednar, Alan C. Bradshaw, Manning Curtis Bradshaw & Bednar LLC, Salk Lake City, UT, for Franklin Covey Co., defendants.
MEMORANDUM DECISION AND ORDER GRANTING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT AND DENYING PLAINTIFF'S CROSS MOTION FOR SUMMARY JUDGMENT
McMAHON, District Judge.
Infertility blights the lives of thousands of American families. Fortunately, modern *320 medicine has devised ways that enable some of those who suffer from infertility to conceive biological children and carry them to term. Like so many of the extraordinary advances in medicine, these treatments are quite expensive. It is a testament to the basic nature of the reproductive drive that people who are desperate to have children will go to great lengths to conceive often enduring extreme physical discomfort and incurring expenses that bring them close to bankruptcy. The physical discomforts are, of course, unavoidable. Whether the financial discomfort can be avoided by one family, at least, is the central issue in this case.
From March 1995 through October 1999, plaintiff Rochelle Saks was employed by defendant Franklin Covey, a seller of products and services related to time management, organization and business communication training. During that period, plaintiff and her husband were endeavoring to have a child. Saks and her husband had numerous treatments, prescribed by two different doctors, to enable her to conceive and carry a child, including a regimen of clomiphine ("Clomid") and progesterone and intrauterine insemination ("IUI"), which were unsuccessful. She also completed two cycles of in vitro fertilization ("IVF"), in April 1999 and August 1999. She became pregnant three times between September 1997 and August 1999. All three pregnancies ended in miscarriages.
Saks made claims for insurance reimbursement for her treatments. For purposes of this motion, defendants concede that plaintiff suffered from the condition known as infertility and that all of the treatments prescribed to help her become pregnant, including in vitro fertilization and intra-uterine implantation, were "medically necessary" as that term is defined in Franklin Coveys' self-insured health benefits plan.[1] Ms. Saks' surgical fertilization procedures, which were rendered by American medical professionals, qualify as "a service required for the treatment of an active illness" (that illness being the inability to conceive a child in the usual way).
Nonetheless, Franklin Covey has declined to cover the cost of those procedures. Its insurance Plan specifically excludes coverage for "surgical impregnation procedures," including artificial insemination and in vitro fertilization. Saks contends in this lawsuit that this exclusion violates three separate Federal statutes: The Americans with Disabilities Act ("ADA"), 42 U.S.C. § 12101 et seq.; Title VII of the Civil Rights Act of 1964, as amended ("Title VII"), 42 U.S.C. § 2000e et seq.; and the Pregnancy Discrimination Act ("PDA"), 42 U.S.C. § 2000e(k). She also contends that the exclusion violates the New York Executive Law § 296 ("the New York Human Rights Law"), and that Franklin Covey has breached its contractual relationship under the Plan by declining coverage, not only for the surgical procedures, but for other medical services relating to her failed pregnancies. After discovery, both parties have moved for summary judgment defendants for dismissal of the complaint, plaintiff for partial summary judgment on the issue of liability.
*321 For the reasons stated below, I am dismissing plaintiff's claim that Franklin Covey's refusal to cover surgical procedures that create pregnancy violates the law.
Standards for Summary Judgment
The usual standards for an award of summary judgment apply: a party is entitled to judgment if there is no dispute of material fact and that party is entitled to judgment as a matter of law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). I view the facts most favorably to plaintiff for purposes of considering defendants' motion, which I elect to consider first since, if granted, it would dispose of the entire case.
Statement of Facts
The following facts are undisputed for purposes of this motion.[2] Plaintiff was employed by defendant Franklin Covey Co. as a store manager at the company's retail store from March 1995 until she resigned in October 1999. As part of its benefits package, Franklin Covey offers a self-insured health benefits plan ("the Plan") that provides coverage to all full-time employees and their dependents. The company has a contractual arrangement with The TPA, Inc. ("The TPA"), an administrator for self-insured health benefit plans, to act as the third-party processing agent for claims made under the Company's Plan.
The Plan provides coverage for all "medically necessary" treatments, which are defined under the Plan as "any service or supply required for the diagnosis or treatment of an active illness or injury that is rendered by or under the supervision of the attending physician, generally accepted by medical professionals in the United States and non-experimental."
An "illness" is defined as "any bodily sickness, disease, mental/nervous disorder or pregnancy." Jane Clark, a Claim Support Manager for the TPA, testified that infertility is a "disease" or "illness" within the meaning of the Plan. Ms. Clark also testified that fertility drugs and assisted reproductive techniques such as intrauterine insemination ("IUI") and in vitro fertilization ("IVF") are not considered experimental treatments for the disease of infertility. However, the Plan excludes coverage for "surgical impregnation procedures," including IVF and IUI. "[C]omplications arising from any non-covered surgery" are also excluded from coverage.
Plaintiff has unsuccessfully attempted to conceive since May 1994. In July 1995, she consulted with Dr. Ralph Berardi, an OB/ GYN, who suspected that plaintiff suffered from polycystic ovarian syndrome. Plaintiff underwent a test that ruled out that possibility, and Dr. Berardi recommended that plaintiff and her husband, Joel Saks, continue to attempt a pregnancy through sexual relations. In February 1996, Plaintiff began seeing another OB/GYN, Dr. Deborah Cerar, who recommended that plaintiff undergo several diagnostic tests to determine the cause of her infertility. None of these tests revealed the source of plaintiff's infertility. Upon Dr. Cerar's recommendation, plaintiff began using ovulation kits to determine when she was ovulating so that intercourse with her husband could be timed to maximize the likelihood of conception. This approach, however, proved unsuccessful.
In November 1996, Plaintiff consulted with Dr. John Stangel, a specialist in the area of reproductive endocrinology. Dr. Stangel prescribed for plaintiff the drug Clomid in order to induce and regulate ovulation, and recommended that this treatment be accompanied by intrauterine inseminations ("IUI") and regular intercourse to increase the chances for a successful conception. Because patients who take Clomid must be monitored for potential side effects, plaintiff underwent ultrasounds *322 and blood tests while on that medication. Plaintiff also continued to use ovulation kits in conjunction with her other treatments. She completed two IUI's with Dr. Stangel, neither of which resulted in pregnancy.
By May or June 1997, plaintiff had become dissatisfied with Dr. Stangel's insemination procedures, and decided to switch to a new reproductive endocrinologist, Dr. Gad Lavy. In or about May or June 1997, plaintiff called defendants' third-party administrator ("TPA") to determine the benefits to which plaintiff was entitled under the Plan for her initial visit with Dr. Lavy. The TPA informed plaintiff that, except for the $15 co-payment required for all doctor visits, the initial consultation would be covered under the Plan.
Plaintiff consulted with Dr. Lavy in or about July or August 1997. Lavy diagnosed plaintiff as having a hormonal imbalance and, consequently, ovulation disorder. Dr. Lavy recommended (1) treatment with Clomid, estrogen and progesterone to regulate plaintiff's ovulation, and (2) continued IUI and regular intercourse to increase the likelihood of successful conception. Plaintiff underwent the first cycle of IUI in August 1997. The administration of Clomid to plaintiff of Clomid had to be monitored with blood work and ultrasound tests, as did her course of estrogen and progesterone treatment.
Plaintiff submitted claims to the TPA for all the expenses incurred in connection with Dr. Lavy's treatment. However, the TPA authorized reimbursement only for venipuncture that Lavy had performed on plaintiff, as well for the cost of the drugs estradiol and progesterone administered on August 29, 1997. Payment for the remainder of Lavy's treatment was denied.
On September 8, 1997, plaintiff learned that she was pregnant. During the following two weeks, her pregnancy was closely monitored with ultrasound and blood tests, which defendants refused to cover. Her first ultrasound revealed a heartbeat, as well as a possible second gestational sac. Her second ultrasound, however, on or about September 27, revealed no heartbeat in the first gestational sac, and a follow-up blood test showed a decrease in HCG, the pregnancy hormone. A subsequent test on October 6 confirmed that plaintiff had miscarried, and she underwent a dilation and curettage ("D & C") the next day to remove the miscarried fetus. Further tests on the fetus to determine the cause of the miscarriage were inconclusive.
The TPA refused to reimburse plaintiff for the cost of the D & C, hysterosalpingogram, and the pathology tests performed after plaintiff's miscarriage. Plaintiff successfully appealed that denial, however, and in October 1998, the TPA provided coverage for her pregnancy-related expenses.
Plaintiff continued her treatments with Dr. Lavy through December 1998, or thereabouts, during which time she underwent ten more IUIs. From November 1997 until April 1998, she continued the course of Clomid, progesterone and estrogen accompanied by IUIs. Beginning in May 1998, Dr. Lavy prescribed Humagon, an injectable drug (plaintiff does not recall whether the Humagon was administered in place of, or in conjunction with, the Clomid). Plaintiff continued the course of progesterone, estrogen and IUIs and the monitoring with ultrasounds and blood work that her treatment entailed. Dr. Lavy also advised plaintiff to undergo another hysterosalpingogram, the results of which came back negative. Dr. Lavy then told plaintiff that the next appropriate treatment step was in vitro fertilization ("IVF"). Plaintiff claims that she was unable to pursue that course of action because of defendants' refusal to cover the cost of her treatment with Dr. Lavy. The TPA refused coverage for all of the IUIs and related drug and monitoring expenses that plaintiff incurred while in Dr. Lavy's care. Consequently, plaintiff and her husband *323 were forced to pay for this treatment personally.
In December 1998, Dr. Lavy informed plaintiff that he would not continue to provide her with further treatment until she paid in full the outstanding balance of Lavy's fee, which totaled approximately $6,000. Plaintiff was unable to pay this amount, and ended her relationship with Lavy.
Plaintiff found another reproductive endocrinologist, Dr. Zev Rosenwaks, at the Center for Reproductive Medicine and Infertility in Manhattan. Rosenwaks determined that plaintiff was a good candidate for IVF, and in or about March and early April 1999, prescribed a course of Lupron, Humagon, HCG and Follostim to stimulate superovulation. This treatment, too, required that plaintiff be monitored through blood and ultrasound tests. Plaintiff began the IVF procedure on April 16, 1999, including progesterone therapy to support a potential pregnancy. On April 30, a blood test reflected HCG levels indicating a positive pregnancy, but by the following day, the levels had dropped. Plaintiff was informed that she had a chemical pregnancy, but that it was not sustained.
In July 1999, plaintiff began a second cycle of IVF, including the same course of drugs that she had taken in March and April. Three embryos were implanted on August 7, 1999, and plaintiff again began progesterone therapy. On August 25, 1999, plaintiff's HGC levels indicated another pregnancy, though they were lower than the normally expected level. Testing over the following few days revealed low estrogen levels, and plaintiff experienced some blood spotting. In late August, plaintiff miscarried again. She was told that her pregnancy had been ectopic.
The TPA denied coverage for nearly all of plaintiff's treatment under Dr. Rosenwaks' care, including her consultation and other office visits, diagnostic tests, the injectable drugs, the IVFs, and blood work and ultrasound monitoring costs. It is not disputed that Plaintiff complied with the Plan's procedural requirements for submission of claims.
On an unidentified date, plaintiff filed a charge with the EEOC against Franklin Covey alleging the same ADA, Title VII and Pregnancy Discrimination Act violations as in the instant action. In a determination dated April 27, 1999, the New York District Director found reasonable cause that Franklin Covey had violated those statutes by denying coverage to plaintiff in connection with her infertility treatments.
Plaintiff filed this suit on September 9, 1999. On March 21, 2000, defendants moved for summary judgment as to all of plaintiff's claims. On that same date, plaintiff cross-moved for partial summary judgment as to her ADA, PDA, Title VII and breach of contract claims. For the reasons that follow, defendant's motion is granted, and the case is dismissed.
Conclusions of Law
1. Franklin Covey's Exclusion of Surgical Impregnation Procedures Does Not Violate the Americans with Disabilities Act
Congress passed the Americans with Disabilities Act in order to, inter alia, "provide a clear and comprehensive national mandate for the elimination of discrimination against individuals with disabilities" and "provide clear, strong, consistent, enforceable standards addressing discrimination against individuals with disabilities." 42 U.S.C. § 12101(b)(1),(2). To those ends, the statute prohibits discrimination by any "covered entity" against "a qualified individual with a disability because of the disability of such individual in regard to job application procedures, the hiring, advancement, or discharge of employees, employee compensation, job training, and other terms conditions, and privileges of employment." 42 U.S.C. § 12112(a). The "terms and conditions" of employment, within the meaning of the Act, include the provision of fringe benefits. See Castellano *324 v. City of New York, 142 F.3d 58, 66 (2d Cir.), cert. denied, 525 U.S. 820, 119 S. Ct. 60, 142 L. Ed. 2d 47 (1998).
Before I can reach the merits of plaintiff's claim, I must dispose of a challenge to her ability to maintain this action. The parties do not dispute that Rochelle Saks is infertile, or that infertility is a physical impairment. Defendant does, however, contend that plaintiff is not a "person with a disability," and thus lacks standing to sue under the ADA, because her impairment does not substantially limit her in any major life activity.
This is an unsupportable contention. Plaintiff is substantially limited in her ability to reproduce i.e., to conceive and bear children. In Bragdon v. Abbott, 524 U.S. 624, 118 S. Ct. 2196, 141 L. Ed. 2d 540 (1998), the United States Supreme Court declared "reproduction" to be a major life activity. See Bragdon, 524 U.S. at 638, 118 S. Ct. 2196. Defendant has not articulated any principled basis upon which this Court could refuse to apply that rather clear-cut rule to the facts at bar.
Defendants recognize that Bragdon is on the books and binding on this Court. So they urge that, when ruling that "reproduction" constituted a major life activity, the Supreme Court actually meant to say that the plaintiff in Bragdon was limited in her ability to engage in "sexual activity."
Defendants make this argument on a rather strained reading of Bragdon. In that case, the plaintiff suffered from AIDS. She alleged that she was a "person with a disability" because she was substantially limited in her ability to reproduce that is, to conceive and bear a child. In Bragdon, there was no indication that the plaintiff was physically unable to have sexual intercourse. Nor was there any suggestion that she could not conceive if she had "unprotected" sexual intercourse. Instead, plaintiff argued that she was reproductively limited because she could not conceive while having "safe sex" i.e., while using a condom. Thus, any limitation on reproduction, while a by-product of her AIDS, was the result of a conscious, voluntary and, I hasten to add, socially responsible choice on the part of the plaintiff. Nonetheless, the Supreme Court ruled that she was substantially limited in the major life activity of reproduction by virtue of her disease.
Viewing Bragdon in this (the only fair) light, the fallacy in defendants' argument is immediately apparent. On the record before me, it appears that plaintiff Saks cannot become pregnant without some sort of chemical or surgical assistance. That is, her condition (infertility) physically impairs her in such a way that her reproductive organs do not work like those of a fertile woman of her age. There can be no question that Saks' infertility "substantially limits" her ability to reproduce indeed, it appears to prevent it altogether, absent outside intervention of a very drastic nature.[3] Thus, she is a "person with a disability" within the meaning of the ADA.[4]
Defendants' contention that Bragdon does not answer "the central question in this case" which it identifies as "whether infertility is a limitation on the activity of reproduction" is simply silly. Notwithstanding Bragdon, Defendants assert that an individual cannot be reproductively limited unless she is unable to engage in sexual activity. (See Def. Br. at 8-9.) Indeed, defendants fairly imply that "reproduction" is not an activity in and of itself, and that the only "activity" connected with reproduction is sex. That is a ridiculous *325 argument. As anyone who has given birth can attest, sex is the least of it.
Defendants then urge, albeit in a footnote, that infertility cannot be a disability because it is correctable, citing Judge Pauley's decision in United States v. Lauersen, No. 98 Cr. 1134, 1999 WL 637237 (S.D.N.Y. Aug.20, 1999). (See Def. Br. at 9 n. 5.) However, Judge Pauley did not hold that infertility is not a disability. Indeed, Judge Pauley expressly declined to rule on questions analogous to the one raised by plaintiff in this civil lawsuit namely, whether either the ADA or Title VII required health insurance companies to cover fertility treatments. See id., at *3. Rather, he ruled that a criminal defendant (an obstetrician/gynecologist accused of submitting fraudulent claims for insurance reimbursement for non-covered fertility treatments) could not assert a claim-of-right defense to the criminal charges he was facing, because Second Circuit precedents on the question of fraudulent intent in criminal cases foreclosed any such ruling. Judge Pauley did opine, in dicta, that cases in which various Circuit Courts of Appeal had rejected the premise that Title III of the ADA applied to the contents of health insurance plans a position that the Second Circuit subsequently declined to adopt as a wholesale proposition, see Pallozzi v. Allstate Life Ins. Co., 198 F.3d 28 (2d Cir.1999) were "consonant" with recent Supreme Court cases that tempered the scope of the ADA in circumstances where the effects of a disabling condition could be overcome. See, e.g., Sutton v. United Airlines, Inc., 527 U.S. 471, 119 S. Ct. 2139, 144 L. Ed. 2d 450 (1999); Murphy v. United Parcel Service, Inc., 527 U.S. 516, 119 S. Ct. 2133, 144 L. Ed. 2d 484, (1999). That hardly qualifies as precedent for the ruling defendants seek from me.
Defendants urge that Murphy and Sutton compel a finding that infertility is not a disability, precisely because it can be overcome in certain people by various treatments, including some that are covered under its insurance plan. The short answer to this argument is that there is a critical distinction between Murphy and Sutton, on the one hand, and plaintiff Saks: the treatment prescribed for Murphy (who suffered from high blood pressure that could be alleviated by medication) and the plaintiffs in Sutton (who had myopic vision that could be corrected by wearing glasses) worked, whereas Ms. Saks' infertility has yet to be either cured or "bypassed." Defendants note that Saks has managed to become pregnant three times while receiving various fertility treatments. However, she has miscarried each time. She has never achieved a successful pregnancy one that resulted in the birth of a child. Therefore, her condition has not been successfully overcome, as were the conditions of the plaintiffs in Murphy and Sutton.
Nonetheless, defendants raise an interesting and difficult point. The full scope of Murphy and Sutton has yet to be fleshed out, of course, but in the opinion of this Court, the Supreme Court did not intend to rule that no disease or organic defect can qualify as an ADA disability as long as some treatment can ameliorate its impact in some percentage of persons afflicted, however small that percentage may be. Indeed, I think it highly likely that courts will, over time, develop a spectrum of "disability" along which various diseases will fall, depending on some case-by-case analysis of their seriousness, their susceptibility to treatment, the rate at which treatment succeeds in curing them altogether or lessening their impact, and the impact of available treatments on the plaintiff at bar. For example, I find it inconceivable that persons who suffer from chronic conditions involving organ failure, like Type I diabetes or kidney failure, are not "substantially limited" in certain major life activities, simply because they can lead relatively normal lives by taking multiple injections of insulin everyday or by hooking themselves up to dialysis machines (I use the phrase "relatively normal" advisedly). And I view it as highly unlikely that *326 courts will decide that "cancer" as a class of diseases does not substantially limit certain major life activities, just because some cancers in some people (though not all cancers in all people) can be successfully treated.
Infertility is the chronic failure of an organ system. It can be treated, but the success rate (with success defined as becoming pregnant and carrying to term) is far from compelling closer to that of certain cancers than to the all-but-universally correctable conditions discussed in Murphy and Sutton. Indeed, treatment has not succeeded in this very case. Whether the availability of draconian regimens that avoid the consequences of infertility in a small percentage of individuals places this particular impairment closer to the Murphy/Sutton end of the spectrum or the diabetes/cancer/kidney failure end could not possibly be determined on the present record. But the position espoused by defendants is not so self-evident (as demonstrated by the fact that they relegate this argument to a footnote) that I would dismiss on Murphy/Sutton grounds at this juncture.
Finally, Defendants argue that infertility cannot be a disability, because people become infertile for many reasons, including reasons that have nothing whatever to do with a disease or defect age being the obvious one. For this unremarkable proposition, defendants cite McGraw v. Sears Roebuck & Co., 21 F. Supp. 2d 1017 (D.Minn.1998), in which Judge Rosenbaum concluded that menopause was not a disability a proposition that enlightened women have been espousing for centuries.
This Court harbors no doubt that infertility that results from the natural aging process, rather than from some disease or defect, is not a "disability" within the meaning of the ADA just as age-induced inability to focus optically, which crops up in all of us at about the age of 50, is not a "disability," even though it limits (in some cases substantially) an older person's ability to see.[5] The American College of Obstetricians and Gynecologists defines "infertility" as the abnormal functioning of the reproductive system. See American College of Obstetricians and Gynecologists, Infertility: Causes and Treatment 1 (1992). A post-menopausal woman cannot conceive, but she is not "disabled" because her reproductive system or, rather, her non-reproductive system is in fact functioning normally. When passing the ADA, Congress was not trying to undo the inevitable effects of aging, like some legislative King Canute commanding in vain that the tide not come in. But this does not mean that a pre-menopausal women in her child-bearing years is not "disabled" if she is unable to become pregnant when, absent some physical abnormality, she would ordinarily be able to do so.[6]
Thus, plaintiff has standing to pursue an ADA claim. That said, however, plaintiff's claim under the ADA must be dismissed, for two reasons.
First, it is undisputed that Franklin Covey's plan offers the same insurance coverage to all its employees. It does not offer infertile people less pregnancy and fertility-related coverage than it offers to fertile people. Therefore, as a matter of law, the Plan does not violate the ADA. In EEOC v. Staten Island Savings Bank, 207 F.3d 144 (2d Cir.2000), the Court of Appeals, joining the Third, Seventh and Eighth Circuits, held that insurance distinctions that apply equally to all insured employees do not discriminate on *327 the basis of disability. In that case (brought by the EEOC on behalf of the defendant bank's employees, pursuant to the Commission's Interim Guidance on the Applicability of the ADA to Health Insurance that forms the linchpin of plaintiff's argument here), the employer's policy significantly limited coverage for mental health care while providing much greater coverage for physical illnesses. The Commission argued that defendant's failure to offer employees equivalent benefits for mental and physical illness discriminated on the basis of disability. The Court disagreed, stating:
We... agree with our sister circuits that "so long as every employee is offered the same plan regardless of that employee's contemporary or future disability status, then no discrimination has occurred even if the plan offers different coverage for various disabilities."
Staten Island Savings Bank, 207 F.3d at 150 (quoting Ford v. Schering-Plough Corp., 145 F.3d 601, 608 (3d Cir.1998)). The Court went on to observe:
It is fully consistent with an understanding that the ADA protects the individual from discrimination based on his or her disability to read the Act to require no more than that access to an employer's fringe benefit program not be denied or limited on the basis of his or her particular disability.
Id. at 151. The panel also noted that requiring equivalent coverage for every type of disability "would destabilize the insurance industry in a manner definitely not intended by Congress." Id. at 152 (quoting Ford, 145 F.3d at 608). Finally, the Court expressly declined to defer to the Commission's Interim Guidance on this question. See id.
Plaintiff suggests that Staten Island Savings Bank does not compel dismissal of her claim because there the challenge was to non-equivalent levels of coverage for two gross categories of impairment, physical and mental, while here the issue is failure to provide coverage for certain types of procedures that overcome infertility. With respect, I fail to see any difference. Insurance policies have historically contained exclusions for particular types of procedures. Indeed, surgical impregnation procedures are not the only treatments expressly excluded from coverage under Franklin Covey's Plan. The policy also excludes artificial heart implantation, penile prosthetic implants, Kerato-refractive eye surgery and non-human organ transplants. It is beyond dispute that, under this Plan, people with cancer have access to a greater range of treatment for their problem than do people with infertility. But all employees face exactly the same limitation. That the limitation hits infertile employees like Ms. Saks harder than it hits other employees is of course true, but the limitation on mental health coverage in Staten Island Savings Bank was more disruptive to bank employees whose family members needed therapy than to those who did not. Nonetheless, the Circuit held that there was no ADA discrimination.[7]
Second, and even more fundamental, Franklin Covey's Plan is not covered by the ADA. It is undisputed that Franklin Covey's Plan is a bona fide benefit plan under the Employment Retirement Insurance Security Act of 1974, ("ERISA"), 29 U.S.C. § 1001 et seq. It is also a self-insured plan. Thus, it falls within the so-called "safe harbor" provision found at § 501(c)(3) of the ADA, 42 U.S.C. § 12201(c)(3), which provides that nothing in the ADA shall be construed to prohibit or restrict an employer from "establishing, sponsoring, observing or administering the terms of a bona fide benefit plan that is not subject to State laws that regulate insurance." See also 29 C.F.R. § 1630.16(f). The only self-insured plans that fall outside the ADA Safe Harbor are *328 those that are used as a subterfuge to evade the purposes of the statute. However, the Second Circuit recently held, in Leonard F. v. Israel Discount Bank of New York, 199 F.3d 99, 104 (2d Cir.1999), that a benefit exclusion adopted by a self-insured Plan prior to the passage of the ADA by definition cannot have been adopted as a subterfuge to avoid the statute. Franklin Covey's insurance plans have excluded surgical impregnation procedures since 1989, if not earlier. The ADA became law in 1991. That ends the discussion.
For the above reasons, plaintiff's claim for relief under the ADA is dismissed.
2. Plaintiff's Title VII Claims Are Similarly Deficient and Are Dismissed
The Court can give plaintiff's title VII claims relatively short shrift. Analogizing from Staten Island Savings Bank, as long as both men and women receive the same benefits and are subject to the same exclusions under an employer's insurance policy, the policy does not discriminate on the basis of sex. Under Franklin Covey's Plan, both men and women are covered for certain types of infertility treatments (examples), and neither men nor women may receive benefits for other types of infertility treatment (surgical impregnation). It is no answer to say that the excluded treatments can only be performed on women, because male employees can claim infertility-related benefits for treatments performed on their wives and are, conversely, precluded from obtaining benefits for surgical impregnation of their wives. Thus, both males and females receive the same "compensation, terms, conditions [and] privileges of employment" under the Covey Plan, as required under 42 U.S.C. § 2000e-2(a)(1). All Franklin Covey employees, male and female, who see surgical impregnation as the answer to their infertility problems have to foot the bill.
If female employees of Franklin Covey, like Saks, were denied benefits for surgical impregnation, but those benefits were made available to male employees whose wives were surgically impregnated, Title VII would come into play. It does not on the facts before me. Plaintiff's claim of discrimination based on sex in dismissed.
3. Plaintiff's Claim Under the Pregnancy Discrimination Act Must Also Be Dismissed
Plaintiff next contends that the exclusion of surgical impregnation procedures from Franklin Covey's policy constitutes discrimination on the basis of pregnancy within the meaning of the Pregnancy Discrimination Act (which is an amendment to Title VII). Defendants make two responses: one meritorious, one not.
First, defendants contend that the PDA does not apply because infertility is not a "pregnancy-related condition," and cannot be so, since infertility (which is by definition not pregnancy) falls outside the ambit of the statute. Once again, it appears that the United States Supreme Court has held exactly the opposite.
In Int'l Union, UAW v. Johnson Controls, 499 U.S. 187, 199, 111 S. Ct. 1196, 113 L. Ed. 2d 158 (1991), the Supreme Court was asked to determined the legality of Johnson Controls' policy of prohibiting women of childbearing age from working in positions where they could be exposed to chemicals that were potentially damaging to ova and/or fetuses. The Court ruled that any employment policy that discriminated on the basis of "childbearing capacity" violated Title VII under the PDA because it "explicitly classifies on the basis of potential for pregnancy" (emphasis added). The members of the plaintiff union in Johnson Controls were not interested in becoming pregnant, as Rochelle Saks is; they were interested in working in the best (i.e., most lucrative) jobs without regard to their reproductive status. If discrimination under the PDA were limited to conditions related to an actual pregnancy, Johnson Controls would not be on the *329 books. Because it is on the books, conditions that are not associated with an actual pregnancy may be "pregnancy-related conditions" within the meaning of the statute.
I am constrained to note that, while neither Saks' predicament nor that of the plaintiffs in Johnson Controls falls within the limited definition of "pregnancy-related" that defendants urge me to adopt, Saks comes far closer to having a "pregnancy-related condition" as a lay person would understand that phrase, than do the assembly-line workers in Johnson Controls. If the latter had standing to sue under the PDA, then Saks must also. See Pacourek v. Inland Steel Co., 858 F. Supp. 1393, 1403 (N.D.Ill.1994) ("If potential pregnancy is treated like pregnancy for purposes of the PDA, it follows that potential-pregnancy-related medical conditions should be treated like pregnancy-related medical conditions for purposes of the PDA"); Erickson v. Bd. of Governors of State Colleges and Universities for Northeastern Ill. Univ., 911 F. Supp. 316 (N.D.Ill.1995) (same); Zatarain v. WDSU-Television, Inc., No. Civ. 94-1018, 1995 WL 107090, at *1 (E.D.La. March 9, 1995) ("The PDA requires Courts to consider whether an employer treats pregnancy or pregnancy-related conditions, such as infertility, differently than other medical conditions."). To the extent the Eighth Circuit ruled otherwise in Krauel v. Iowa Methodist Medical Center, 95 F.3d 674 (8th Cir.1996), I am unpersuaded in view of Johnson Controls.
However, Saks nonetheless fails to state a claim under the PDA for the same reason it fails to state a claim under Title VII or the ADA. Nothing in that statute requires an employer to provide insurance coverage for every type of infertility treatment. The PDA merely compels employers to give all their employees pregnant, potentially pregnant, and not pregnant the same insurance coverage. Franklin Covey offers what it describes as "full coverage" during pregnancy, regardless of how the pregnancy was achieved (although Saks' difficulty in obtaining reimbursement for expenses associated with her chemically and surgically assisted pregnancies gives one pause in that regard). And it offers all its employees reimbursement for some, but not all, treatments to overcome infertility. It discriminates against the infertile only in the same sense that it discriminates against those who might need penile prosthetic implants (which may be medically necessary to cure impotence), Kerato-refractive eye surgery (which may be medically necessary to cure vision defects), hearings aids (which may be medically necessary to overcome deafness), or those who suffer from eating or sleep disorders: they must pay for those procedures or devices themselves.[8]
Thus, plaintiff's PDA/Title VII claim her last remaining Federal claim must be dismissed as well.
4. Plaintiff's State Law Claims for Breach of Contract and Violation of the New York State Human Rights Law are Preempted by ERISA
With her federal claims disposed of, I am left with state law claims for breach of contract (for refusing to compensate Saks for "medically necessary" treatment as that term is defined in the Plan) and violation of New York's Human Rights Law, Exec. L. § 296. As these claims are preempted by ERISA, they must be dismissed.
ERISA is a comprehensive statute, designed by Congress to regulate all aspects of employee welfare benefit programs. See Nealy v. U.S. Healthcare HMO, 844 F. Supp. 966, 970 (S.D.N.Y.1994). It therefore preempts all state laws that "relate to" self-insured employee benefit plans, *330 such as Franklin Covey's. See 29 U.S.C. § 1144(a). The phrase "relate to" is given the broadest common sense meaning; that is, a state law relates to a benefit plan if it has a connection with or reference to such a plan. See Nealy, 844 F.Supp. at 971. ERISA preemption is triggered "when a law has an effect on the administration of the plan, `such as determining an employee's eligibility for a benefit and the amount of that benefit.'" Id. at 972 (quoting Aetna Life Ins. Co. v. Borges, 869 F.2d 142, 146-47 (2d Cir.) cert. denied, 493 U.S. 811, 110 S. Ct. 57, 107 L. Ed. 2d 25 (1989)). Thus, it has long been held that a plaintiff has no claim for breach of contract against a plan administrator for failing to award benefits, because such claims are squarely preempted by ERISA. See Devlin v. Transportation Comm. Int'l Union, 173 F.3d 94, 101 (2d Cir.1999); Kolasinski v. Cigna Healthplan of CT, Inc., 163 F.3d 148, 149 (2d Cir.1998). Similarly, claims under the Executive Law, to the extent that law in not coincident with Title VII and the ADA, are preempted. See Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 103 S. Ct. 2890, 77 L. Ed. 2d 490 (1983).
Plaintiff argues that defendants have waived their right to claim preemption by not pleading it as an affirmative defense, relying on Fed.R.Civ.P. 8(c) and a series of wholly inapposite cases, such as Allen v. Westpoint-Pepperell, Inc., 11 F. Supp. 2d 277 (S.D.N.Y.1997) (a case in which the employer affirmatively agreed to waive ERISA preemption) and Dueringer v. General American Life Insurance Co., 842 F.2d 127 (5th Cir.1988) (in which the defendant first raised the preemption issue on appeal). I find no waiver in this case. Federal preemption "is not, by its nature, an affirmative defense to a state law claim." Billy Jack for Her, Inc. v. New York Coat, Suit, Dress, Rainwear and Allied Workers' Union, 511 F. Supp. 1180, 1187 (S.D.N.Y.1981), so defendant's failure to plead preemption specifically cannot be fatal to its assertion at this juncture. Plaintiff's contention that she would be entitled to discovery on the issue of presumption borders on the frivolous. This is not a fact-intensive issue, but a point of law that has been settled (in case of the Executive Law claim, by the United States Supreme Court) for many years.
Moreover, defendants may raise the defense of failure to state a claim in their answer, on motion, or at trial. Fed. R.Civ.P. 12(h)(2). The Advisory Committee has observed that the defense of failure to state a claim is "expressly preserved against waiver" by Rule 12(h)(2). ERISA preemption means that the plaintiff's state law causes of action fail to state claims on which relief may be granted. Thus, she cannot assert waiver to object to their dismissal.
Were it necessary, however, this Court would, in an exercise of its discretion, permit the defendants to amend their answer to assert ERISA preemption. Because the defense raises a pure question of law, it would neither work any prejudice to plaintiff nor delay dismissal of the action.
Because the complaint has been dismissed in its entirety on defendants' motion, plaintiff's cross-motion is moot.
Conclusion
The Clerk is directed to enter judgment in favor of defendants, dismissing the complaint, with costs on the motion to defendants.
This constitutes the decision and order of the Court.
NOTES
[1] "Medically necessary" under the Plan is defined as "any service or supply required for the diagnosis or treatment of an active illness or injury that is rendered by medical professionals in the United States and is non-experimental." (See 1998 Health Benefits Plan, Pl. Exh. 3, at TPA 595) (emphasis added). It appears that certain issues regarding Saks' infertility and her need for chemical and/or surgical intervention to become pregnant would be disputed if this case were going to trial. In that event, it would be necessary for the jury, as trier of fact, to determine whether Saks had a physical impairment that substantially limited her ability to reproduce. However, defendants have elected not to dispute this point for purposes of this motion. (See Exhibit A to Defendants' memorandum in Opposition to Plaintiffs' Motion for Partial Summary Judgment, Section III (Immaterial Facts Which May Be Considered Uncontested for Purposes of Summary Judgment Only but Which Franklin Covey Will Contest At Trial, Items 4, 6 and 10.))
[2] Defendants reserved the right to contest certain facts at trial if the case were not decided on motion.
[3] For a discussion of whether the availability of intervention brings the plaintiff within the scope of recent Supreme Court decisions limiting the availability of ADA relief to persons with so-called "correctable" conditions, see infra, at 325-26.
[4] See footnote 1, supra, concerning the scope of defendants' factual concessions on this question.
[5] See Abigail Zuger, Reading Glasses, as Inevitable as Death and Taxes. Or Are They?, N.Y. Times, Aug. 8, 2000, at F7.
[6] Defendants raise the fascinating question of whether a woman who becomes infertile because of premature menopause that is, the abnormally early onset of an otherwise normal bodily process should be considered disabled. Fortunately, that question need not be resolved on this motion, because nothing in the record before me suggests that Rochelle Saks is such a woman.
[7] To the extent that Saks argues that men receive superior coverage for infertility than do women, her claim falls under different statutes. See Points 2 and 3, infra.
[8] It bears noting that several of the above-mentioned exclusions from plaintiff's policy (which are, admittedly, few in number) involve more expensive treatments for conditions that can be remedied in some (though not all) individuals with less expensive or invasive treatments (Viagra for impotence, for example, or glasses for impaired vision). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2449884/ | 18 F. Supp. 2d 707 (1997)
Conrad MIKLASKI, Plaintiff,
v.
UNITED STATES of America and Paul McKay, Defendants.
Civil No. 97-CV-71212-DT.
United States District Court, E.D. Michigan, Southern Division.
June 6, 1997.
Opinion Denying Reconsideration October 27, 1997.
Opinion Denying Motion December 8, 1997.
*708 *709 Robert R. Elsey, Grosse Pointe Park, MI, for Plaintiff.
David A. Haimes, U.S. Department of Justice, Trial Attorney, Tax Division, Washington, DC, William Woodard, Detroit, MI, for Defendants.
OPINION AND ORDER GRANTING DEFENDANTS' MOTION TO DISMISS AND DENYING PLAINTIFF'S EMERGENCY EX-PARTE MOTION TO ADVANCE THE CASE FOR THE PURPOSE OF SCHEDULING AN EVIDENTIARY HEARING
DUGGAN, District Judge.
This matter is before the Court on plaintiff's "Emergency Ex-Parte Motion to Advance the Case for the Purpose of Scheduling an Evidentiary Hearing" and defendants' motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(1) and (6). Because the Court believes that it lacks subject matter jurisdiction to hear this action, the Court grants defendants' motion and denies plaintiff's motion.
Background
From 1986 through 1990, plaintiff worked as an independent contractor for the NASIMBEM company. Defendant McKay is a revenue officer of the Internal Revenue Service ("IRS"). In 1991, plaintiff filed Forms 1040 with the IRS for the years 1986 through 1990. Plaintiff and the IRS agreed that plaintiff would pay $500 a month to satisfy his income tax liability. Defendants contend that the agreement allowed the IRS to modify the amount of plaintiff's payments if plaintiff's ability to pay changed significantly.
On April 1, 1995, plaintiff submitted a Form 433-A to the IRS, showing that plaintiff earned net income of $4,203 per month and had $1965 in expenses and debt payments per month. (Defs.' Ex. C.) Based on this information, the IRS increased plaintiff's payments to $500 per week.[1] The IRS informed plaintiff of the change in 1995. Plaintiff claims that this increase was "unilateral" on the part of the IRS. Plaintiff failed to pay the increased amount. The IRS filed a First Notice of Intent to Levy on March 11, 1996. On January 30, 1997, defendant McKay sent plaintiff a Final Notice of Intent to Levy. On March 6, 1997, McKay issued a lien/levy on plaintiff's wages from his employer, Wisne Automation and Design Company, and on plaintiff's savings account at NBD Bank. Plaintiff received no notice of deficiency or notice of assessment before the IRS issued the lien/levy.
Discussion
Defendants argue that the Court should deny plaintiff's motion and dismiss plaintiff's complaint because the Court lacks jurisdiction over this dispute. 26 U.S.C. § 7421 states,
Except as provided in sections 6212(a) and (c), 6213(a), 6672(b), 6694(c), and 7426(a) and (b)(1), and 7429(b), no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed.
Plaintiff argues that this case falls within an exception to § 7421 because the IRS failed to follow the procedure for sending a notice of deficiency to plaintiff under 26 U.S.C. § 6212(a).[2] Plaintiff contends that this failure *710 on the part of the IRS foreclosed his ability to seek review in Tax Court under 6213(a).[3]
The Court rejects plaintiff's argument. Defendants have submitted plaintiff's tax returns for the years 1986-1990. These forms show that plaintiff owed taxes of $27,188 for 1986, $9,582 for 1987, $13,980 for 1988, $19,190 for 1989, and $16,369 for 1990. (Defs.' Ex. A.) Defendants also submitted certificates of assessment that have the same figures as those presented in the tax returns. (Defs.' Ex. B.) Thus, it is apparent that the IRS based its assessment of plaintiff's liability for taxes and penalties on his tax returns. For this reason, no deficiency notice was required. See 26 U.S.C. § 6201(a)(1) (authorizing the IRS to assess taxes and penalties, based on tax returns); see also Larsen v. U.S., 1996 WL 848210 *1 (W.D.Wash. Dec.3, 1996); IBEW Local Union No. 640 v. Forman, 1995 WL 735743 *2 (D.Ariz. Sept.20, 1995). Plaintiff was not entitled to a notice of deficiency under § 6212, and this action does not fall within an exception to § 7421.
Plaintiff makes the alternative argument that § 7421(a) is inapplicable in this case. In Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 7, 82 S. Ct. 1125, 1129, 8 L. Ed. 2d 292 (1962), the Supreme Court held that § 7421(a) is inapplicable if 1) it is clear at the time the suit is filed that the government cannot prevail under any circumstances, and 2) equity jurisdiction otherwise exists.
Plaintiff believes that the government cannot prevail because the government did not provide him with a deficiency notice. As discussed above, plaintiff was not entitled to such a notice. Therefore, the Court must reject this argument.
Plaintiff next argues that the IRS did not assess his taxes within three years after he filed his tax returns, as required by 26 U.S.C. § 6501.[4] Defendants have submitted certificates of assessment for the relevant years, which list "23c" dates in 1991. (Defs.' Ex. B). The IRS uses Form 23c to record assessments, and the 23c date indicates the date the IRS made the assessment. See Geiselman v. U.S., 961 F.2d 1, 5-6 (1st Cir. 1992), cert. denied, 506 U.S. 891, 113 S. Ct. 261, 121 L. Ed. 2d 191 (1992). "Certificates of assessment and payments are generally regarded as sufficient proof, in the absence of evidence to the contrary, of the adequacy and propriety of notices and assessments that have been made." Gentry v. U.S., 962 F.2d 555, 557 (6th Cir.1992). Thus, plaintiff's tax liability was assessed in 1991, the same year that plaintiff filed his returns, and the Court must reject this argument as well.
Plaintiff also argues that the IRS has no authority to issue levies or liens against him. 26 U.S.C. § 6321 states,
If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.
(emphasis added). This statute provides authority for the creation of tax liens. Therefore, the Court must also reject this argument.
Finally, plaintiff argues that he satisfies the second prong of the Enochs test because he has no adequate remedy at law. Defendants argue that equity jurisdiction is lacking because plaintiff could sue the government for a refund. "[T]he opportunity to sue for a refund is an adequate remedy at law which bars the granting of an injunction." Church of Scientology of California v. U.S., 920 F.2d 1481, 1489 (9th Cir.1990). A suit for refund cannot be maintained unless the claimant filed a claim for a refund with the Secretary of the Treasury or the Commissioner of Internal Revenue. See 26 U.S.C. § 7422. Plaintiff counters that filing *711 for a refund would be futile because it must be done within three years of filing the tax return, and more than three years have passed since plaintiff filed the returns in question. See 26 U.S .C. § 6511(a) (providing for a limitations period of 3 years from the time the refund was filed, or 2 years from the time the tax was paid, whichever period is later). The Court notes that § 6511 also provides an alternative limitations period of 2 years after the tax was paid. Plaintiff has not paid his entire tax liability for the relevant years. Therefore, the statute of limitations has not run on the amounts that he has not yet paid. Moreover, even if the statute of limitations bars plaintiff's claim for a refund, that fact does not deprive him of an adequate remedy at law. See Ohlendiek v. Schuler, 299 F. 182, 188 (6th Cir.1924) ("It is a general rule that, when a party has a complete and adequate remedy at law and fails for any cause to rely upon it in that forum, he will not be permitted to assert it in equity merely because he has lost his right of action by bar of the statute of limitation, unless he was prevented by fraud or accident, or by such circumstances as he was unable to control."); see also Baker v. Cummings, 169 U.S. 189, 18 S. Ct. 367, 42 L. Ed. 711 (1898) ("`Courts of equity, in cases of concurrent jurisdiction, consider themselves bound by the statute of limitations which govern actions at law.'") (quoting Metropolitan Bank v. St. Louis Dispatch Co., 149 U.S. 436, 448, 13 S. Ct. 944, 948, 37 L. Ed. 799 (1893)).
For the reasons set forth above,
IT IS ORDERED that plaintiff's emergency ex-parte motion to advance the case for the purpose of scheduling an evidentiary hearing is DENIED,
IT IS FURTHER ORDERED that defendants' motion to dismiss plaintiff's complaint is GRANTED pursuant to Rule 12(b)(1).
OPINION AND ORDER DENYING PLAINTIFF'S MOTION FOR RECONSIDERATION, GRANTING DEFENDANT'S MOTION FOR SANCTIONS, AND DENYING PLAINTIFF'S MOTION FOR EXTENSION OF TIME TO FILE RESPONSIVE PLEADINGS
On March 24, 1997, plaintiff filed a complaint in this Court, seeking to "enjoin and restrain lien and/or levy on the wages, property (real or personal), savings and pension accounts of the Plaintiff." On June 6, 1997, the Court issued an Opinion and Order granting the government's motion to dismiss plaintiff's complaint and denying plaintiff's emergency ex-parte motion to advance the case for the purpose of scheduling an evidentiary hearing. In making that disposition, the Court determined that it lacked subject matter jurisdiction over the action. On June 16, 1997, plaintiff filed the instant motion for reconsideration of the June 6, 1997 Opinion and Order pursuant to Fed.R.Civ.P. 59 and E.D. Mich. L.R. 7.1(h). Through this motion, plaintiff requests the Court to set aside its order dismissing his complaint. On June 27, 1997, the government sent a letter informing plaintiff's attorney, Robert Elsey, that it would seek sanctions against him if he failed to withdraw the motion for reconsideration. Elsey did not withdraw the motion.[1] Also before the Court is the government's motion for sanctions against plaintiff's attorney, Robert Elsey, pursuant to Fed.R.Civ.P. 11.
Discussion
E.D. Mich. L.R. 7.1(h)(3) states.
Generally, and without restricting the discretion of the Court, motions for rehearing or reconsideration which merely present the same issues ruled upon by the Court, either expressly or by reasonable implication, shall not be granted. The movant shall not only demonstrate a palpable defect by which the Court and the parties have been misled but also show that a *712 different disposition of the case must result from a correction thereof.
Plaintiff presents several reasons why he is entitled to reconsideration of the Court's Opinion and Order dismissing his complaint for lack of jurisdiction. First, plaintiff argues that the government failed to complete an assessment of his tax liability within three years as required by statute. Second. plaintiff argues that the Court incorrectly determined that plaintiff was not entitled to a notice of deficiency. The Court rejected these arguments in its Opinion and Order of June 6, 1997, and plaintiff has not shown that a different disposition of the case is warranted. Instead of rearguing the merits of his case to this Court, the proper course of action was for plaintiff to appeal the Court's order to the United States Court of Appeals for the Sixth Circuit. See Dana Corp. v. U.S., 764 F. Supp. 482, 489 (N.D.Ohio 1991).
Finally, plaintiff requests the Court to "withdraw" its order dismissing this action because he filed for bankruptcy on May 29, 1997, which "would stay the present proceedings." (Pl.'s Br. in Supp. of Mot. for Reconsideration at 5.) According to plaintiff, his bankruptcy petition has resulted in the government's levy/lien against him being "suspended," making his complaint "unnecessary." Id. at 5-6. Plaintiff argues that for that reason, the Court should now "withdraw" its order dismissing his complaint. Plaintiff would then voluntarily dismiss the action pursuant to Fed.R.Civ.P. 41.
11 U.S.C. § 362(a)(1) imposes an automatic stay of "the commencement or continuation ... of a judicial proceeding against the debtor." As the plain language of the statute indicates, plaintiff's bankruptcy petition did not result in the stay of this action because it was brought by, and not against, the debtor. See, e.g., Parker v. Bain, 68 F.3d 1131, 1138 (9th Cir.1995); Matter of U.S. Abatement Corp., 39 F.3d 563, 568 (5th Cir. 1994); Brown v. Armstrong, 949 F.2d 1007, 1009-10 (8th Cir.1991); Martin-Trigona v. Champion Federal Sav. & Loan Ass'n. 892 F.2d 575, 577-78 (7th Cir.1989); Carley Capital Group v. Fireman's Fund Ins. Co., 889 F.2d 1126, 1126-27 (D.C.Cir.1989); In re Berry Estates, 812 F.2d 67, 71 (2d Cir.1987), cert. denied, 484 U.S. 819, 108 S. Ct. 77, 98 L. Ed. 2d 40 (1987); Advanced Computer Services of Michigan, Inc. v. MAI Systems Corp., 161 B.R. 771, 775 (E.D.Va.1993); Mesiti v. Microdot, Inc., 156 B.R. 113, 119 n. 5 (D.N.H.1993).
Having rejected plaintiff's arguments for reconsideration of this matter, the Court now turns to the government's motion for sanctions against Elsey. The government believes that it is entitled to sanctions because the claims presented in plaintiff's complaint, as well as the arguments made in plaintiff's motion for reconsideration, were unwarranted by existing law and by a nonfrivolous argument for a change in the law. The government also argues that plaintiff's complaint and motion for reconsideration were filed to harass the government. Rule 11(b) provides in pertinent part:
By presenting to the court (whether by signing, filing, submitting, or later advocating) a pleading, written motion, or other paper, an attorney or unrepresented party is certifying that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances,
(1) it is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation.
(2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law.
Having reviewed the pleadings and case law relevant to this motion, the Court concludes that while plaintiff's claims were ultimately unsuccessful, they were not so devoid of a basis in law as to be sanctionable.
However, the Court finds Elsey's argument regarding plaintiff's bankruptcy petition to be objectionable. Elsey presented no authority for his bald statement that this action had been stayed, and, as the authority cited by the Court supra indicates, the law is clear that this action was not stayed. Furthermore, Elsey waited until after the Court *713 dismissed this action to bring the bankruptcy petition to the Court's attention. Plaintiff filed his bankruptcy petition on May 29, 1997, eight days before the Court issued its Opinion and Order dismissing the instant action. On June 9, 1997, counsel for plaintiff filed a supplementary brief in opposition to the government's motion to dismiss (which he signed on June 6, 1997). In this supplementary brief, Elsey failed to disclose that plaintiff had filed his bankruptcy petition on May 29, 1997, and failed to argue, as he does now, that plaintiff's filing of the bankruptcy petition is a basis for the Court to deny defendants' motion to dismiss. Attorney Elsey obviously had every intention to press his client's cause in this venue, notwithstanding the bankruptcy petition, until Elsey learned that the Court had entered an order granting defendants' motion to dismiss.
The Court is satisfied that by presenting this argument in the motion for reconsideration, attorney Elsey has submitted a pleading which contains a "legal contention" that is not warranted by existing law, and Elsey's failure to include such "legal contention" in the supplemental brief filed on June 9, 1997 suggests to this Court that Elsey did not believe that the filing of a bankruptcy petition by plaintiff would warrant a stay of proceedings or otherwise be a basis for denying the government's motion to dismiss.
The Court therefore believes that Elsey's conduct, under the circumstances, warrants the imposition of sanctions.
In determining the type and amount of sanctions that should be imposed, the Court is mindful that it "should not be more severe then reasonably necessary to deter repetition of the conduct by the offending person or comparable conduct by similarly situated persons." Rule 11 advisory committee's notes. The Court believes that a $1000 fine payable to the Court would be sufficient to deter Elsey and other lawyers from presenting frivolous arguments to the Court in the future.
Accordingly,
IT IS ORDERED that plaintiff's motion for reconsideration is DENIED;
IT IS FURTHER ORDERED that Robert Elsey shall pay $1000 to the Clerk of the Court within thirty days of the issuance of this Opinion and Order,
IT IS FURTHER ORDERED that plaintiff's motion to extend time to file responsive pleadings is DENIED.
OPINION AND ORDER DENYING ROBERT ELSEY'S MOTION FOR RELIEF FROM JUDGMENT
This matter is before the Court on attorney Robert Elsey's motion for relief from judgment pursuant to Fed.R.Civ.P. 60(b)(1) and (6).[1] In this motion, Mr. Elsey seeks to set aside an order in which the Court directed him to pay $1000 in sanctions. In an Opinion and Order dated October 27, 1997, the Court sanctioned Mr. Elsey for making the groundless assertion that this action had been stayed by virtue of his client's (Conrad Miklaski) filing of a bankruptcy petition. The Court also reached the conclusion that Mr. Elsey did not believe that the action was stayed because Miklaski filed the petition on May 29, 1997 and Mr. Elsey failed to mention this petition in a supplemental brief that he filed on June 9, 1997.[2]
Elsey argues that he is entitled to relief from this order because he was not aware that Miklaski had filed for bankruptcy *714 until after the Court issued its Opinion and Order of June 6, 1997 dismissing this case. Elsey also indicates that he represented to the Court that the action had been stayed by Miklaski's bankruptcy petition because Miklaski's bankruptcy attorney, Robert McClellan, "for a period of time" was under the mistaken belief that the instant action had been initiated by the government. Elsey does not explain what is meant by the phrase "for a period of time." Elsey goes on to state that he "relied upon the comments of the bankruptcy attorney" when he made an "indication" in his brief that the proceedings had been stayed. If these "comments" came in a conversation between Elsey and McClellan, the Court is at a loss to understand why Elsey would not have made it clear to McClellan that Miklaski instituted the proceedings, since obviously Elsey was aware of that fact. In this Court's opinion, Elsey had no right to rely on the "incorrect" information he was purportedly being given by McClellan because Elsey knew that the proceedings had been instituted by Miklaski and Elsey should have known that Miklaski's bankruptcy proceedings would not stay this proceeding. Elsey's explanation for his asserting a meritless claim, i.e., the proceedings should be stayed because of the bankruptcy based "upon the comments of the bankruptcy attorney" fails to persuade this Court that Elsey was justified in asserting such claim.
While the Court accepts as true Mr. Elsey's assertions that he did not know that the bankruptcy petition had been filed and that based on a "misunderstanding" he believed that the petition did in fact stay this action, the Court does not believe that Mr. Elsey is entitled to relief from the sanctions order. Elsey had every opportunity to explain these mitigating factors to the Court prior to the date on which it issued the sanctions order, but he failed to do so.[3] The Court believes that it would be inappropriate to allow Mr. Elsey to do nothing prior to the Court's ruling and then avoid the sanctions by producing "justifications" in this motion. Furthermore, Mr. Elsey's "justifications" do not entitle him to the relief that he seeks. Fed. R.Civ.P. 11(b)(2) authorizes the Court to impose sanctions if an attorney makes an unwarranted legal argument without making a reasonable inquiry. Mr. Elsey's argument that the action was stayed was unwarranted. Even if Mr. McClellan did not have a clear understanding of who initiated the lawsuit, Mr. Elsey was certainly aware that Miklaski initiated the suit. In the Court's opinion, if Mr. Elsey was going to rely on Mr. McClellan's legal opinions, he had a duty to be diligent in informing McClellan of the relevant facts.
Rule 11 is intended to require attorneys to make diligent inquiry and refrain from filing pleadings or making claims that lack merit. In this Court's opinion, Elsey should acknowledge and accept his responsibility for violating Rule 11 by asserting a totally meritless claim.[4] Instead, he seems to place the *715 fault with attorney McClellan, whom he suggests gave him incorrect advice, and the Court for not scheduling a hearing.
Defendants had asked for $25,000 for the Rule 11 sanctions. The Court assessed what it believed to be the "minimum" necessary to deter attorney Elsey from participating in unnecessary or unwarranted litigation. Unfortunately, it does not appear that the Court's attempt at deterrence was successful. This motion, in this Court's opinion, was not warranted and certainly contributed to the Court expending additional unnecessary time in conjunction with this lawsuit, which the Court long ago concluded should be dismissed.
Accordingly,
IT IS ORDERED that Robert Elsey's motion for relief from judgment is DENIED.
NOTES
[1] Plaintiff's total unpaid balance is $89,799.22, including penalties and interest.
[2] Section 6212(a) states, "If the Secretary determines that there is a deficiency in respect to any tax imposed by subtitles A or B or chapter 41, 42, 43, 44, he is authorized to send notice of such deficiency to the taxpayer by certified mail or registered mail."
[3] Section 6213(a) states, "After 90 days ... after the notice of deficiency authorized in section 6212 is mailed ... the taxpayer may file a petition with the Tax Court for redetermination of deficiency."
[4] Section 6501 states, "the amount of any tax imposed by this title shall be assessed within 3 years after the return was filed."
[1] Fed.R.Civ.P. 11(c)(1)(A) provides that an attorney served with a motion for sanctions has twenty one days from service of the motion to withdraw or correct the offending document. In this case, the twenty one day period has more than expired. Elsey has also failed to file a response to the motion for sanctions. On October 17, 1997, Elsey filed a motion for extension of time to respond to the government's motion for sanctions. This much belated motion for an extension of time is denied.
[1] Rule 60(b) provides in relevant part,
On 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 the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b), (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; (4) the judgment is void; (5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or (6) any other reason justifying relief from the operation of the judgment.
[2] Elsey asserts, and the Court has no reason to doubt, that he mailed the supplemental brief on June 6, 1997.
[3] Mr. Elsey also takes issue with the Court's failure to hold a hearing on the motion for sanctions. As discussed in the Opinion and Order of October 27, 1997, Elsey never responded to the government's motion for sanctions, which had been filed on June 27, 1997, despite the fact that Local Rule 7.1 provides that "A respondent opposing a motion shall file a response ... within ten days after service of the motion." The motion for sanctions alerted Elsey to the fact that his claim relating to the bankruptcy stay was totally without merit. Furthermore, Elsey had been notified on June 27, 1994, pursuant to the requirements of Rule 11, that he could avoid sanctions by withdrawing the motion. Despite the fact that Elsey was notified on or about June 27, 1997 that this claim lacked merit, and again was notified when the motion was filed on July 29, 1997 that this claim lacked merit, Elsey did nothing to acknowledge the correctness of defendant's position and withdraw this claim. Elsey faults the court for not scheduling a hearing. Yet he had ample opportunity to withdraw the "meritless" claim and advise the Court of the circumstances which "caused" him to include such claim. The Court recognizes that on October 17, 1997, Elsey filed a motion requesting more time to respond to the motion; however, the Court does not believe that he needed two and a half months to verify the information he received on or about June 27, 1997 pointing out to him that his claim relating to the "bankruptcy stay" was clearly wrong.
[4] In the present motion for relief from judgment, Mr. Elsey "concedes" that in his brief he did "note" that the filing of the bankruptcy petition would stay the present Court proceedings and that that was an "equivocation." This choice of words further suggests to this Court Mr. Elsey's hesitancy to admit that he improperly asserted a meritless claim. Mr. Elsey did more in his brief than "note" that the filing of the bankruptcy petition would stay the proceedings; he requested the Court to set aside the Court Order granting defendants' motion to dismiss, "for the reason that the Plaintiff has filed a [petition in bankruptcy]" and "said Petition would stay the proceedings herein." It is difficult to understand how Mr. Elsey categorizes that statement as an "equivocation." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2467560/ | 49 F. Supp. 2d 536 (1999)
Richard SAVAGE and Richard Savage d/b/a Richard Savage Agency, Plaintiffs,
v.
LINCOLN BENEFIT LIFE COMPANY, Allstate Insurance Company, and Cindy Hoffman, Jointly and Severally, Defendants.
and
Allstate Insurance Company, Counter-Plaintiff,
v.
Richard Savage, Counter-Defendant.
No. 97-CV-10331-BC.
United States District Court, E.D. Michigan, Northern Division.
March 22, 1999.
*537 Philip R. Sturtz, Saginaw, MI, for plaintiffs.
Mark K. Riashi, Detroit, MI, for defendants.
ORDER GRANTING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT AS TO PLAINTIFFS' CLAIM AGAINST DEFENDANTS AND GRANTING DEFENDANT ALLSTATE'S MOTION FOR SUMMARY JUDGMENT AS TO ITS COUNTERCLAIM AGAINST PLAINTIFFS
CLELAND, District Judge.
I. Introduction
Plaintiff[1] originally sued three defendants Allstate Insurance Company, Lincoln Benefit Life Company (a subsidiary of Allstate Insurance Company), and Cindy[2] Hoffman (an employee of Lincoln Benefit Life Company)in the Tenth Circuit Court in Saginaw County, Michigan alleging defamation. Defendants removed the case to this court on September 17, 1997. On October 10, 1997, defendant, Allstate Insurance Company, filed a counterclaim averring breach of contract, conversion, misappropriation of trade secrets, and unfair competition. Pending before the court is defendants' motion for summary judgment on both the original claim and the counterclaim, filed on October 14, 1998. Plaintiff responded on November 19, 1998, to which defendants replied on December 2, 1998. A hearing was held on December *538 9, 1998. The court then called for supplemental briefing on the issue of privilege; defendants filed a brief on December 21, 1998 and plaintiff replied with a letter on December 28, 1998.
II. Background
On September 12, 1994, plaintiff Richard Savage became an employee of Allstate Insurance Company ("Allstate") by signing an Allstate R3000 Exclusive Agent Employment Agreement. Plaintiff's defamation claim is based on incidents which allegedly occurred in October and November 1996. Specifically, plaintiff collected $50.13 in cash from a client, Linda Burns, and in turn sent a check for $50.13 and an insurance policy application to defendant Lincoln Benefit Life Company ("Lincoln Benefit"). On November 5, 1996 Linda Burns contacted Cindy Hoffman, an employee of Lincoln Benefit, to inquire about the status of the insurance policy. At that time Cindy Hoffman communicated with Linda Burns in a manner that plaintiff characterizes as an accusation that he had kept or mishandled the money and was not eligible to sell the type of policy Linda Burns attempted to purchase. Plaintiff also postulates, without support, that such information could have been circulated to others.
The R3000 agreement expired, by its own terms, on April 1, 1996. On March 21, 1996, plaintiff signed an Allstate R3001 Exclusive Agency Agreement which, according to defendant Allstate, provides greater monetary rewards and changes the status of the signer from an employee to an independent contractor. The R3001 agreement contains a confidentiality and non-competition clause effective upon termination. Plaintiff also signed a separate Confidentiality and Non-Competition Agreement upon which defendant does not rely.
Approximately four months later, on February 27, 1997, defendant Allstate notified plaintiff that he would be terminated, effective June 1, 1997. According to defendants, the termination was not based on the incident involving Cindy Hoffman and Mrs. Burns; instead, defendants aver that plaintiff was terminated because he falsified documents and sold competitor's insurance products. Nonetheless, plaintiff was entitled to termination payments on condition that he adhere to the confidentiality/non-competition agreement found within the R3001 contract. Defendants further proffer that, after his termination, plaintiff sold competitor's products to people who were Allstate customers at the time of plaintiff's termination and/or to people plaintiff learned about through confidential Allstate information. Defendants additionally allege that plaintiff used Allstate's prepaid postage to sell competitor's products and for his own use. Defendants further aver that plaintiff violated his obligations by conducting business within one mile of the location in which he sold Allstate's products. Conversely, plaintiff argues that the R3001 agreement is invalid and, therefore, could not be violated.
III. Standard
Under Rule 56, summary judgment is proper when 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.Pro. 56(c). "Where the moving party has carried its burden of showing that the pleadings, depositions, answers to interrogatories, admissions and affidavits in the record construed favorably to the non-moving party, do not raise a genuine issue of material fact for trial, entry of summary judgment is appropriate." Gutierrez v. Lynch, 826 F.2d 1534, 1536 (6th Cir.1987) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986)). Summary judgment is not appropriate when "the evidence presents a sufficient disagreement to require submission to a jury." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). The existence of some factual dispute does not defeat a properly supported motion for summary judgment; the disputed factual issue must be material.
*539 The burden placed upon the movant for summary judgment is to show that the non-moving party has failed to establish an essential element of its case upon which the non-moving party would bear the ultimate burden of proof at trial. Celotex Corp., 477 U.S. at 322, 106 S. Ct. 2548. But the moving party need not support its motion with affidavits or other similar materials "negating" the opponent's claim. Id. at 323, 106 S. Ct. 2548. Once the moving party meets this burden, the burden passes to the non-moving party to establish, after an adequate opportunity for discovery, the existence of a disputed factual element necessary to its case with respect to which it bears the burden of proof. Id. The non-moving party must show that there is sufficient evidence for a jury to return a verdict in its favor, Street v. J.C. Bradford & Co., 886 F.2d 1472, 1477 (6th Cir.1989) (citation omitted), that is, that there is doubt as to the material facts and that the record, taken as a whole, does not lead to a judgment for the movant. Id. at 1478 (citation omitted). The non-moving party must present affirmative evidence on critical issues. Id. at 1477.
IV. Discussion
A. Plaintiff's Defamation Claim Against Defendant Allstate
Plaintiff possesses no first hand knowledge of the conversation(s) between Cindy Hoffman and Linda Burns. Hence, in trying to survive defendants' motion for summary judgment plaintiff relies almost exclusively on the deposition of Linda Burns regarding her telephone conversations with Cindy Hoffman. The relevant portions of Linda Burns's testimony are as follows.
Q. Was there any other conversation [on November 5th, 1996]?
...
A. ... Then [Cindy Hoffman] said she would get the money from Mr. Savage because according to her there was no money that she had received from Mr. Savage.
Burns Dep., Def.Ex. 3 at 17.
Q. Did [Cindy Hoffman] say anything about Mr. Savage keeping the money?
A. I don't know if she said that, I don't remember her, recall her saying that, but I just recall that she did say there was no money received from Mr. Savage. And I told her that we did give him a check. And she said there was nothing there in her office that she found that there was any money. So there was no policy written.
(Id.)
Q. And on November 5th did you have further conversation with [Cindy Hoffman] .... [Cindy Hoffman] told you apparently that Savage did not send her the money.
A. Right
Q. And you were to send [Cindy Hoffman] a copy of whatever you have given to Savage?
A. And then her company would send us the money and she would turn around and get the money from Mr. Savage.
(Id. at 18.)
Q. Did [Cindy Hoffman] say anything else on that phone conversation on November 5?
A. Just enough to make me think that I didn't know who I was working with then, because I was very upset over the fact that Mr. Savage had told me that we had a policy and I'm talking to this lady, this Cindy Hoffman, and she's telling me we have no policy. And she didn't receive a check. And there was no moneys in her hand, so she said there is no policy.
(Id. at 18-19.)
Q. What were you thinking of Savage at this time?
A. I was really distrustful of him. I didn't really want him for an agent anymore because he was verybecause the *540 way [Cindy Hoffman] talked he wasn't eligible to write up this policy.
(Id. at 20-21.)
Cindy Hoffman called Linda Burns on November 7th:
Q. Do you remember anything else that was said in that conversation....
A. Just that [Cindy Hoffman] said that they had found a check. And I was thinking that if she would have told me that in the first place, there wouldn't have been no problem. But she also told me that they were still checking into his eligibility to sell up this policy. And, according to Cindy Hoffman, we had no policy with Lincoln Benefit because Mr. Savage sold us a policy he wasn't supposed to.... I feel that Cindy Hoffman should have been 100 percent sure of what she told me that was exactly the way that should have I mean, she should have known what she was saying before she told me anything. That's what I felt. Because they were very distrustful of Mr. Savage, we were ready to take all of our policies somewhere else.
(Id. at 24-45.)
Q. On this November 7th date conversation she still indicated to you that Savage still did not have the ability to write this policy, nor was he authorized to do that?
A. Yes, she did.
(Id. at 25.)
Q. Did she say anything else to you?
A. She was still checking into whether or not he had the right, but as far as she knew we had, there was no policy. She said we have not policy with them.
(Id. at 25.)
Q. ... Did [Cindy Hoffman] ever tell you that Savage had stole the money or kept the money ...
A. No, she never told me that.
(Id. at 27.)
Q. What, as result of this incident and what you heard and saw caused you to take your insurance business away from Mr. Savage?
A. What as a result? As a result of the life insurance policy, the trouble with this. We just didn't trust him.
Q. When you say you didn't trust him, what didn't you trust? That he had gotten the money or he had played games with the money or what did you
A. I just didn't trust his the way that this whole thing happened it was, you know, with the Lincoln Benefit what they said and what he said and everything being, you know, just completely twisted around. Just the opposite of what he said was going to happen. We were supposed to have a policy. Even though we did get the policy we went through a lot of trouble to get that policy.
Q. Did this conversation that you had with Cindy Hoffman was this of some importance to you, would she have told you about Savage and what he was doing?
A. Sure. She made me very distrustful of him.
(Id. at 29-30.)
Q. Have you ever talked to anyone other than Mr. Savage or Miss Hoffman and those sitting in this room today about the conversations that you had with Miss Hoffman?
A. Well I did talk to the agent that I have now [Scott Meteva].
(Id. at 34.)
Q. What did you tell him about your conversations with Miss Hoffman?
A. ... I just explained to him what was happening. And he said he would get back with me, he was going to check into this.
Q. Did you ever speak to [Mr. Meteva] again about the Lincoln Benefit policy and these issues? A. Yes.
Q. When?
*541 A. ... He called me back and said that he said that he talked tohe didn't talk to Mr. Savage, but he said that there was definitely something wrong there. But he couldn't really give me any information other than the fact that there was something very wrong.
(Id. at 36.)
Q. Tell me as best you can what is it that led you to be distrustful of Mr. Savage?
A. What is it that led me to be distrustful?
Q. Yes.
A. The life insurance policy. Well, after my conversation with Lincoln Benefit, them telling me that there was no policy, them telling me he was not eligible to sell the policy, several things.
Q. Does that consist of everything that led you to believe that Mr. Savage was not trustworthy?
A. That, and he couldn't answer the questions. He couldn't answer why, you know, what was going on. He never had an answer. He said he was going to find an answer and we never we just couldn't get to the bottom of it. And he just didn't seem to know either.
Q. When you say he could never answer the questions, you're referring to questions that you would have personally posed to him about what Lincoln Benefit was saying, right?
A. Right.
Q. And those questions were what?
A. That he wasn't eligible to sell the policy. That because he didn't have a license to sell it. And the check. I mean, there was no money they said they received.
(Id. at 44-45.)
Linda Burns's testimony provides the possibility, as alleged by plaintiff, that Cindy Hoffman made defamatory statements in two categories. First, stating or suggesting that plaintiff either stole or in some way inappropriately handled the money Linda Burns gave him to apply for an insurance policy. Second, stating or suggesting that plaintiff was unauthorized to accept an application for that particular policy. After discussing the standard for defamation, the court will address each category.
1. Defamation Standard
The law of defamation requires a plaintiff to satisfy four elements:
(1) a false and defamatory statement concerning the plaintiff, (2) an unprivileged communication to a third party, (3) fault amounting to at least negligence on the part of the publisher, and (4) either actionability of the statement irrespective of special harm or the existence of special harm caused by publication.
Cole v. Knoll, Inc., 984 F. Supp. 1117, 1134 (W.D.Mich.1997); see also Sawabini v. Desenberg, 143 Mich.App. 373, 372 N.W.2d 559, 563 (Mich.Ct.App.1985). "These elements must be specifically pleaded and proved, including specific proof with respect to the defamatory words, the connection between the plaintiff and the defamatory words, and publication." Cole, 984 F.Supp. at 1134.
Further, "[a] communication is defamatory if it tends so to harm the reputation of another as to lower him in the estimation of the community or to deter third persons from associating or dealing with him." Sawabini, 372 N.W.2d at 563-64; see also Baggs v. Eagle-Picher Indus., Inc., 957 F.2d 268 (6th Cir.1992). Additionally, "an accusation of a commission of a crime is defamatory per se." Baggs, 957 F.2d at 273. Also defamatory per se is a "false and malicious statement[] injurious to a person in his or her business ... and special damages need not be alleged or proved." Heritage Optical Center, Inc. v. Levine, 137 Mich.App. 793, 359 N.W.2d 210, 212 (Mich.Ct.App.1984).
However, "the court may determine, as a matter of law, whether the words in question, alleged by plaintiff to be *542 defamatory, are capable of defamatory meaning." Sawabini, 372 N.W.2d at 563. Moreover, "`[w]here the words are, as a matter of law, not capable of carrying a defamatory meaning, summary judgment ... is appropriate.'" Baggs, 957 F.2d at 273 (citing Sawabini, 372 N.W.2d at 563).
2. Statements That Plaintiff Kept or Mishandled Money
As discussed in the previous section, plaintiff must satisfy four elements to prevail on his defamation claim. These elements will be addressed seriatim.
a. "a false and defamatory statement concerning the plaintiff"
The first element of a defamation claim contains two parts (1) a statement must be false and (2) it must be defamatory. At the time of the Cindy Hoffman/Linda Burns telephone conversation(s) plaintiff had, in fact, transferred the Burns's money to Lincoln benefit. (Pl.Br.Ex.5); (Def.Supp.Br. at 1, n. 1). Thus, any statements or implications by Cindy Hoffman that Lincoln Benefit had not received the money or that plaintiff had kept or mishandled the money were false. Thus plaintiff has satisfied the first part of element one.
A statement must also be proved defamatory. As noted earlier, "[a] communication is defamatory if it tends so to harm the reputation of another as to lower him in the estimation of the community or to deter third persons from associating or dealing with him." Sawabini, 372 N.W.2d at 563-64. Moreover, the court may grant summary judgment "[w]here the words are, as a matter of law, not capable of carrying a defamatory meaning." Baggs, 957 F.2d at 273 (citing Sawabini, 372 N.W.2d at 563). The court determines that it is possible that plaintiff lost at least one customer, Linda Burns, because of Cindy Hoffman statements. Additionally, the court cannot conclude that Cindy Hoffman's words are incapable of "carrying a defamatory meaning." Id. Rather, Cindy Hoffman's words, as contained in the deposition of Linda Burns, are at least capable of being read as accusations of thievery or incompetence. There is, therefore, at least a genuine issue of material fact as to element one. See Gutierrez, 826 F.2d at 1536.
b. "an unprivileged communication to a third party"
The second element of a defamation claim requires that the potentially defamatory statement (1) be unprivileged and (2) that it be communicated to a third party. Regarding the second part of this element, it is undisputed that Cindy Hoffman's statements were communicated to a third person, Linda Burns.
Regarding the first part of this element, whether or not a defamatory statement is privileged is a question of law. New Franklin Enterprises v. Sabo, 192 Mich.App. 219, 480 N.W.2d 326, 328 (Mich. Ct.App.1992); Peisner v. Detroit Free Press, Inc., 82 Mich.App. 153, 266 N.W.2d 693, 698 (Mich.Ct.App.1978); Lawrence v. Fox, 357 Mich. 134, 97 N.W.2d 719, 722 (Mich.1959). Defendants bear the burden of establishing a privilege. Lawrence, 97 N.W.2d at 722. The defendant has asserted no basis for an absolute privilege, such as a legislative, judicial or military privilege. Harrison v. Arrow Metal Products Corp., 20 Mich.App. 590, 174 N.W.2d 875, 884-85 (Mich.Ct.Ap.1970). There is basis, however, for a qualified or conditional privilege. In explaining how a court should determine whether a publication is privileged, the Lawrence court quoted from the Restatement of Torts § 619, comment a[3]. Lawrence, 97 N.W.2d at 722. Section 619 indicates that whether a publication is privileged is a question for the courts to decide and directs courts to §§ 585-599 of the Restatement of Torts for specifics. *543 Lawrence, N.W.2d at 722. The most current version of § 595[4] explains privilege as it is relevant to the case at bar.
(1) An occasion makes a publication conditionally privileged if the circumstances induce a correct or reasonable belief that
(a) there is information that affects a sufficiently important interest of the recipient or a third person, and
(b) the recipient is one to whom the publisher is under a legal duty to publish the defamatory matter or is a person to whom its publication is otherwise within the generally accepted standards of decent conduct.
(2) In determining whether a publication is within generally accepted standards of decent conduct it is an important factor that
(a) the publication is made in response to a request rather than volunteered by the publisher or
(b) a family or other relationship exists between the parties.
Restatement (Second) of Torts § 595 (1977). The court determines that the facts of the instant case are such that § 595 is advisory. Certainly the information as to whether the Burns's application money was transferred to Lincoln Benefit by plaintiff was an important interest to Linda Burns, the recipient of the information. In fact, the active status of a policy may be a putative client's most important interest when transacting business with an insurance company. Moreover, although Cindy Hoffman may not have been under a legal duty to publish the information to Linda Burns, certainly a good faith publication by an insurance company to a putative customer regarding the status of the receipt of a check or the issuance of a policy is "within generally accepted standards of decent conduct." Id. This is especially true since Cindy Hoffman was "respon[ding] to a request," Id., made by Linda Burns.
The elements of a conditional privilege have also been articulated as follows:
The essential elements of a conditionally privileged communication may accordingly be enumerated as [1] good faith, [2] an interest to be upheld, [3] a statement limited in its scope to this purpose, [4] a proper occasion, and [5] publication in a proper manner and to proper parties only.
Timmis v. Bennett, 352 Mich. 355, 89 N.W.2d 748, 755 (Mich.1958). There is no evidence to suggest that Cindy Hoffman did not believe that what she was telling Linda Burns was true. Moreover, Cindy Hoffman indicated she would investigate the matter further and later, in fact, followed up with Linda Burns indicating that Lincoln Benefit had indeed received the check. Therefore, for purposes of determining whether a conditional privilege exists, the evidence suggests that Cindy Hoffman acted in good faith. In regard to an interest to be upheld, a
"qualified privilege ... extends to all communications made Bona [sic] fide upon any subject-matter in which the party communicating has an interest, or in reference to which he has a duty, to a person having a corresponding interest or duty. And the privilege embraces cases where the duty is not a legal one, but where it is of a moral or social character of imperfect obligation."
Harrison v. Arrow Metal Products Corp., 20 Mich.App. 590, 174 N.W.2d 875, 885-86 (Mich.Ct.App.1970) (citing Bostetter v. Kirsch Co., 319 Mich. 547, 30 N.W.2d 276, 279-80 (1948)). Both Cindy Hoffman (Lincoln Benefit and Allstate) and Linda Burns were interested in an active insurance policy and Cindy Hoffman had at least a moral or social duty to inform Linda Burns, in good faith, about the receipt of application money. The evidence suggests, then, that *544 the statements made by Cindy Hoffman were limited in scope to whether or not money was received and to plaintiff's authority. Further, a private telephone conversation between a Lincoln Benefit employee and a putative customer, Linda Burns, was proper in occasion and manner. The court therefore determines, as a matter of law, that the conversation(s) between Cindy Hoffman and Linda Burns were covered by a conditional privilege.
Once a conditional privilege has been established, it becomes a factual question for the jury to decide whether the defendant abused the privilege. Lawrence, 97 N.W.2d at 724. "`The unreasonable exercise of privilege is an abuse of the occasion which defeats the protection otherwise afforded.'" Id. at 723 (citing Restatement of Torts, § 600, Comment a). Plaintiff bears the burden of proving abuse. Id. at 724. Abuse can be demonstrated in several ways, including the following: "lack of good faith"; "primary motive of hostility, spite, or ill-will" or "`actual malice'"; or excessive publication. Id. (citations omitted). Moreover, because abuse is a question of fact, it is subject to summary judgment. The court has already determined as a matter of law that Cindy Hoffman acted in good faith. Further, plaintiff has proffered no evidence that Cindy Hoffman acted with hostility, spite, ill-will or actual malice. Lastly, the statement was published to only one person, one who had requested the information. The court finds, then, that no genuine issue of material fact regarding abuse of privilege exists. See Gutierrez, 826 F.2d at 1536. In other words, plaintiff failed to present evidence of a sufficient disagreement regarding abuse to require the case to be submitted to the jury. See Anderson, 477 U.S. at 251-52, 106 S. Ct. 2505.
c. "fault amounting to at least negligence on the part of the publisher"
The third element of defamation requires that plaintiff show at least negligence. As earlier noted, the Burns's money was transferred by plaintiff to Lincoln Benefit before the Cindy Hoffman/Linda Burns conversation(s). Cindy Hoffman, as a representative of Lincoln Benefit, at least arguably should have been aware of payment at the time of her conversation(s) with Linda Burns. This is particularly true in light of the fact that, according to Linda Burns's testimony, Cindy Hoffman later indicated the check was "found." (Burns Dep., Def.Ex. 3 at 24). Plaintiff has offered at least a material dispute as to negligence. See Gutierrez, 826 F.2d at 1536.
d. "either actionability of the statement irrespective of special harm or the existence of special harm caused by publication"
Because plaintiff is alleging defamatory statements regarding his business, it is unnecessary for him to allege special damages. Heritage Optical Center, Inc., 359 N.W.2d at 212.
e. Summary
Although plaintiff has offered enough evidence to survive summary judgment as to the first, third, and fourth elements of defamation in the first category, he has offered no evidence creating a sufficient disagreement in regard to element two. See Anderson, 477 U.S. at 251-52, 106 S. Ct. 2505. The court has determined that a conditional privilege covers the statements made by Cindy Hoffman and plaintiff has offered no evidence showing abuse of this privilege which raises the issue to one of sufficient disagreement. See id. Accordingly, summary judgment will be granted for defendant as to any statements of thievery or incompetence.
3. Statements that Plaintiff was Ineligible to Sell Policy
Plaintiff is faced with the same four elements to prove his claim of defamation regarding his eligibility to sell the Burns's their insurance policy.
*545 a. "a false and defamatory statement concerning the plaintiff"
Plaintiff has offered no particular evidence that statements made by Cindy Hoffman regarding his eligibility to sell the policy to Linda Burns were false. In fact, according to Linda Burns's testimony, she asked plaintiff about his ability to sell such a policy and did not receive a satisfactory answer. (Burns Dep., Def.Ex. 3 at 44-45). Therefore, plaintiff has failed to meet the first part of this element. Whether or not the statement was defamatory is subject to similar analysis as discussed by the court under the first category of defamation.
b. "an unprivileged communication to a third party"
The court's analysis of privilege under the first category of defamation is equally applicable to statements under this category.
c. "fault amounting to at least negligence on the part of the publisher"
Similar to the court's findings under category one, there is at least a genuine issue of material fact that defendant should have been able to explain to a customer an agent's authority.
d. "either actionability of the statement irrespective of special harm or the existence of special harm caused by publication"
As noted under category one, it is not necessary for plaintiff to allege special harm or damages since the possible defamation is related to his employment. Heritage Optical Center, Inc., 359 N.W.2d at 212.
e. Summary
Although plaintiff offered sufficient evidence as to elements three and four to survive summary judgment as to the first category of defamation, plaintiff has offered no evidence creating a sufficient disagreement in regard to elements one and two. See Anderson, 477 U.S. at 251-52, 106 S. Ct. 2505. Specifically, plaintiff offered no evidence that Cindy Hoffman's statements regarding his eligibility to sell Linda Burns's the policy at issue were false. Further, the court has determined that a conditional privilege covers Cindy Hoffman's statements and plaintiff has offered no evidence of abuse. Accordingly summary judgment will be granted for defendant as to any statements of plaintiff's eligibility.
B. Defendant Allstate's Claim Against Plaintiff
Defendant Allstate, in its counterclaim, alleges that plaintiff violated the R3001 agreement entered into by plaintiff and defendant Allstate. Plaintiff offers essentially two defenses in attempting to survive defendant Allstate's motion for summary judgment on the counterclaim. First, without support of proof or exhibits, plaintiff simply denies violating the agreement. Second, plaintiff claims that there was no valid R3001 agreement and, therefore, it could not have been violated. Hence, whether summary judgment is warranted turns almost entirely upon whether there was a valid R3001 agreement between plaintiff and defendant Allstate.
It is undisputed that an R3000 agreement was entered into by plaintiff and defendant Allstate and that it expired on April 1, 1996. It is also undisputed that plaintiff signed an Allstate R3001 Exclusive Agency Agreement and an accompanying Confidentiality and Non-Competition Agreement on March 21, 1996. As noted, however, defendant Allstate relies on the confidentiality/non-competition agreements within the R3001 agreement and not the separate Confidentiality and Non-Competition Agreement.
Plaintiff relies on the following arguments for his theory that the R3001 contract and the confidentiality/non-competition agreements are invalid: plaintiff signed the R3001 agreement at a sales *546 meeting while walking down the hall; plaintiff did not know what he was signing; plaintiff never received a copy of the document; the document was not dated by the agent signing on behalf of Allstate; an R3001 deals with a sole proprietorship and it was plaintiff's desire to form an insurance corporation which would require an R3001A document.
Plaintiff's arguments are unpersuasive. In regard to plaintiff's arguments that the document was signed between meetings and he did not know what he was signing, "[i]t is well established that a person cannot avoid a written contract on the ground that he did not attend to its terms, did not read it, supposed it was different in its terms, or that he believed it to be a matter of mere form." Rowady v. K Mart Corp., 428 N.W.2d 22, 26 (Mich.Ct.App.1988); see also United States v. Stump Home Specialties Manufacturing, Inc., 905 F.2d 1117, 1120 (7th Cir.1990) (citations omitted). Additionally, defendant Allstate provides a copy of a letter addressed to plaintiff, dated January 25, 1996, (Def.Ex.5), which discusses conversion from R3000 to R3001 which, if nothing else, gave plaintiff plenty of opportunity to learn about an R3001 before signing one. See Rowady, 428 N.W.2d at 25-26. Defendant Allstate also provides a copy of a letter from Allstate to plaintiff dated May 30, 1996 congratulating plaintiff on his conversion to an Executive Agent. (Def.Ex.9).
Plaintiff's arguments that the document is invalid because he never received a copy of it and because his desire was to create a corporation rather than a sole proprietorship, are equally unpersuasive. Plaintiff provides no legal support for these arguments. Plaintiff also provides no legal support for his argument that signing the wrong type of confidentiality/non-competition agreement invalidates applicable portions. Moreover, the argument is moot as defendant Allstate is relying on the non-competition agreement found within the R3001 document in support of its claim for damages.
Defendant Allstate, besides citing to Rowady and Stump Home Specialties Manufacturing, Inc., and providing copies of letters regarding conversion from R3000 to R3001, provides copies of plaintiff's tax returns from 1995 and 1996. (Def.Ex.8). Defendant Allstate avers, and it is undisputed by plaintiff, that plaintiff's 1996 tax return reflects money earned on commission while his 1995 tax return reflects a salary (Def.Ex.8). Defendant Allstate argues, at least implicitly, that R3000 employees earn a salary and R3001 agents earn commissions.
Further, although plaintiff acknowledges the expiration of the R3000 contract on April 1, 1996, he continued representing Allstate under some arrangement after April 1, 1996. Therefore, the court determines that there is no genuine issue over the validity of the R3001 contract. See Gutierrez, 826 F.2d at 1536. In other words, plaintiff failed to present evidence of a sufficient disagreement regarding validity of the contract to require the case to be submitted to the jury. See Anderson, 477 U.S. at 251-52, 106 S. Ct. 2505.
Defendant also presents thorough evidence that the contract was breached (Def.Br. at 14 to 20). For example, defendant Allstate provides the affidavits of Becky Carmona, Steve Butler, Joyce Schwab, and Craig Jean which attest that plaintiff switched their insurance policies from Allstate to Kemper without their permission. Defendant also provides a long list of people who allegedly left Allstate for competitors because of plaintiff's actions. Plaintiff offers no rebuttal evidence to refute the alleged breaches but relies solely on the alleged invalidity of the R3001 contract. Summary judgment, therefore, is appropriate.
Defendant asks for a judgment in the amount of $44,405.30, an order that no further termination payments need be paid to plaintiff by defendant Allstate, and attorneys fees and costs. The $44,405.30 *547 is the amount that defendant Allstate paid to plaintiff in the form of termination payments which, according to the R3001 agreement at XVIII(G), are to be reimbursed should the confidentiality/non-competition agreement contained within the R3001 agreement be broken. (Def.Ex. 1 at 9). The same portion of the R3001 agreement indicates that, upon breach, defendant Allstate is entitled to cease making termination payments. The court determines that such an award is appropriate. Fees and costs are to be submitted separately.
V. Conclusion
Accordingly, IT IS ORDERED that defendants' motion for summary judgment as to plaintiff's claim against defendants is GRANTED.
IT IS FURTHER ORDERED that defendant Allstate's motion for summary judgment as to its counterclaim against plaintiff is GRANTED.
IT IS FURTHER ORDERED that plaintiff pay defendant Allstate $44,405.30 and defendant Allstate is entitled to cease making termination payments to plaintiff.
NOTES
[1] Plaintiff will be referred to as a single entity, although technically there are two plaintiffs.
[2] The court notes that throughout the submitted documents the spelling of Ms. Hoffman's first name varies between Cindy and Cyndi.
[3] Restatement of Torts § 619, Comment a, has been slightly changed since cited by the Lawrence court. The changes, however, are not significant to the resolution of this matter.
[4] Restatement of Torts § 595 has also been updated since referenced by the Lawrence court. Such changes are also slight and of no significance to the resolution of the case at bar. The court will use the Restatement (Second) of Torts version in its analysis. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2467614/ | 49 F. Supp. 2d 186 (1999)
Sylvia RODRIGUEZ, individually and on behalf of her minor child, Les Andrew Kelly, Plaintiffs,
v.
Marjorie McLOUGHLIN, individually and as Executive Director of Cardinal McCloskey Children's and Family Services, Barbara McMurray, individually and as Foster Boarding Home Director of Cardinal McCloskey Children's and Family Services, Cardinal McCloskey Children's and Family Services, New York City Department of Social Services, New York City Child Welfare Administration, and the City of New York, Defendants.
No. 96 Civ.1986(KMW).
United States District Court, S.D. New York.
January 8, 1999.
*187 *188 Howard Seife, Elyse C. Pepper, Winston & Strawn, New York, NY, for Plaintiff.
Eleanor N. Flach, Capriano Lichtman & Flach, New York, NY, for Defendants Barbara McMurray, Cardinal McCloskey Children's and Family Services, Marjorie McLoughlin, Barbara McMurray.
Frances Sands, Paul A. Crotty, Corporation Counsel of the City of New York, New York, NY, for Defendants New York Dept. of Social Services, New York City Child Welfare Admin., City of New York.
AMENDED OPINION and ORDER
KIMBA M. WOOD, District Judge.
This action arises out of Cardinal McCloskey Children's and Family Services's ("McCloskey") removal of a former foster child, Les Andrew Kelly ("Andrew"), on an alleged emergency basis from the home of his former foster, now adoptive, mother, Sylvia Rodriguez, on March 18, 1994. Sylvia Rodriguez, individually and on behalf of her son Andrew, alleges under 42 U.S.C. § 1983 that the removal of Andrew violated their right to procedural due process guaranteed by the Due Process Clause of the Fourteenth Amendment because (1) the circumstances of Ms. Rodriguez's foster children, Andrew and his foster brother Thomas Green, on March 18, 1994 did not justify an emergency removal, and therefore she was entitled to notice and an opportunity to be heard prior to their removal, (2) Ms. Rodriguez was not provided with either adequate post-removal notice or opportunity to be heard to contest the removal, and (3) Ms. Rodriguez was not provided an adequate opportunity to be heard to contest the denial of her request to visit Andrew. Defendants move to dismiss the complaint with prejudice, pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure, or, in the alternative, for summary judgment, pursuant to Rule 56 of the Federal Rules of Civil Procedure.
*189 Defendants' motion presents the Court with a series of novel and difficult questions concerning the scope and character of the procedural protections of the Due Process Clause of the Fourteenth Amendment in the context of an alleged emergency removal of a child from a New York foster mother who was in the final stages of adopting her foster child, whom she had cared for continuously since his first weeks of infancy. As explained in the discussion below, the Court holds that there is a constitutionally protected liberty interest in the stability and integrity of the relationship between such a foster mother and foster child. Further, the Court also holds that the delay in providing Ms. Rodriguez with notice and an opportunity to be heard to contest (1) the removal and (2) the denial of Ms. Rodriguez's request to visit Andrew for approximately three months following the removal violated the Due Process Clause's fundamental requirement that an aggrieved party be provided with an opportunity to be heard "`at a meaningful time and in a meaningful manner.'" Mathews v. Eldridge, 424 U.S. 319, 333, 96 S. Ct. 893, 47 L. Ed. 2d 18 (1976) (quoting Armstrong v. Manzo, 380 U.S. 545, 552, 85 S. Ct. 1187, 14 L. Ed. 2d 62 (1965)); see Brock v. Roadway Express, 481 U.S. 252, 261, 107 S. Ct. 1740, 95 L. Ed. 2d 239 (1987) (quoting same). However, the Court grants defendants' motion, which it treats as a motion for summary judgment, as to plaintiff's claims that there was no basis for emergency removal.
Finally, the Court hereby vacates its earlier Order of September 15, 1998 in this case solely as to its decision to grant the individual defendants qualified immunity.
I. Background
To address Ms. Rodriguez's constitutional claims, it is necessary to understand the circumstances of Ms. Rodriguez's foster care relationship with Andrew from its inception through Andrew's return to Ms. Rodriguez's care subsequent to his removal on March 18, 1994. Except as otherwise noted, the Court finds there is no genuine issue as to these facts.
Andrew was born on March 15, 1990; his biological mother abandoned him immediately following his birth. Thirteen days after his birth, McCloskey, the authorized foster care agency for the City of New York, placed Andrew in the certified foster home of Ms. Rodriguez pursuant to a foster family agreement between McCloskey and Ms. Rodriguez. Andrew lived continuously with Ms. Rodriguez for his first four years until McCloskey removed Andrew from Ms. Rodriguez's residence on March 18, 1994.
Prior to Andrew's removal, McCloskey caseworkers and administrators viewed Ms. Rodriguez as an affectionate and caring foster parent who consistently provided for Andrew's basic needs. Venton Monplaisir, the McCloskey caseworker responsible for Andrew's case through March 18, 1994, observed that a strong bond had formed between Ms. Rodriguez and Andrew, that Ms. Rodriguez ably provided for his needs, and that Andrew called Ms. Rodriguez "Mommy" and depended on her as such. McCloskey case worker notes reveal that Andrew had limited contact with his biological mother, meeting her only a few times in his first three years. By January 21, 1992, McCloskey had determined that it would not be in Andrew's best interest to return to his biological mother, and that the permanent goal for Andrew was adoption. By that time, McCloskey considered Ms. Rodriguez as a possible adoptive parent for Andrew. Mr. Monplaisir believed that adoption by Ms. Rodriguez was a good option for Andrew. In McCloskey's October 26, 1993 Annual Recertification Study for Ms. Rodriguez, McCloskey noted that there was "very little chance of abuse or neglect; foster mother knows the dangers and will not subject the children consciously." (Pl. Exh. 29 at CM 01225.) The report also noted that Ms. Rodriguez "has available resources of neighbors and family members, however, she must be willing to *190 trust people and be more positive," and "recommend[ed] that she test her neighbors so that she could use them to baby sit more often." (Id. at CM 01228.)
A family court order dated June 25, 1993 terminated Andrew's biological mother's parental rights; legal custody over Andrew was then transferred to McCloskey. On August 9, 1993, Ms. Rodriguez and McCloskey entered into an Adoptive Placement Agreement. In November 1993, McCloskey reported to the New York Child Welfare Administration ("CWA"), that its new goal for Andrew was to finalize Ms. Rodriguez's adoption. All the paperwork involved in Ms. Rodriguez's adoption application was filed before the March 18, 1994 removal from her home; McCloskey reported to CWA that at the time of his removal, McCloskey was awaiting the conclusion of the adoption finalization process.
On March 18, 1994, Ms. Rodriguez was the foster mother not only for Andrew, but also for Thomas Green, who was then three years old. Ms. Rodriguez's grandson, Edwin Rodriguez, was also living with her. Edwin was twelve years old on March 18, 1994 and a student in special education at P.S. 75 in Queens. On March 18, 1994, when Mr. Monplaisir arrived at Ms. Rodriquez's home for a scheduled visit, he found only Edwin supervising Andrew and Thomas. Mr. Monplaisir, the only direct witness to the state in which he found Edwin, Andrew, and Thomas testified at deposition:
I believe Les Andrew Kelly answered the door. Thomas Green, Andrew Kelly and Edwin, who is alleged to be her grandson, was at home. Ms. Rodriguez was not in that house.... I did have a concern, and I questioned [Edwin] on why he wasn't in school that day. And I was there for some time, and my question was who are you here with or who's supervising the kids. He appeared to be having some difficulty managing the two kids there on his own, and he had said something about someone next door or someone across the hall looking after them or something, but they weren't in the home the entire time that I was there.
So I did go over to the neighbor's apartment and questioned them in terms of if they were, indeed, babysitting or watching after the kids ... one person told me something about well, they can always knock on my door if it's an emergency ... [E]ven after I questioned them, no one took the initiative to come over to the apartment, because that was the question at hand[.][B]ut then there was another individual, a young lady in that home who seemed at to be pretty concerned that questioned me if Ms. Rodriguez would get in trouble for the kids being left alone. But then still no one ... no one took the responsibility of coming back over to the apartment to stay with the children. So, as a result, I ended up staying at the apartment.
Then Ms. Rodriguez's daughter came by while I was there. So I kind of figured well, I'd ask her maybe she's going to supervise the children there, but she wasn't concerned about staying there. She was just coming to get something and to get out. She had some appointment somewhere else.
And then once again, the kids are running all over the place, and I could see that Edwin was having [a] difficult time managing them, during the time I was there. I mean I noticed he did try to ... put something together for them to eat. And I felt he was in a really bad situation because I felt a little overwhelmed, and then at one point I believe when I was walking around the apartment, both Andrew Kelly and Thomas Green ran out in the hallway, making yelling, laughing, whatever. When I finally notice they weren't in the apartment, when I ran out in the hallway, they were right at the top of the stairs, which are some pretty steep steps of stone, and I got really worried and concerned about that, and I then ran outside *191 and had them come back in the apartment....
I know I was there for at least two hours.... I then contacted the agency and spoke to the administrator.
(Def. Exh. N. at 198-202.) Mr. Monplaisir left Ms. Rodriguez's apartment to contact his supervisor. Before he left to contact his supervisor, Mr. Monplaisir also observed Edwin trying to clean the children, but he did not recall whether he was bathing them, or merely washing their faces. (Id. at 203.) Mr. Monplaisir testified that Edwin "was having a very difficult time ... he appeared to me to be very overwhelmed and very worried and concerned that I was then there without his grandmother, but he appeared to me to be very overwhelmed." (Id. 204-05.) Because Mr. Monplaisir's supervisor was not available, he spoke with Barbara McMurray, director of McCloskey's foster boarding home, who in turn contacted his supervisor. Ms. McMurray instructed Mr. Monplaisir to return to Ms. Rodriguez's apartment and stay with the children. After returning to Ms. Rodriguez's apartment, Mr. Monplaisir was instructed by his supervisor to remove Andrew and Thomas from Ms. Rodriguez's home, which he did.[1]
On the morning of March 18, 1994, Ms. Rodriguez was away from her home because she had a scheduled court appointment regarding the custody of Edwin. Ms. Rodriguez alleges that on that morning she had arranged for her neighbor, Myra Aponte, to baby-sit Andrew and Thomas while she was in court. Ms. Rodriguez maintains before leaving her apartment building on the morning of March 18, 1994, she informed another neighbor, Harriet Bentley, that Ms. Aponte had taken her own children to school, and would return within 10-15 minutes to care for Andrew and Thomas. Ms. Rodriguez also asserts that Ms. Bentley did check in on Ms. Rodriguez's apartment while Mr. Monplaisir was with the children, to make herself available to them in event of an emergency, which she told Mr. Monplaisir. Ms. Rodriguez's position is that she left Andrew and Thomas in the care of Edwin because she expected Ms. Aponte to return to the children momentarily. Ms. Rodriguez contends that Edwin was capable of feeding, bathing, and taking care of Andrew and Thomas. Ms. Rodriguez claims that Edwin's status as a student in special education does not adequately convey his capacities taking care of Andrew and Thomas. Ms. Rodriguez also points out that two of her neighbors were babysitters certified by McCloskey. Defendants dispute Ms. Rodriguez's depiction of the arrangements that she had in place on the morning of March 18, 1994 and Edwin's ability to care for Andrew and Thomas.
McCloskey made arrangements for Andrew's and Thomas's transfer to another foster home contemporaneously with their removal. On March 18, 1994, McCloskey did not provide Ms. Rodriguez with written notice of Andrew's removal, as it would have if the removal had been planned. When Ms. Rodriguez telephoned McCloskey upon her return from court to find out what had happened, she received notice that McCloskey had removed Andrew and Thomas. On or about the day of Andrew's removal, McCloskey submitted a Report of Suspected Child Abuse or Maltreatment to the New York State Central Registry. Thereafter, CWA's Office of Confidential Investigations ("OCI") commenced an investigation into the circumstances surrounding Andrew's removal.
In a letter dated March 31, 1994, a staff attorney from Bronx Legal Services, Nanette Schorr, wrote to McCloskey on Ms. Rodriguez's behalf requesting that visitation *192 be set up immediately. On April 6, 1994, McCloskey responded that OCI had not completed its investigation, and that while the OCI investigation is pending, McCloskey was evaluating whether visitation would be in the best interest of the child. Ms. Rodriguez subsequently applied for an Independent Review and a Fair Hearing concerning the removal of Andrew. McCloskey believed that its charges of neglect against Ms. Rodriguez would be confirmed by the OCI investigation. In a handwritten Report dated April 19, 1994, OCI determined that there was no credible evidence to support the charges of neglect against Ms. Rodriguez, and concluded that the Report of Suspected Child Abuse or Maltreatment was unfounded. The OCI report directed training for Ms. Rodriguez in the area of the proper supervision of foster children. OCI sent a copy of its Report to McCloskey on June 20, 1994. The parties dispute whether McCloskey had information about OCI's conclusion as early as May 27, 1994. (See Pl. 56.1 ¶¶ 105-07; Def. Resp. 56.1 ¶¶ 105-07.)
Before OCI sent a copy of its report to McCloskey, Dr. Lawrence Fantl, McCloskey's in-house psychologist, conducted an examination of Andrew, on June 13, 1994, to evaluate Andrew's adjustment to his new foster home and to assist McCloskey in determining what was in Andrew's best interest. Dr. Fantl concluded, among other things, that Andrew was adjusting well to his new foster home. On June 15, 1994, a scheduled Fair Hearing was adjourned until July 13, 1994 because the Administrative Law Judge determined that an Independent Review should be conducted first. On June 15, 1994, McCloskey sent Ms. Rodriguez written notice of removal of Andrew from her home. On June 15, 1994, Ms. Rodriguez's attorney again requested that Ms. Rodriguez be allowed to visit Andrew.
Ms. Rodriguez was permitted to visit Andrew for the first time on June 27, 1994. An Independent Review Hearing was conducted on June 28, 1994. On July 8, 1994, a second visit between Ms. Rodriguez and Andrew took place. McCloskey reported to CWA that these two visits "were closely supervised by the social worker and the child appeared to be very attached to Ms. Rodriguez, [who] was also very affectionate with the child...." On July 11, 1994, CWA rendered its decision on Independent Review and ordered McCloskey to return Andrew to Ms. Rodriquez's care. In its decision, CWA noted that McCloskey's decision not to allow "visiting during the OCI investigation ... seemed curious since the child would not have been endangered by the visits per se," and that this decision was questionable in view of the fact that "visiting could have helped the child's understanding of the situation." (Pl. Exh. 35 at CM 01755.) The Independent Review further concluded that following a ninety day period of close supervision, "the adoption process should be reinitiated." (Id.) On July 12, 1994, Ms. Rodriguez's counsel withdrew her request for a Fair Hearing in view of the fact that Ms. Rodriguez had succeeded at Independent Review in restoring Andrew to Ms. Rodriguez's care.
Andrew's adoption process resumed January 4, 1995. Ms. Rodriguez's adoption of Andrew was finalized on August 17, 1995.
II. Discussion
A. The Standard
Rule 12(b) of the Federal Rules of Civil Procedure provides that if matters outside the pleadings are presented to the Court, and the Court does not exclude that evidence, the motion shall be treated as one for summary judgment and "all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56." In this case, there has been extensive discovery, and prior to permitting defendants' motion, the parties exchanged extensive Local Civil Rule 56.1 Statements. These Statements assert, in detail, the facts each party views as material to defendants' motion, and append *193 portions of the documentary record to support each statement. The Court then held a conference to review these statements and evaluate the utility of a summary judgment motion. Thus, both parties have had an opportunity to present pertinent facts raised by defendants' motion, and the Court treats defendants' motion as a motion for summary judgment under Rule 56. See Groden v. Random House, Inc., 61 F.3d 1045, 1052-53 (2d Cir.1995) (essential inquiry is whether nonmovant should reasonably have recognized possibility that motion might be treated as one for summary judgment or was taken by surprise and deprived of reasonable opportunity to meet facts outside the pleadings).
On a motion for summary judgment, a court "cannot try issues of fact; it can only determine whether there are issues to be tried." Donahue v. Windsor Locks Bd. of Fire Comm'rs, 834 F.2d 54, 58 (2d Cir. 1987) (citations and internal quotation marks omitted). To prevail on a motion for summary judgment, the moving party therefore must show that there are no such genuine issues of material fact to be tried, and that he or she is entitled to judgment as a matter of law. Fed. R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986); Citizens Bank v. Hunt, 927 F.2d 707, 710 (2d Cir.1991). The party seeking summary judgment "bears the initial responsibility of informing the district court of the basis for its motion," which includes identifying the materials in the record that "it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp., 477 U.S. at 323, 106 S. Ct. 2548. Once a motion for summary judgment is made and supported, the non-moving party must set forth specific facts that show that there is a genuine issue to be tried. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). Although a court considering a motion for summary judgment must view all evidence in the light most favorable to the non-moving party, and must draw all reasonable inferences in that party's favor, Consarc Corp. v. Marine Midland Bank, N.A., 996 F.2d 568, 572 (2d Cir.1993), the non-moving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986). If, based on the submissions to the court, no rational factfinder could find in the non-movant's favor, there is no genuine issue of material fact, and summary judgment is appropriate. See Anderson, 477 U.S. at 250, 106 S. Ct. 2505.
Title 42, United States Code § 1983 provides a federal cause of action for "deprivations of any rights, privileges, or immunities secured by the Constitution and laws." To state a claim upon which relief may be granted under § 1983, the plaintiff must allege "(1) that the challenged conduct was attributable at least in part to a person acting under color of state law, and (2) that such conduct deprived the plaintiff of a right, privilege or immunity secured by the Constitution or laws of the United States." Eagleston v. Guido, 41 F.3d 865, 876 (2d Cir.1994) (quoting Dwares v. City of New York, 985 F.2d 94, 98 (2d Cir.1993)).
Defendants move for summary judgment on several grounds which, if accepted, would entitle them to judgment. First, defendants argue that plaintiff does not have a "liberty" interest that falls within the Fourteenth Amendment's protection. Second, defendants contend that even assuming that plaintiff has a liberty interest under the Due Process Clause, plaintiff received all the process that was constitutionally due to her. Third, defendants argue that an Article 78 proceeding under the New York Civil Practice and Rules is plaintiff's exclusive remedy. The individual defendants also argue that plaintiff's claims against them should be dismissed under the doctrine of qualified immunity.
*194 B. Procedural Due Process
Plaintiff asserts only a procedural due process claim. An individual "is not entitled to constitutional protection under the Due Process Clause unless that party can demonstrate that: (a) there has been a deprivation of liberty or property in a constitutional sense; and (b) the procedures used by the state to effect this deprivation were constitutionally inadequate." Rivera v. Marcus, 696 F.2d 1016, 1022 (2d Cir. 1982) (citing Smith v. Organization of Foster Families for Equality and Reform ("OFFER"), 431 U.S. 816, 847, 97 S. Ct. 2094, 53 L. Ed. 2d 14 (1977)), see Board of Regents of State Colleges v. Roth, 408 U.S. 564, 570-71, 92 S. Ct. 2701, 33 L. Ed. 2d 548 (1972). Plaintiff asserts that she was deprived of liberty, not property, protected by the Due Process Clause. Thus, the threshold determination that the Court must make is whether plaintiff was deprived of a liberty interest protected by the Due Process Clause.
1. Liberty Interest in Pre-Adoptive Foster Care Relationship
Plaintiff asserts that she has a constitutionally protected liberty interest in the integrity and stability of her pre-adoptive foster care relationship. Specifically, plaintiff argues that there is a constitutionally protected liberty interest in the continuity of a foster care relationship where, as here, the foster parent has cared for the foster child for several years continuously from the child's infancy, the foster child had not known any other parent, the biological parents' parental rights over the child were terminated, and the foster parent had applied to adopt the foster child.
The Supreme Court has affirmed that "[c]hoices about marriage, family life, and the upbringing of children are among associational rights [the Supreme] Court has ranked as `of basic importance in our society,' ... rights sheltered by the Fourteenth Amendment against the State's unwanted usurpation, disregard, or disrespect." M.L.B. v. S.L.J., 519 U.S. 102, 116, 117 S. Ct. 555, 564, 136 L. Ed. 2d 473 (1996) (internal citation omitted); see Cleveland Bd. of Educ. v. LaFleur, 414 U.S. 632, 639-40, 94 S. Ct. 791, 39 L. Ed. 2d 52 (1974) ("[F]reedom of personal choice in matters of marriage and family life is one of the liberties protected by the Due Process Clause of the Fourteenth Amendment."). The diversity of family constellations in our society have forced the courts to make determinations about what types of familial relationships involve liberty interests protected by the Fourteenth Amendment. Procedural due process protection embraces the parent-child relationship, whether biological or formalized through adoption. See Stanley v. Illinois, 405 U.S. 645, 651, 92 S. Ct. 1208, 31 L. Ed. 2d 551 (1972) (biological father who raised his children entitled to due process protection regarding his fitness as parent); Rivera, 696 F.2d at 1022 (citing cases). It is now well established that extended families fall within the scope of due process protection. See, e.g., Moore v. City of East Cleveland, 431 U.S. 494, 504, 97 S. Ct. 1932, 52 L. Ed. 2d 531 (1977) (Powell, J., plurality opinion) (noting that minors' relationships with uncles, aunts, cousins, and grandparents merit constitutional protection).
The instant case presents difficult issues of whether due process protection extends to a parent-child relationship that has its origin in state law and contract, but in which emotional and psychological ties hoped for in biological families, as well as an expectation of permanency, have developed. The starting point for addressing these issues is the Supreme Court's decision in OFFER. In OFFER, a class of long-term foster parents and an organization of foster parents alleged under § 1983 that New York State procedures governing the removal of foster children from foster homes violated the Due Process and Equal Protection Clauses of the Fourteenth Amendment. Plaintiffs in OFFER argued that when a child has lived in a foster home for twelve months or more, the foster parent and child develop psychological *195 and other familial ties; they urged the Supreme Court to recognize that such foster parents have a liberty interest in the survival of the foster family sufficient to merit the protections of the Due Process Clause of the Fourteenth Amendment. See OFFER, 431 U.S. at 839, 97 S. Ct. 2094. The Court discussed whether a foster family has such a constitutionally protected liberty interest, but found it unnecessary to resolve that question because, even assuming such an interest, the Court held that New York's pre-removal procedures provided foster parents with adequate procedural protections. See id. at 847, 97 S. Ct. 2094.
The OFFER Court's discussion of foster family relationships provides guidance on the considerations relevant to determining whether (and what sort of) foster family relationships might involve a due process liberty interest. Indeed, as the Second Circuit Court of Appeals acknowledged in Rivera, 696 F.2d at 1024, the Supreme Court suggested in dictum in OFFER that long-term foster parents may be entitled to some due process protection in view of the mutual care and support developed in these relationships:
No one would seriously dispute that a deeply loving and interdependent relationship between an adult and a child in his or her care may exist even in the absence of blood relationship. At least where a child has been placed in foster care as an infant, has never known his natural parents, and has remained continuously for several years in the care of the same foster parents, it is natural that the foster family should hold the same place in the emotional life of the foster child, and fulfill the same socializing functions, as a natural family.
OFFER, 431 U.S. at 844, 97 S. Ct. 2094. The OFFER Court went on to note three distinctions between foster parent-child relationships and biological families that it viewed as important. First, there is generally no biological relationship between foster parents and foster children. See id. at 845, 97 S. Ct. 2094. Second, there is a "virtually unavoidable" tension between the rights of biological parents and those of foster parents. Id. at 846, 97 S. Ct. 2094. Third, "whatever emotional ties may develop between foster parent and foster child," the relationship has its origins, "in state law and contractual arrangements." Id. at 845, 97 S. Ct. 2094. As to this third consideration, the Court noted that "[w]hile the Court has recognized that liberty interests may in some cases arise from positive-law sources, ... in such a case, and particularly where, as here, the claimed interest derives from a knowingly assumed contractual relation with State, it is appropriate to ascertain from state law the expectations and entitlements of the parties." Id. at 845-46, 97 S. Ct. 2094; see also Rivera, 696 F.2d at 1024 (identifying three distinguishing factors of foster families discussed in OFFER).
In view of these considerations, Ms. Rodriguez's relationship with Andrew seems to present a relatively strong case for the recognition of a liberty interest in a foster parent's relationship with her foster child. Andrew was placed in foster care with Ms. Rodriguez in his first month of life, he never knew his biological parents, and he remained continuously in Ms. Rodriguez's care until his removal on March 18, 1994. During this time, the record suggests that Ms. Rodriguez held the same place in his emotional life, and fulfilled the same socializing functions, as a biological parent or relative. Because Andrew's biological mother's parental rights were terminated prior to the time of his removal, there is no foreseeable, much less unavoidable, conflict between the rights of Andrew's biological parents to a relationship with Andrew and recognition of a liberty interest in Ms. Rodriguez's relationship with him. Furthermore, at the time of his removal, Ms. Rodriguez had entered into an Adoptive Placement Agreement with McCloskey. The Adoptive Placement Agreement, entered into in August 1993, *196 formally expressed Ms. Rodriguez's intention to adopt Andrew. Indeed, as noted above, two months after the Adoptive Placement Agreement had been signed, in November 1993, McCloskey reported to CWA that its goal was "adoption finalization" for Andrew with Ms. Rodriguez, and that it was awaiting a court date for adoption finalization.
Thus, unlike the foster parents in decisions subsequent to OFFER that have found that foster parents do not have a liberty interest in their relationships with their foster children,[2] as a prospective adoptive parent who had entered into an Adoptive Placement Agreement, Ms. Rodriguez cannot be said to have expected her relationship with Andrew to end. See Thelen v. Catholic Soc. Servs., 691 F. Supp. 1179, 1184 (E.D.Wis.1988) (distinguishing liberty interest of prospective adoptive parents from foster parents). By entering into the Adoptive Placement Agreement, the State (through McCloskey) expressed its interest in Andrew's adoption by Ms. Rodriguez, so long as McCloskey continued to view adoption as in Andrew's best interest. Hence, while Ms. Rodriguez's expectations as to Andrew at the outset of her relationship with him were not necessarily permanent, by the time that she entered the Adoptive Placement Agreement, such intentions and expectations of permanency had formed.
The reasonableness of Ms. Rodriguez's expectations must be assessed in the context of relevant New York statutes and regulations, and her contract with McCloskey. See OFFER, 431 U.S. at 845-46, 97 S. Ct. 2094 (noting that where claimed liberty interest derives from contractual relations with state it is appropriate to ascertain from state law the expectations of the parties).[3] New York state law, as well as the Adoption Placement Agreement signed by Ms. Rodriguez, make clear that until the child is legally adopted, legal custody remains with the authorized state agency, which may remove the child if the agency believes that it in the child's best interest. See N.Y. Soc. Servs. Law § 383(2);[4] Pl. *197 Exh. 60.[5]
However, unlike Georgia state law discussed in Drummond, 563 F.2d at 1207, and Indiana state law discussed in Kyees, 600 F.2d at 698, New York statutory and regulatory law does not envision foster parents merely as "an alternative to institutional care for what is clearly designated as a transitional phase of the child's life." Drummond, 563 F.2d at 1207. Instead, New York foster care law not only permits, but promotes, adoption by long-term foster parents; New York state's statutory and regulatory scheme governing foster care contains several provisions reflecting the view that foster parents are favored adoption applicants for their foster care children. Specifically, as plaintiff points out, New York law includes the following provisions:
1. "Foster parents having had continuous care of a child, for more than twelve months, through an authorized agency, shall be permitted as a matter of right, as an interested party to intervene in any proceeding involving the custody of the child." N.Y. Soc. Serv. Law § 383(3).
2. When the family court accepts the surrender of a child for adoption, "the court shall inquire whether any foster parent or parents with whom the child resides, or any relative of the child, or other person, seeks to adopt such child. If such person or persons do seek to adopt such child, such person or persons may submit, and the court shall accept, all such petitions for the adoption of the child, together with an adoption home study.... The court shall thereafter establish a schedule for completion of other inquiries and investigations necessary to complete review of the adoption of the child and shall immediately set a schedule for completion of the adoption." N.Y. Soc. Serv. Law § 383-c(10).
3. An authorized agency "must ... inform foster parents that a child in their care who is free or to be freed for adoption and inform foster parents who have not completed an application to become an adoptive parent of the procedure for applying to adopt the child." N.Y. Comp.Codes R. & Regs. tit. 18 § 421.19(a)(1).
4. "Any adult husband and his adult wife and any adult unmarried person, who, as foster parent or parents, have cared for a child continuously for a period of twelve months or more, may apply to such authorized agency for the placement of said child with them for the purpose of adoption, and if said child is eligible for adoption, the agency shall give preference and first consideration to their application over all other applications for adoptive placements." N.Y. Soc. Serv. Law § 383(3).
5. In evaluating adoption applicants, authorized agencies "shall accept [that] ... [a]pplicants seeking children having these characteristics, foster parents seeking to adopt a child who has resided in their home 12 continuous months ... shall receive first priority for adoption studies." *198 N.Y. Comp.Codes R. & Regs. tit. 18 § 421.13(a).
6. "In any agreement between an authorized agency and foster parents with whom a child or children are to be placed or boarded, there shall be contained therein the following language: `It is duly acknowledged by the parties hereto that pursuant to the law of the state of New York, a foster parent shall have preference in any proceedings to adopt the child subject to this agreement upon such child having been in the custody of such foster parent for a period in excess of twelve months.'" N.Y. Soc. Serv. Law § 374(1-a).
7. Foster parents "in whose home the child resided or resides at or after the expiration of a continuous period of twelve months in foster care" shall receive notice of a hearing to review the foster care status of a child who has been freed for adoption, among other events. N.Y. Soc. Serv. Law § 392(4)(c).
8. An adoption subsidy is available for "hard to place children." Among several other grounds, "the child is hard to place with parent(s) other than his/her present foster parent(s) because he/she has been in care with the same foster parent(s) for 18 months or more prior to the signing of the adoption placement agreement by such foster parent(s) and has developed a strong attachment to his/her foster parent(s) while in such care and separation from the foster parent(s) would adversely affect the child's development." N.Y. Comp.Codes R. & Regs. tit. 18 § 421.24(a)(3)(f).
These provisions for notice to foster parents of proceedings involving the legal custody status of their foster children of more than twelve months indicate that New York recognizes that such long-term foster parents have an interest in their foster children's custody status. New York's provisions for long-term foster parents' applications for adoption of their foster children to receive priority over other applications for adoption home studies also indicate that New York encourages foster parents to adopt their foster children. Indeed, this provision combined with the adoption subsidy for foster parents attempting to adopt a foster child who has been in their care for more than 18 months provides a statutory incentive to potential adoptive parents to become foster parents as a means to adoption.
In Procopio v. Johnson, 994 F.2d 325 (7th Cir.1993), the Seventh Circuit Court of Appeals examined a similar preference for foster parents in the adoption process in Illinois law. In Procopio, a couple wishing to adopt a child had been instructed by an adoption agency that they had a better chance if they became foster parents. The couple became foster parents to a two-month old girl, and cared for her continuously for over four years; her biological parents then successfully petitioned the Illinois juvenile court for custody over the girl. See id. at 326-27. Despite the girl's biological parents' drug and criminal records, the Illinois Department of Child and Family Services had developed a plan to work toward the goal of returning the girl to her biological parents. This plan was interrupted when the state court found the child's biological parents unfit to care for the child. The plan was again pursued, this time with success, once the child's biological parents were living together and enrolled in drug treatment programs. See id. at 327. After the child was returned to her parents' custody, the foster parents argued that they had a liberty interest in their relationship with her based on an Illinois statute, which provided that a child's legal guardian "shall give preference and first consideration to [the foster parents'] application over all applications for adoption but the guardian's final decision shall be based on the welfare and best interest of the child." Id. at 328 (quoting Ill.Rev.Stat. ch. 40 ¶ 1519.1(b)). In response *199 to this argument, the Seventh Circuit held that this statute did not create a liberty interest in the foster parents' family relationship. The Procopio court reasoned that this statutory preference did not rise to the level of expectancy or an entitlement because Illinois state law provides: (1) that foster parents wishing to adopt obtain permission from the natural parents or legal guardian if parental rights have been terminated, and (2) that the juvenile court has "sole discretion" to make the "final determination" about the adoption. Id. at 329.
This Court does not reach the same conclusion as Procopio despite the similarity in New York's and Illinois's statutory provisions granting a preference for foster parents as adoptive parents. Unlike the situation in Procopio, Andrew's biological mother's parental rights had been terminated; neither McCloskey nor CWA had plans to return him to his biological mother or to find his biological father. Further, pursuant to New York's provisions giving preference for adoption to long term foster parents, Ms. Rodriguez had entered into an Adoptive Placement Agreement with McCloskey at the time of his removal, and was awaiting adoption finalization from the family court. Thus, while McCloskey and the state court ultimately would decide whether Ms. Rodriguez, as a prospective adoptive foster parent, would gain permanent custody of Andrew, it cannot be said that Ms. Rodriguez, with whom Andrew had been placed first pursuant to a foster care agreement and then under an Adoptive Placement Agreement, had a reasonable expectation under New York law that her relationship with Andrew would eventually be terminated. See Thelen v. Catholic Soc. Servs., 691 F. Supp. 1179, 1185 (E.D.Wis.1988) (holding under Wisconsin law that prospective adoptive parents had a limited constitutionally protected liberty interest in family unit). Accordingly, viewing the character of the relationship between Ms. Rodriguez and Andrew in the context of New York law, the Court holds that Ms. Rodriguez had a liberty interest within the Fourteenth Amendment's Due Process Clause in her relationship with her foster and prospective adoptive child Andrew at the time of his removal from her home on March 18, 1994. This holding recognizes such a liberty interest in only a discretely identifiable set of foster parents, (1) whose foster children's biological parents' parental rights have been terminated, (2) who have cared for their foster children continuously for more than twelve months since the child's infancy, (3) and who have entered into an adoptive placement agreement for their foster child. The Court thus rejects defendants' suggestion that recognizing a liberty interest in the context of this case will open the door to a flood of federal litigation reviewing unique aspects of foster family relationships.
2. The Process That Was Due
"Whether procedural due process must be afforded because a `liberty' or `property' interest is within the Fourteenth Amendment's protection, there must be determined `what process is due' in the particular context." OFFER, 431 U.S. at 847, 97 S. Ct. 2094. The Court now considers whether the procedures employed by defendants on and after Andrew's removal were constitutionally adequate. The quantum of process constitutionally required "is not subject to specific measurement." Rivera, 696 F.2d at 1026.
For all its consequence, "due process" has never been, and perhaps can never be, precisely defined. "[U]nlike some legal rules," this Court has said, due process "is not a technical conception with a fixed content unrelated to time, place and circumstances." ... Rather, the phrase expresses the requirement of "fundamental fairness," a requirement whose meaning can be as opaque as its importance is lofty. Applying the Due Process Clause is therefore an uncertain enterprise which must discover what "fundamental fairness" consists of in a *200 particular situation by first considering any relevant precedents and then by assessing the several interests that are at stake.
Id. at 1026-27 (internal citations omitted). Due process fundamentally requires that the aggrieved party be provided with an opportunity to be heard, "`at a meaningful time and in a meaningful manner.'" Mathews v. Eldridge, 424 U.S. 319, 333, 96 S. Ct. 893, 47 L. Ed. 2d 18 (1976) (quoting Armstrong v. Manzo, 380 U.S. 545, 552, 85 S. Ct. 1187, 14 L. Ed. 2d 62 (1965)). The "meaningfulness" of the process is considered in light of three factors enunciated by Justice Powell for the Court in Mathews:
First, the private interest that will be affected by the official action; second, the risk of an erroneous deprivation of such interest through the procedures used, and the probable value, if any, of additional or substitute procedural safeguards; and finally, the Government's interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirement would entail.
Mathews, 424 U.S. at 335, 96 S. Ct. 893; see Zinermon v. Burch, 494 U.S. 113, 127, 110 S. Ct. 975, 108 L. Ed. 2d 100 (1990) (quoting same); Goetz v. Crosson, 41 F.3d 800, 803 (2d Cir.1994), cert. denied, 516 U.S. 821, 116 S. Ct. 80, 133 L. Ed. 2d 39 (1995); Rivera, 696 F.2d at 1027. The Court analyzes under the Mathews balancing test plaintiff's claim that Ms. Rodriguez did not receive adequate notice and opportunity to be heard (1) to contest Andrew's removal, and (2) to challenge McCloskey's denial of her requests to visit Andrew. In both of these inquiries, the Court is mindful of the Supreme Court's guidance in OFFER: "We deal here with issues of unusual delicacy, in an area where professional judgments regarding desirable procedures are constantly and rapidly changing. In such a context restraint is appropriate on the part of courts called upon to adjudicate under the Constitution." OFFER, 431 U.S. at 855-56, 97 S. Ct. 2094.
Plaintiff alleges several distinct violations of the process that she was due. As mentioned above, plaintiff alleges that defendants violated plaintiff's rights to due process as guaranteed by the Fourteenth Amendment by (1) removing Andrew from Ms. Rodriguez's home on March 18, 1994 without providing Ms. Rodriguez with preremoval notice and an opportunity to be heard; (2) not providing timely notice of this removal or timely post-removal opportunity to be heard, and (3) not providing Ms. Rodriguez a timely opportunity to contest McCloskey's denial of her requests to visit Andrew. The Court addresses these claims in turn.
a. Was an Emergency Removal Warranted?
Defendants argue that McCloskey's removal of Andrew on March 18, 1994 constituted an emergency removal under New York's regulatory provisions governing notice to foster parents in the event of removal, N.Y. Comp.Codes R. & Regs. tit. 18 § 443.5,[6] and the analogous New York City *201 regulation, SSC Procedure No. 5 (Def. Exh. P at Exh. C.). Defendants contend that these two regulatory provisions do not require notice to foster parents of the authorized agency's intent to remove the child prior to an emergency removal. Therefore, defendants maintain that McCloskey was not required to give Ms. Rodriguez either notice or an opportunity to be heard prior to removing Andrew. In response, plaintiff urges that Ms. Rodriguez was entitled, under both New York law and the Constitution, to pre-removal notice and opportunity to be heard because, they contend, Andrew's removal was not an emergency, or, at a minimum, whether it was an emergency is a question of fact for trial.
Both § 443.5 and SSC Procedure No. 5 exempt emergency removals from the requirements of pre-removal notice and opportunity to be heard. Section 443.5 provides that "[s]uch notification shall be given at least 10 days prior to the proposed effective date of the removal, except where the health or safety of the child requires that the child be removed immediately from the foster family home." Similarly, SSC Procedure 5 states that pre-removal notice requirements "do not apply when the health and safety of a child are endangered." (Def. Exh. P. at Exh. C.) "[I]t was, and remains, equally well established that officials may temporarily deprive a parent of custody in `emergency' circumstances `without parental consent or a prior court order.'" Robison v. Via, 821 F.2d 913, 921 (2d Cir.1987) (quoting Duchesne v. Sugarman, 566 F.2d 817, 826 (2d Cir.1977)) (other citations omitted). Where there is an objectively reasonable basis for government officials to believe that a threat to a child's health or safety is imminent, the Constitution does not prevent government officials from removing a child from his or her parent's custody without a prior hearing. See Gottlieb v. County of Orange, 84 F.3d 511, 518 (2d Cir.1996); Dietz, 932 F.Supp. at 444 (noting same).
The Second Circuit Court of Appeals has instructed that "[e]mergency circumstances mean circumstances in which the child is immediately threatened with harm, ..., for example, where there exists an `immediate threat to the safety of the child,' ... or where the child is left bereft of care and supervision, ... or where there is evidence of serious ongoing abuse and the officials have reason to fear imminent recurrence...." Hurlman v. Rice, 927 F.2d 74, 80 (2d Cir.1991). Defendants *202 argue that there were emergency circumstances justifying removal in this case because Andrew was left "bereft of care and supervision." Id.; see also Duchesne, 566 F.2d at 825-26 (concluding circumstances justified emergency removal where children were left bereft of care). Defendants also point out that New York foster care regulations require that foster parents agree "never to leave children under the age of 10 alone without competent adult supervision...." N.Y. Comp.Codes R. & Regs. tit. 18 § 444.5(c)(3), a requirement that was printed in the Foster Care Manual McCloskey provides to its foster parents. (Def.Exh. U.)
When a New York state court reviews an administrative decision to remove a child, the court asks whether the removal decision was arbitrary or capricious. See, e.g., Banks-Nelson v. Bane, 214 A.D.2d 338, 625 N.Y.S.2d 131, 132 (1st Dep't 1995); Peters v. McCaffrey, 173 A.D.2d 934, 569 N.Y.S.2d 797, 798 (3d Dep't 1991). Relying on this law, plaintiff argues that McCloskey's decision to remove Andrew was arbitrary or capricious. However, when reviewing procedural due process challenges to whether there were emergency circumstances to justify the removal of a child from his or her parents' custody, the Second Circuit Court of Appeals asks whether there is "an objectively reasonable basis for believing that a threat to the child's health or safety is imminent." Gottlieb, 84 F.3d at 520; Cecere v. City of New York, 967 F.2d 826, 829 (2d Cir.1992).
The Court construes plaintiff's contentions that the removal was arbitrary or capricious as arguments that there was no objectively reasonable basis for believing there was an imminent danger to Andrew (and Thomas) by leaving them without adult supervision. Plaintiff contends that McCloskey's decision to remove Andrew was without such a basis in view of the facts that: (1) Ms. Rodriguez had a good history as a foster parent, (2) McCloskey had encouraged Ms. Rodriguez to be more trusting of neighbors and other family members in caring for the foster children, (3) Ms. Rodriguez had arranged for a neighbor to babysit on the day of Andrew's removal, (4) Ms. Rodriguez had been informed that this neighbor would return in a few minutes, (5) Ms. Rodriguez had child-proofed her home, (6) Edwin was almost 13 years old, and was capable of supervising the children, (7) a next-door neighbor was available in case of emergency and informed the McCloskey case worker of that fact, (8) Mr. Monplaisir found the situation in Ms. Rodriguez's home safe enough to leave to telephone McCloskey, and (9) there were two babysitters certified by McCloskey in the same apartment building.
Even accepting plaintiff's view of these facts, plaintiff cannot avoid the fact that there was no adult present to supervise Ms. Rodriguez's three and four-year old children when Mr. Monplaisir arrived for a scheduled visit to the home, nor that no adult arrived to assume responsibility for the children during the time (of at least two hours) that he was present. Further, Mr. Monplaisir observed that Edwin was having difficulty keeping the children under control, and appeared to be overwhelmed by the situation. Thus, in the time before McCloskey removed the children, Ms. Rodriguez had violated New York's foster care regulations requiring that foster children under 10 years must never be left without adult supervision. See N.Y. Comp.Codes R. & Regs. tit. 18 § 444.5(c)(3).
In the context of this case, this violation itself provides an objective basis for McCloskey's belief that leaving a three and four-year old in the care of only a twelve-year old boy posed an imminent threat to the health or safety of the children. But even without this regulatory violation, the Court would conclude that no reasonable juror could find that McCloskey lacked an objective basis to believe that Andrew and Thomas were left bereft of supervision so as to pose a sufficient threat to these children's health or safety to justify an *203 emergency removal. As long as there is an objective basis for fear of imminent injury to the children, it is not the role of the court (either on a motion or through a jury verdict) to second-guess, with the benefit of hindsight, the case worker's and foster agency officials' on-the-spot determination to remove a child left without adult supervision. Accordingly, the Court grants summary judgment in favor of defendants as to plaintiff's claim that the circumstances did not justify an emergency removal, and thus dismisses plaintiff's claim that she was entitled to pre-removal notice and an opportunity to be heard.
b. Post-Removal Notice and Opportunity to Heard
"[I]n those `extraordinary situations' where deprivation of a protected interest is permitted without prior process, the constitutional requirements of notice and an opportunity to be heard are not eliminated, but merely postponed." Duchesne, 566 F.2d at 826 (citing Boddie v. Connecticut, 401 U.S. 371, 379, 91 S. Ct. 780, 28 L. Ed. 2d 113 (1971)). Although Ms. Rodriguez contacted McCloskey by telephone on the day of Andrew's removal to determine what had happened to her foster children, Ms. Rodriguez did not received written notice of Andrew's removal, including notification of her rights and procedures to contest removal, until approximately June 15 or June 16, 1998, almost three months after Andrew's removal. Ms. Rodriguez's first scheduled opportunity to be heard to contest Andrew's removal was a Fair Hearing before a New York Administrative Law Judge on June 15, 1994, which was adjourned to July 15, 1994. In the interim, on June 28, 1994, an Independent Review was conducted, at which time Ms. Rodriguez had her first opportunity to be heard to contest Andrew's removal.
Defendants take the position that New York State and New York City regulations governing removals of foster children do not require written notice of removal subsequent to an emergency removal, notifying her of her opportunity to contest the removal, nor do they require an opportunity to be heard to contest the removal within ten days, as N.Y. Comp.Codes R. & Regs. tit. 18 § 443.5 plainly requires for non-emergency removals. Defendants thus maintain that Ms. Rodriguez's New York state and city procedural rights to contest Andrew's removal were not violated. McCloskey's general agency practice is not to provide written notice of removal in emergency removals, (McMurray Dep. at 170), but as a courtesy to the foster parents, to provide oral notice of removal. (McLoughlin Dep. at 158.)[7] Plaintiff asserts that N.Y. Comp.Codes R. & Regs. tit. 18 § 443.5 requires written notice of removal contemporaneously with the removal and the opportunity to appear at a conference ten days after it is requested in emergency removals. (Pl. Mem. at 62-64.)
Neither the parties nor the Court were able to locate any decisions addressing whether the § 443.5 requirements for written notice and an opportunity to contest a removal apply to emergency removals of foster children. Because the plaintiff foster parents in OFFER were challenging the constitutionality of New York's pre-removal procedures, not its post-removal procedures for emergency removals, the OFFER Court did not have occasion to address notice and hearing requirements in emergency removals.
However, "[f]ederal constitutional standards rather than state statutes define the requirements of procedural due process." Robison, 821 F.2d at 923. As a result, not every violation of a procedure required by state law is a violation of due process protected by the Constitution. See id.; Doe v. Connecticut, 911 F.2d 868, 869 (2d Cir.1990); Duchesne, 566 F.2d at 827; Dietz, 932 F.Supp. at 453. Because *204 this Court faces a question of whether plaintiff's due process rights were violated, the Court declines to resolve the parties' dispute as to whether § 443.5 requires notice and a post-removal opportunity to be heard in emergency removals.
In the context of an emergency removal of a biological child from its parents' custody, the Second Circuit has specified that the delay in providing a hearing must be short:
Where there has been an emergency removal of a child from a parent's custody without a hearing, due process requires that the state procedures provide the parent an opportunity to be heard at a reasonably prompt time after the removal.
Gottlieb, 84 F.3d at 520; see also Duchesne, 566 F.2d at 828 (delay of twenty-seven months in providing biological parent opportunity to be heard violated constitutional due process); Cecere, 967 F.2d at 830 (four day assertion of custody in emergency situation permissible); cf. Lossman v. Pekarske, 707 F.2d 288, 291 (7th Cir.1983) (twelve day delay in providing hearing did not violate due process).
Subsequent to Gottlieb, Gottlieb's "reasonably prompt" opportunity to be heard requirement has been applied by only one district court. In Sundbye v. Ogunleye, 3 F. Supp. 2d 254, 265 (E.D.N.Y.1998), the court held that CWA's delay of six weeks in filing of family court petition of abuse "was not even close to `reasonably prompt.'" Id. Cf. Whisman v. Rinehart, 119 F.3d 1303, 1310-11 (8th Cir.1997) (hearing held seventeen days after emergency removal was not sufficiently prompt and thus did not provide mother with an adequate post-deprivation remedy). Thus, when the state removes a child from his biological parents' custody, it must provide an opportunity to contest the removal within weeks not months after the removal.
The Court examines the process provided to Ms. Rodriguez under the Mathews test in view of the Second Circuit's treatment of post-removal due process challenges of natural parents. See Mathews, 424 U.S. at 333, 96 S. Ct. 893. The first factor is the private interest affected by the deprivation. Even though Ms. Rodriguez's interest in a prompt hearing to determine the appropriateness of Andrew's removal (as well as its duration) may be less than that of a parent who is also the legal guardian of the child, Ms. Rodriguez's interest is a strong one. Like a biological parent, Ms. Rodriguez had cared for Andrew since his infancy and expected that he would be with her permanently. Where, as here, a child has been in continuous custody of a foster parent since early infancy, the Court sees no basis for distinguishing the foster child's interest in a prompt hearing from that of a biological child or an adopted child.
In the context of an emergency removal, the risk of an erroneous deprivation the second Mathews factor is comparable for children removed from their biological parents' custody and for foster children removed from their foster parents' care. In both cases, the aggrieved parent has no opportunity to explain or defend the conditions that provoked the state to remove the child. See Rivera, 696 F.2d at 1027-28 (commenting that removal procedures that provide foster parents no opportunity to explain or defend their fitness create potential for erroneous deprivation). Insofar as social workers monitor foster parents more closely than they typically monitor biological parents, social workers deciding whether circumstances warrant an emergency removal may have more background information about the foster family than they have about a biological family. Still in both cases there is significant potential for an erroneous deprivation of the parents' and child's private interests in remaining together.
The interest and burden on the Government the third Mathews factor is also comparable regardless of whether the child was removed from his biological parents' *205 custody or the care of a pre-adoptive foster parent, such as Ms. Rodriguez. Furthermore, in view of New York's regulatory requirement for a pre-removal opportunity to be heard for all foster parents in the event of non-emergency removals, see N.Y. Comp.Codes R. & Regs. tit. 18 § 443.5, providing such a post-deprivation hearing in emergency removals should not be a heavy burden on the state. The procedural mechanisms and institutions that would be needed for post-deprivation hearings are already provided in nonemergency removals.
In view of Ms. Rodriguez's interest in not being erroneously separated from Andrew, the potential for such error in an emergency removal, and the fact that the state already provides an opportunity to be heard in non-emergency foster care removals, the Court finds that the delay from March 18, 1994 until June 15, 1994 in providing written notice of removal, and until June 28, 1994 in providing an opportunity to be heard to contest the removal, was not reasonably prompt, and therefore violated plaintiff's rights to due process guaranteed by the Due Process Clause of the Fourteenth Amendment. For these reasons, the Court denies defendants' motion for summary judgment as to plaintiff's claim that the delay in proving Ms. Rodriguez post-removal notice and opportunity to be heard violated her procedural due process rights.
c. Denial of Visitation
Plaintiff argues that defendants' failure to provide Ms. Rodriguez a timely opportunity to be heard as to why she should have been allowed to visit Andrew, during the period that he was removed from her care, also violated constitutional due process. On March 31, 1994, Ms. Rodriguez requested through her attorney to be allowed to visit Andrew. On or about March 18, 1994, McCloskey submitted a Report of Suspected Child Abuse or Maltreatment to the New York State Central Registry; that report initiated an investigation into the circumstances surrounding Andrew's removal by OCI. On April 6, 1994, McCloskey's attorney advised Ms. Rodriguez that her request for visitation was being evaluated, pending the outcome of OCI's investigations. At the June 15, 1994 court conference before an Administrative Law Judge, Ms. Rodriguez's attorney again requested that Ms. Rodriguez be allowed to visit Andrew. McCloskey allowed Ms. Rodriguez to visit Andrew on June 27, 1994, and on July 8, 1994.
Courts have held that the reduction of biological parents' visitation rights regarding children over whom the state has asserted legal custody implicate the Due Process Clause, because such a decision "may infringe upon a parent's interest in the `care, custody, and management of their child.'" Fitzgerald v. Williamson, 787 F.2d 403, 408 (8th Cir.1986). Similarly, Ms. Rodriguez had an interest in visiting Andrew, if only to provide him with her own explanation of the separation, attempt to reduce his sense of abandonment, and ease her own concerns about his well-being. This interest in visiting Andrew during the time that he was removed from her care derives from her underlying interest in her relationship with Andrew. In view of the Court's holding above that Ms. Rodriguez has a constitutionally protected liberty interest in the stability of her relationship with Andrew, the Court concludes that the deprivation of any visitation between Ms. Rodriguez and Andrew during the time of his removal also implicates a constitutionally protected liberty interest.
The Court's Mathews analysis is similar for both Ms. Rodriguez's challenge to the promptness of the hearing she was provided to contest the denial of visitation, and her challenge to the promptness of her opportunity to be heard to contest the removal. Ms. Rodriguez's interest in Andrew's returning to her care also included an interest in visiting him between the time of his removal and her opportunity to contest it. Further, Ms. Rodriguez has an interest in visiting Andrew independent of *206 her interest in his return: to comfort him and to offer some explanation for their separation. The risk of erroneous deprivation is similar to that involved in the underlying removal decision (if lessened slightly because the agency may have had more time to assess the basis for the removal decision). Where, as here, the child would not be endangered by supervised visits, and visits are likely to be important in countering the child's sense of abandonment, the government's goal to further the best interest of the child is not in conflict with allowing an opportunity to contest the failure to provide visitation. Because foster care agencies have resources for facilitating supervised visitation, and because of the potential benefit to the child of having contact with the only parent he has ever known, the Court holds that the failure of defendants to provide Ms. Rodriguez any opportunity to contest the decision not to allow her to visit Andrew from March 18, 1994 until June 28, 1994 violated Ms. Rodriguez's due process rights. Accordingly, the Court denies defendants' motion for summary judgment as to plaintiff's visitation claim.
D. Article 78 Exhaustion
Defendants contend that plaintiff has no cause of action under § 1983 because an Article 78 hearing, together with judicial review of the Article 78 decision, is plaintiff's exclusive legal remedy. Defendants are correct that an appeal from an Article 78 proceeding is a foster parent's exclusive remedy to challenge the removal of foster child and to re-obtain foster care for the child. As the court in In re Dina Michelle S., 236 A.D.2d 544, 653 N.Y.S.2d 677, 678 (2d Dep't 1997), explained:
Social Services Law § 400 and 18 NYCRR 443.5 outline a clear procedure for foster parents aggrieved by a decision to relocate their foster children. First, the foster parents may request a departmental review of the agency's decision. They may then request a "fair hearing" to challenge the outcome of the departmental review. Finally, if still aggrieved, the foster parents may commence a CPLR 78 proceeding. This three-step scheme satisfies the requirements of due process and provides the sole remedy for foster parents who wish to challenge the removal of a child....
Id. However, as plaintiff points out, Ms. Rodriguez does not seek the return of her foster child. If that were her requested relief, then the prescribed statutory procedure would be her exclusive remedy. Rather, plaintiff seeks a declaratory judgment and monetary damages. The Court is not persuaded by defendants' suggestion that despite this difference in the relief plaintiff seeks, plaintiff is precluded from pursuing a § 1983 action because she pursued her state remedies to their conclusion. In this regard, defendants argue that § 1983 does not provide a remedy when the governing statute provides an exclusive remedy for violation of its terms. But each of the decisions upon which defendants rely, Pennhurst State Sch. and Hosp. v. Halderman, 451 U.S. 1, 28 n. 21, 101 S. Ct. 1531, 67 L. Ed. 2d 694 (1981); Middlesex County Sewerage Auth. v. National Sea Clammers Ass'n, 453 U.S. 1, 20, 101 S. Ct. 2615, 69 L. Ed. 2d 435 (1981); Irby v. Sullivan, 737 F.2d 1418, 1428 (5th Cir.1984), addresses a plaintiff who seeks to recover for a violation of a federal statute. When the governing federal statute contains remedial devices that are "sufficiently comprehensive," Middlesex, 453 U.S. at 19-20, 101 S. Ct. 2615, a § 1983 action is precluded. See id.; Irby, 737 F.2d at 1428 (Title VII provides sufficiently comprehensive remedial device to support an inference that Congress intended those remedies to be exclusive, and a § 1983 action is precluded). Because plaintiff seeks to recover for a violation of a constitutionally protected right, as opposed to a right protected by a federal statute, there is no such bar. Relying on Spielman v. Hildebrand, 873 F.2d 1377 (10th Cir.1989), defendants also argue that plaintiff's pursuit of her state statutory remedies bars her § 1983 claim. But in *207 Spielman, the court applied § 1983 and concluded that the Kansas procedures provided to the plaintiffs, which the plaintiffs utilized, did not violate due process. Id. at 1385. Because plaintiff seeks relief other than return of a foster child, the New York statutory scheme, including an Article 78 proceeding, does not provide the exclusive remedy. Accordingly, the Court rejects defendants' argument that plaintiff's § 1983 action is barred.
E. Qualified Immunity
Individual defendants Marjorie McLoughlin and Barbara McMurray argue that they are immune from liability under the doctrine of qualified immunity. The doctrine of qualified immunity "shields public officials from liability insofar as their conduct does not violate clearly established statutory or constitutional rights of which a reasonable person would have known, ... or insofar as it [is] objectively reasonable for them to believe that their acts d[o] not violate those rights." Whalen v. County of Fulton, 126 F.3d 400, 404 (2d Cir.1997) (internal citations and quotes omitted).
The individual defendants are not entitled to qualified immunity because they are not "public officials." In Richardson v. McKnight, 521 U.S. 399, 117 S. Ct. 2100, 138 L. Ed. 2d 540 (1997), the Supreme Court noted that the performance of a governmental function by a private defendant does not in itself entitle the private defendant to assert a qualified immunity defense. The Court explained that under Wyatt v. Cole, 504 U.S. 158, 112 S. Ct. 1827, 118 L. Ed. 2d 504 (1992), "private actors are not automatically immune (i.e., § 1983 immunity does not automatically follow § 1983 liability)." Id. at 2108 (emphasis in original). Richardson set forth a two-part analysis to determine whether a private defendant should be entitled to qualified immunity, based on considerations of history and public policy. Neither consideration compels a grant of qualified immunity to the individual defendants in this case.
The Richardson Court explained that immunity is proper only where there is "evidence of an historical tradition of immunity for private parties carrying out these functions." Id. at 2105. Defendants have offered no evidence that there is a tradition of governmental immunity for private parties engaged in foster care, see White v. Chambliss, 112 F.3d 731, 738 (4th Cir.1997) ("`The care of foster children is not traditionally the exclusive prerogative of the State.'") (quoting Milburn v. Anne Arundel County Dep't of Soc. Svcs., 871 F.2d 474, 479 (4th Cir.1989)), and even foster care workers employed by the government are not necessarily entitled to qualified immunity, see Doe v. Jefferson County, 985 F. Supp. 66, 71 (N.D.N.Y. 1997). Although the court in Bartell v. Lohiser, 12 F. Supp. 2d 640 (E.D.Mich. 1998), found that qualified immunity would be appropriate for private foster care workers, it failed to address the first prong of the Richardson analysis. Furthermore, the decisions upon which it relied to suggest that qualified immunity was appropriate for private foster care workers predated Richardson. See Bartell, 12 F.Supp.2d at 646.
Public policy considerations do not favor conferring qualified immunity in the circumstances of this case. The McCloskey agency is subject to competitive market pressures, operating pursuant to a contract with the City. The agency therefore has an incentive not to be unduly timid in protecting the children under its care, but rather has an incentive to discharge its duties responsibly, so that the City will renew its contract. Thus a significant justification for qualified immunity, to insure responsible job performance by governmental employees, is not present in this case. Cf. Richardson, 117 S.Ct. at 2107 ("[M]arketplace pressures provide the private firm with strong incentives to avoid overly timid, insufficiently vigorous, unduly fearful, or `non-arduous' employee job performance.").
*208 In sum, the Court finds that the McCloskey agency is similar, albeit not identical, to the entity in Richardson, which was "a private firm, systematically organized to assume a major lengthy administrative task ... with limited direct supervision by the government, [which] undertakes that task ... potentially in competition with others." Richardson, 117 S.Ct. at 2108. Accordingly, like the employees of the private firm in Richardson, the individual defendants in this case are not entitled to qualified immunity.[8] Accordingly, the Court denies defendants' motion for summary judgment as to plaintiff's claims against the individual defendants.
III. Conclusion
For the reasons set forth above, the Court grants in part and denies in part defendants' motion for summary judgment [doc. no. 33]. The Court's previous Opinion and Order of September 15, 1998 is hereby vacated solely as to the discussion of qualified immunity for individual defendants Marjorie McLoughlin and Barbara McMurray.
SO ORDERED.
NOTES
[1] In the fall of 1993, two anonymous complaints were filed concerning Ms. Rodriguez's care for her foster children; in December 1993 the Office of Confidential Investigations of CWA determined that these complaints were unfounded. McCloskey was aware of this determination, and according to Ms. McMurray, these complaints were not a factor in McCloskey's decision to remove Andrew and Thomas.
[2] See, e.g., Wildauer v. Frederick County, 993 F.2d 369, 372 (4th Cir.1993) (holding that plaintiff non-licensed foster parent did not have liberty interest in relationship with foster children); Renfro v. Cuyahoga County Dep't of Human Servs., 884 F.2d 943, 944 (6th Cir.1989) (holding that foster parents' relationship with foster child did not involve a liberty interest); Sherrard v. Owens, 484 F. Supp. 728, 741-42 (W.D.Mich.1980), aff'd, 644 F.2d 542 (6th Cir.1981) (per curiam) (same); Kyees v. County Dep't of Public Welfare, 600 F.2d 693, 695, 697 (7th Cir.1979) (per curiam) (same); Drummond v. Fulton County Dep't of Children's Services, 563 F.2d 1200, 1207 (5th Cir.1977) (en banc) (same); but see Rivera v. Marcus, 696 F.2d 1016, 1024-25 (2d Cir.1982) (holding that relationship between half-sister and foster parent of half-sister and foster child had constitutional protected liberty interest in preserving integrity and stability of family); Brown v. County of San Joaquin, 601 F. Supp. 653, 662-63 (E.D.Cal.1985) (holding that foster parent had liberty interest in foster care relationship).
[3] As the Court noted in Dietz v. Damas, 932 F. Supp. 431, 453-54 (E.D.N.Y.1996), "[t]he establishment of a liberty interest on the basis of state law, even when the doctrine was most in favor, was largely limited to state law regarding the conditions of confinement in prisons and other institutions." Id. at 453. The Supreme Court's decision in Sandin v. Conner, 515 U.S. 472, 115 S. Ct. 2293, 132 L. Ed. 2d 418 (1995), has been read by the Second Circuit Court of Appeals as "calling into question the continuing viability of our cases holding that New York regulations afford inmates a liberty interest in remaining free from administrative segregation." Rodriguez v. Phillips, 66 F.3d 470, 479 (2d Cir. 1995). There has, however, been only limited application of Sandin outside the context of prison regulations. See Dietz, 932 F.Supp. at 454. In view of the fact that the Supreme Court in OFFER explicitly contemplated looking to state law to discern the expectations of foster parents, the Court bases its holding that there is a liberty interest in Ms. Rodriguez's and Andrew's relationship on the character of the relationship between Ms. Rodriguez and Andrew viewed in the context of applicable state law.
[4] N.Y. Soc. Serv. Law § 383(2) provides:
The custody of a child placed out or boarded out and not legally adopted or for whom legal guardianship has not been granted shall be vested during his minority, or until discharged by such authorized agency from its care and supervision, in the authorized agency placing out or boarding out such child and any such authorized agency may in its discretion remove such child from the home where placed or boarded.
[5] The Adoption Placement Agreement provides that "legal custody remains with Card. McCloskey and that this adoptive placement agreement remains in effect until the date of legal adoption." It also specifies that "legal adoption will take place after both Card. McCloskey and we agree that it is in the child's best interest," and that "[i]f at any time prior to legal adoption it is determined by the agency or by us that the child should be removed from our home, we will cooperate with the agency in carrying this out in a way that serves the best interest of the child in the judgment of the agency." (Def. Exh. E at Exh. A; Pl. Exh. 60.)
[6] N.Y. Comp.Codes R. & Regs. tit. 18 § 443.5 provides:
(a) Whenever a social services official or another authorized agency acting on his behalf proposes to remove a child in foster family care from the foster family home, he or such other authorized agency, as may be appropriate, shall notify the foster family parents, in writing, of the intention to remove such child. Such notification shall be given at least 10 days prior to the proposed effective date of the removal, except where the health or safety of the child requires that the child be removed immediately from the foster family home. Such notification shall further advise the foster family parents that they may request a conference with the social services official or a designated employee of the local social services district at which time the foster parents, with or without a representative, may appear to have the proposed action reviewed, be advised of the reasons therefor and be afforded an opportunity to submit reasons why the child should not be removed. Each social services official shall instruct and require any authorized agency acting on the official's behalf to furnish notice in accordance with the provisions of this section. Foster parents who do not object to the removal of the child from their home may waive in writing their right to the 10-day notice, provided, that such waiver shall not be executed prior to the social services official's or authorized agency's determination to remove the child from the foster home and the receipt by the foster parents of notification of such determination.
(b) Upon the receipt of a request for such conference, the social services official shall set a time and place for such conference to be held within 10 days of receipt of such request and shall send written notice of such conference to the foster family parents and their representative, if any, and to the authorized agency, if any, at least five days prior to the date of such conference.
(c) The social services official shall render and issue his decision as expeditiously as possible, but not later than five days after the conference, and shall send a written notice of his decision to the foster family parents and their representative, if any, and to the authorized agency, if any. Such decision shall advise the foster family parents of their right to appeal to the department and request a fair hearing in accordance with section 400 of the Social Services Law.
(d) In the event there is a request for a conference, the child shall not be removed from the foster family home until at least three days after the notice of decision is sent, or prior to the proposed effective date of removal, whichever occurs later.
(e) In any agreement for foster care between a social services official, or another authorized agency acting on his behalf, and foster parents, there shall be contained therein a statement of a foster parent's rights provided under this section.
[7] In this regard, the Court notes that it rejects defendants' argument that their actions were mere negligence, and thus not subject to § 1983 liability.
[8] This is not to say that the individual defendants are not entitled to a good faith defense, a question that Richardson declined to reach. See Richardson, 117 S.Ct. at 2108. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2450195/ | 117 F. Supp. 2d 1366 (2000)
PERIDYNE TECHNOLOGY SOLUTIONS, LLC, Plaintiff,
v.
MATHESON FAST FREIGHT, INC., and R.B. Matheson Trucking, Inc., Individually and Doing Business as Matheson, Inc. and Matheson Trucking, Inc.; and James Antoniou, Individually, Defendants.
No. Civ.A.1:00CV1587CAP.
United States District Court, N.D. Georgia, Atlanta Division.
October 16, 2000.
*1367 *1368 M. Taylor Florence, Bullivant Houser Bailey, Gold River, CA, Thomas Bart Gary, Freeman Mathis & Gary, Atlanta, GA, Timothy Harold Kratz, McGuire Woods, Atlanta, GA, Benton J. Mathis, Jr., Freeman Mathis & Gary, Atlanta, GA, for defendants.
Stuart S. Gordan, Robinson, Rappaport Jampol Aussenberg & Schleicher, Alpharetta, GA, Michael Evan Jacobs, Robinson Rappaport Jampol Aussenberg & Schleicher, Alpharetta, GA, Steven Michael Jampol, Robinson Rappaport Jampol Aussenberg & Schleicher, Alpharetta, GA, for plaintiff.
ORDER
PANNELL, District Judge.
The plaintiff brought the instant action, alleging eight (8) claims for relief based upon Federal Computer Fraud, 18 U.S.C. § 1030; Federal RICO, 18 U.S.C. § 1962; Georgia Computer Systems Protection Act, O.C.G.A. § 16-9-90; Georgia RICO, O.C.G.A. § 16-14-3; Georgia Trade Secrets Act of 1990, O.C.G.A. § 10-1-760; breach of contract; quantum meruit, O.C.G.A. § 9-2-7; and Attorney's Fees, O.C.G.A. § 13-6-11. The matter is currently before the court on the defendants' motion to dismiss for lack of jurisdiction, lack of venue, and/or alternatively to transfer venue.
I. BACKGROUND FACTS AND PROCEDURAL HISTORY
The plaintiff is a limited liability company organized and existing under the laws of Nevada with its principal place of business in Atlanta, Georgia. The corporate defendants are organized and exist under the laws of California with their principal places of business in Elk Grove, California. Mr. Antoniou is, and was at all relevant times, domiciled in, and a citizen of, California, and an employee of the corporate defendants (the "individual defendant").
On March 31, 1999, the plaintiff and the corporate defendants entered into a consulting agreement whereby the plaintiff agreed to provide computer consulting services and materials to the corporate defendants (the "Contract"). In connection with *1369 the performance of the Contract, the plaintiff provided several computer consultants to the corporate defendants in California and Georgia. The parties repeatedly used their respective computer systems to interface and exchange information. These interfaces included the plaintiff providing the defendants with password access to limited directories containing certain data and software applications on one of the plaintiff's servers located in Georgia. After the plaintiff demanded payment of its invoiced work, the corporate defendants terminated the plaintiff's services in accordance with the Contract.
Subsequent to this termination, the individual defendant, while in California, acting within the scope of his employment with the corporate defendants, on one or more occasions illegally hacked into several of the plaintiff's servers and directories in Georgia in order to download files, directory listings, proprietary source code, software, CMS_XML technology, financial records and books, research and development, white papers, and personal directories of the plaintiff's employees. Further, he deleted files, cleaned up logs, installed foreign programs, and accessed plaintiff's repository of source code for its commercial clients, located on the plaintiff's main servers in Georgia.
II. LEGAL DISCUSSION
A. Personal Jurisdiction
The defendants contend that they are not subject to personal jurisdiction in Georgia and therefore the plaintiff's claim must be dismissed. The plaintiff bears the burden of establishing jurisdiction in this court. See Francosteel Corp. v. M/V Charm, 19 F.3d 624, 626 (11th Cir. 1994). Where, as here, an evidentiary hearing is not held on a motion to dismiss for lack of personal jurisdiction, a plaintiff must establish a prima facie case of jurisdiction to survive a motion to dismiss, by presenting sufficient evidence to withstand a motion for directed verdict. See id. The court construes the allegations in the Complaint as true to the extent that they are uncontroverted by the defendants' evidence. See Morris v. SSE, Inc., 843 F.2d 489, 492 (11th Cir.1988). Where there are conflicts between the parties' evidence, the court makes all reasonable inferences in favor of the plaintiff. See id.
The basic test utilized in the Eleventh Circuit for determining the existence of personal jurisdiction requires the court to conduct a two-part inquiry to determine whether personal jurisdiction exists under Georgia's long-arm statute and the Due Process Clause of the United States Constitution. See Robinson v. Giarmarco & Bill, P.C., 74 F.3d 253, 256 (11th Cir.1996).
Where a state's long-arm statute confers personal jurisdiction to the limits of Due Process, the court may pass over analysis of the statute and exercise jurisdiction where the constitutional requirements are satisfied. See Allegiant Physicians Serv., Inc. v. Sturdy Memorial Hosp., 926 F. Supp. 1106, 1112 (N.D.Ga. 1996). Although there has been some disagreement as to whether the Georgia long-arm statute extends to the maximum extent of due process for all claims, numerous district courts in the Eleventh Circuit have held in recent decisions that the Georgia long-arm statute confers personal Jurisdiction to the full extent permitted by the Due Process Clause of the United States Constitution. See Maxwell Chase Technologies, L.L.C. v. KMB Produce, Inc., 79 F. Supp. 2d 1364, 1367 (N.D.Ga. 1999) (citing Francosteel Corp., 19 F.3d at 627). Accordingly, the court proceeds directly to the consideration of whether the exercise of personal jurisdiction over the defendants is consistent with the Due Process Clause.
"[D]ue [P]rocess requires ... that in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum, he have certain minimum contacts with it such that maintenance of the suit does not offend `traditional notions of fair play and substantial justice.'" International Shoe Co. v. *1370 Washington, 326 U.S. 310, 316, 66 S. Ct. 154, 90 L. Ed. 95 (1945) (citations omitted). Subsequent to International Shoe, the Supreme Court has clarified that these "contacts" must be purposeful contacts made by the non-resident defendant and not the result of unilateral activity by another. See e.g. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 474, 105 S. Ct. 2174, 85 L. Ed. 2d 528 (1985). This requirement of purposeful contacts ensures that the non-resident defendant has fair warning that a particular activity may subject her to litigation within the forum. See Burger King Corp., 471 U.S. at 472, 105 S. Ct. 2174, 85 L. Ed. 2d 528.
Due Process contemplates two types of jurisdiction over the persongeneral and specific jurisdiction. See Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 104 S. Ct. 1868, 80 L. Ed. 2d 404 (1984). A party is subject to general jurisdiction when it has "continuous and systematic" contacts with the forum state and may be haled into court in the forum state on any claim. See id.
A non-resident defendant may be subject to specific jurisdiction in a particular forum state when (1) it has purposefully established minimum contacts with the forum state and (2) the exercise of jurisdiction will not offend traditional notions of fair play and substantial justice. See Francosteel Corp., 19 F.3d at 627. In order to fulfill the minimum contacts requirement, the plaintiff must demonstrate the presence of three factors. First, the plaintiff's cause of action must arise out of or relate to the non-resident defendant's contacts with the forum state. See id.; and see Maxwell Chase Technologies, L.L.C., 79 F.Supp.2d at 1368. Second, the contacts must show that the non-resident defendant purposefully conducted activities within the forum state and invoked the benefits and protections of the forum's laws. Third, the defendant's contacts must demonstrate that the non-resident should reasonably anticipate being haled into court in the forum. See id. Simply, "[t]he availability of specific jurisdiction depends on the relationship among the defendant, the forum, and the litigation." Id.
Once the court is satisfied that a non-resident defendant has the requisite minimum contacts with the forum state, then, the court must consider these contacts in light of other factors to determine whether the assertion of personal jurisdiction "would comport with fair play and substantial justice." Burger King Corp., 471 U.S. at 476, 105 S. Ct. 2174, 85 L. Ed. 2d 528 (quoting International Shoe Co., 326 U.S. at 320, 66 S. Ct. 154, 90 L. Ed. 95). These other factors include "the burden on the defendant in defending the lawsuit, the forum state's interest in adjudicating the dispute, the plaintiff's interest in obtaining convenient and effective relief, the interstate judicial system's interest in obtaining the most efficient resolution of controversies and the shared interest of the states in furthering fundamental social policies." Robinson, 74 F.3d at 259. Even where a non-resident defendant has sufficient contacts with the forum, these factors may make the assertion of personal jurisdiction unreasonable in a particular case. Conversely, these factors may make the assertion of personal jurisdiction reasonable on a lesser showing of minimum contacts. See id.
1. General Jurisdiction
The defendants argue that their sole contract with the plaintiff, standing alone, is insufficient to subject them to general jurisdiction in Georgia, because to do so would offend due process. See Helicopteros Nacionales de Colombia, S.A., 466 U.S. at 414, 104 S. Ct. 1868, 80 L. Ed. 2d 404; Allegiant Physicians Serv., Inc., 926 F.Supp. at 1112. The court agrees that coupled with Laurie Johnson's Affidavit and the single contract, the defendants are not subject to general jurisdiction.
2. Specific Jurisdiction
The defendants also contend that they are not subject to specific jurisdiction in *1371 Georgia, because they have not purposefully established minimum contacts with Georgia. See Burger King Corp., 471 U.S. at 478-79, 105 S. Ct. 2174, 85 L. Ed. 2d 528. Relying heavily on Barnstone v. Congregation Am Echad, 574 F.2d 286, 288 (5th Cir.1978) (per curiam), the defendants argue the following facts:
1. The plaintiff submitted a proposal to the defendants in California for the Custom System, which was to be developed and constructed for use on the defendants' computer systems in California;
2. The contract negotiations took place in California or telephonically;
3. None of the defendants or their agents traveled to Georgia;
4. The defendants do not haul any freight in Georgia;
5. The proposed contracts were sent from Georgia to California; and
6. Although the plaintiff programmed or designed part of the software project in Georgia, such activity was unilateral performance of the contract that did not involve the defendants.
The plaintiff counters that the defendants purposefully directed their conduct into Georgia in numerous ways, including:
1. Intentionally committing tortious acts within Georgia;
2. Electronically accessing the plaintiff's computer system in Georgia, changing passwords, copying computer files containing proprietary information, and deleting files in an attempt to conceal their illegal entry into the plaintiff's computer system;
3. Negotiating the Contract with the plaintiff, a Georgia based business, which required payment by the defendants in Georgia and contained a forum selection clause requiring jurisdiction and venue in Georgia;
4. Entering into a Consulting Agreement under which most of the development work on the subject software was to be performed in Georgia;
5. Electronically accessing certain authorized and unauthorized areas within the plaintiff's computer system in Georgia and transferring thousands of computer files to and from Georgia;
6. Using the plaintiff's computers for other business purposes unrelated to the performance of the Contract; and
7. Accessing the plaintiff's computers to assist the plaintiff in setting up certain features on the plaintiff's and the corporate defendants' computers.
Thus, the defendants argue that, as non-residents, non-domiciles of, and non-property owners in Georgia, the singular disputed contract, even coupled with the limited electronic and telephonic contact with the plaintiff, without more activity in the forum state, does not create sufficient minimum contacts to support personal jurisdiction. See Allegiant Physicians Serv., Inc., 926 F.Supp. at 1114-19; and see Harris v. North American Rockwell Corp., 372 F. Supp. 958 (N.D.Ga.1974). By contrast, the plaintiff argues that the defendants' activities constitute sufficient minimum contacts with Georgia such that the exercise of personal jurisdiction over them will not offend traditional notions of fair play and substantial justice. See International Shoe Company, 326 U.S. at 316, 66 S. Ct. 154; and see United States Securities and Exchange Commission v. Carrillo, 115 F.3d 1540, 1542 (11th Cir.1997).
Initially, the court notes that the defendants "`should not be permitted to take advantage of modern technology'" via the Internet or other electronic means to "`escape traditional notions of jurisdiction.'" Cybersell, Inc. v. Cybersell. Inc., 130 F.3d 414, 419 (9th Cir.1997) (citations omitted).Turning to the first question of the minimum contacts analysis, the court considers whether the plaintiff's cause of action arises out of or relates to the nonresident *1372 defendants' contacts with the forum state. See Francosteel Corp., 19 F.3d at 627; and see Maxwell Chase Technologies, L.L.C., 79 F.Supp.2d at 1368. The plaintiff's Complaint alleges eight claims for relief based upon numerous activities in California and Georgia, but key to the court's analysis is the allegation in the Complaint of tortious activity in Georgia via the Internet. Coupled with the disputed contract, its forum selection clause, and the defendants' limited, but necessary, business transactions in Georgia, the court finds that the plaintiff's claims arise out of or relate to the defendants' activities, albeit largely electronic, directed at Georgia.
Second, the contacts must show that the non-resident defendants purposefully conducted activities within the forum state and invoked the benefits and protections of the forum's laws. Constrained to construe all reasonable inferences in favor of the plaintiff, the court must find that the defendants deliberately directed their electronic activity towards the plaintiff, a Georgia resident, for commercial purposes. The defendants allegedly actively, as opposed to passively, entered the plaintiff's computer system, used pass-codes and authorizations obtained from the plaintiff in the course of their business dealings for the freight tracking software. Further, they allegedly manipulated their way into private files stored on the plaintiff's computers, servers, and databases, based in Georgia. Thus, the court finds that they deliberately directed their activities at Georgia. The individual defendant's contacts, as alleged, constituted repeated transfers of thousands of computer files from the plaintiff's computers in Georgia to the defendants' computers in California. Whether his activity in Georgia was once, as argued, or repeated is of no consequence. The court finds that his activities, as alleged, rise to the level of a substantial connection with Georgia. See Burger King Corp., 471 U.S. at 475 n. 18, 105 S. Ct. 2174, 85 L. Ed. 2d 528.
Third, and finally, the defendants' contacts must demonstrate that as non-residents, they should reasonably anticipate being haled into court in the forum. See Francosteel Corp., 19 F.3d at 627. That the defendants never physically entered Georgia is of no import to the instant question of jurisdiction under these facts. See Burger King Corp., 471 U.S. at 476, 105 S. Ct. 2174, 85 L. Ed. 2d 528; and see Vermeulen v. Renault, U.S.A., Inc., 965 F.2d 1014, 1025 (11th Cir.1992). The plaintiff alleges that the defendants injured them by committing tortious activity in Georgia and entering a contract, albeit a disputed one, which provided a Georgia forum selection clause. The defendants were or should have been aware that conducting business transactions with the plaintiff in Georgia, even electronically, entering a contract, coupled with allegedly tortious activity, even through the Internet, would have consequences in Georgia. No element of surprise exists for the defendants in being sued in Georgia.
Thus, having carefully considered the parties' briefs, the court is satisfied that the "quantity, quality and nature of the defendant[s'] contacts with the [instant] jurisdiction are substantial." B & J Mfg. v. Solar Indus., 483 F.2d 594, 598-599 (8th Cir.1973). Accordingly, the court finds that the defendants purposefully directed their activities at residents of Georgia and that the instant litigation results from and/or is sufficiently related to those activities for this court to have personal jurisdiction over them. See Burger King Corp., 471 U.S. at 472, 105 S. Ct. 2174, 85 L. Ed. 2d 528.
3. Fair Play and Substantial Justice
Having decided that the defendants purposefully established minimum contacts within Georgia, the court next considers whether the assertion of jurisdiction over the defendants based upon those contacts comports with "fair play and substantial justice." Id. at 476-77, 471 U.S. 462, 105 S. Ct. 2174, 85 L. Ed. 2d 528. In doing so, the court must satisfy itself that the defendants have not presented a compelling *1373 case that jurisdiction would be constitutionally unreasonable.
The burden on the defendants in being required to defend this action in Georgia is minimal in light of modern transit systems and, the plaintiff has a strong interest in obtaining convenient and effective relief in its home forum. See Beverly Hills Fan Co. v. Royal Sovereign Corp., 21 F.3d 1558, 1569 (Fed.Cir.1994). While the court is not unmindful of the burden on the individual defendant in litigating this matter in Georgia, modern means of communication allow him to litigate in Georgia while remaining for the majority of the time in California. See Robinson, 74 F.3d at 259. Furthermore, Georgia "has a `manifest interest' in providing its residents with a convenient forum for redressing [tortious] injuries inflicted by out-of-state actors," which is not outweighed by the individual defendant's inconvenience. Burger King Corp., 471 U.S. at 473, 105 S. Ct. 2174, 85 L. Ed. 2d 528 (internal citations omitted). Specifically, Georgia has a strong interest in protecting Georgia corporations, like the plaintiff, from the illegal attempts of non-residents to misappropriate computer data, technology, trade secrets, and confidential information. See Urspruch v. Greenblum, 968 F. Supp. 707, 712 (S.D.Ga.1996). Thus, having considered the burden on the defendants in defending the lawsuit, Georgia's interest in adjudicating the dispute, the plaintiff's interest in obtaining convenient and effective relief, and the interstate judicial system's interest in obtaining the most efficient resolution of the controversy, the court finds that the assertion of personal jurisdiction over the defendants comports with fair play and substantial justice. Accordingly, the defendants' motion to dismiss for lack of personal jurisdiction is denied.
B. Improper Venue
1. Motion to Dismiss
The defendants also move the court to dismiss or alternatively to transfer this case to the United States District Court for the Eastern District of California pursuant to the provisions of 28 U.S.C. §§ 1404(a) and 1406(a). With respect to the corporate defendants contention that venue cannot be demonstrated under 28 U.S.C. § 1391(b), the court notes that the plaintiff alleges that the individual defendant, at the direction of the corporate defendants, illegally accessed the plaintiff's computer systems in Georgia. The fact that the defendants used computers and telephones to enter Georgia does not make venue in Georgia improper. Rather, the court finds that a substantial part of the events in this case occurred in Georgia and so venue is proper in this court under Section 1391(b).
2. Motion to Transfer
Although jurisdiction exists in this forum, Section 1404(a) permits the transfer of a case for the convenience of the parties and witnesses, and in the interests of justice. See Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508, 67 S. Ct. 839, 91 L. Ed. 1055 (1947). In deciding whether the requested transfer should be granted, the court must strike a balance between those elements which weigh in favor of transferring and those which favor allowing the plaintiff's choice of forum to stand undisturbed. The court will not grant a transfer if it would merely shift inconvenience from one party to the other.
To meet the requirements of Section 1404(a), the movants, here the defendants, bear the burden of proving that the proposed transferee district, the Eastern District of California, is a district in which the claims in this case could have been brought originally and that the balance of interests weighs strongly in favor of the proposed transfer district. See In re Ricoh Corp., 870 F.2d 570 (11th Cir.1989).
The defendants appear to meet the first requirement. Since the instant claims are founded on diversity of citizenship and federal question jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1332, the claims are properly brought in any judicial district where all the defendants reside or *1374 where the claim arose. The defendants are incorporated and/or reside in California. The disputes are governed by federal and state law, and the events giving rise to this action took place in Georgia and California. Accordingly, the court finds that venue is proper in either Georgia or California.
With regard to the second requirement, that the balance of interests must weigh strongly in favor of the proposed transferee district, the defendants asserts the following factors as being determinative of their respective motions to transfer:
1. California is a more convenient forum than Georgia;
2. It will be time consuming and expensive to require the individual defendant and numerous California-domiciled witnesses to travel to Georgia to testify as witnesses;
3. It would be disruptive to the individual defendant's home-life to travel to Georgia;
4. The corporate defendants are both California corporations with their principal places of business there;
5. The plaintiff's employees traveled to Californiathe corporate defendants' employees did not travel to Georgia;
6. Even if the court applies Georgia law to the disputed contract, California law would apply to several of the other claims; and
7. The center of gravity test under Section 1404(a) dictates that venue is proper in California.
In response, the plaintiff asserts the following factors in its opposition to the defendant's motion to transfer:
1. California is not more convenient than Georgia;
2. Any inconvenience suffered by the defendants in traveling to Georgia would be no greater than the inconvenience to the plaintiff in traveling to California;
3. The defendants would only have to be in Georgia for the trial;
4. Many of the witnesses in this case are in Georgia; and
5. Most of the "evidence" is in Georgia.
Both parties will undoubtedly be inconvenienced if they were required to travel to a forum other than where they reside. Despite their arguments to the contrary, the court finds that the defendants will not be much more substantially burdened with respect to transporting relevant physical and documentary evidence, and producing witnesses, than the plaintiff. Again, the court will not simply shift burdens. Furthermore, the plaintiff has demonstrated that it and many of its potential witnesses, which are in Georgia, would be significantly inconvenienced if required to travel to California.
Although the defendants' arguments as to financial and physical hardship are factors in considering the convenience of the parties, the interests of all the parties weighs in favor of not transferring the case. The individual defendant may not be a corporation on par with the plaintiff, however, the court is unconvinced that the defendant would be severely harmed by resolving this case in Georgia.
In addition to weighing considerations of the parties' and witnesses' convenience, the court must weigh the considerations of cost, judicial economy, expeditious discovery and trial process. See Gulf Oil Corp., 330 U.S. at 501, 67 S. Ct. 839, 91 L. Ed. 1055. As for the interests of justice, the court looks at the same factors that have been traditionally applied in the doctrine of forum non conveniens. See Norwood v. Kirkpatrick, 349 U.S. 29, 32, 75 S. Ct. 544, 99 L. Ed. 789 (1955). Although the court may exercise much discretion in this area, the Supreme Court has outlined several criteria for lower courts to consider including access to evidence, availability of witnesses, the cost of obtaining witnesses, and all other practical problems that make the trial of a case easy, expeditious and inexpensive. See id. The court recognizes that unless the balance of interests strongly favors the defendants, the plaintiff's *1375 choice of forum should rarely be disturbed. See id. This factor, coupled with the interests of judicial economy, cost, and expeditious litigation tip the balance of interests in the plaintiff's favor. Accordingly, the court, having given due consideration to all the factors presented by the parties, concludes that the motion to dismiss and/or transfer this cause of action is improper.
III. CONCLUSION
For the foregoing reasons, the court hereby DENIES Mr. Antoniou's motion to dismiss for lack of personal jurisdiction [Doc. No. 6-1] and his motion to dismiss for improper venue or to transfer venue [Doc. No. 6-2], and DENIES the Matheson defendants' motion to dismiss for lack of personal jurisdiction [Doc. No. 7-1] and their motion to dismiss for improper venue or to transfer venue [Doc. No. 7-2], and DENIES the plaintiff's motion for oral argument [Doc. No. 13-1]. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2450219/ | 117 F. Supp. 2d 478 (2000)
UNITED STATES of America,
v.
Kevin Anton BANDY, Defendant.
No. CRIM.A. 92-448-1.
United States District Court, E.D. Pennsylvania.
October 19, 2000.
*479 L. Felipe Restrepo, Krasner and Restrepo, Philadelphia, PA, for Defendant.
Kevin Bandy, Newark, NJ, pro se.
Robert E. Goldman, Philadelphia, PA, for U.S.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
KATZ, Senior District Judge.
Now before the court is a petition by the Probation Office to revoke Kevin Bandy's supervised release. After a hearing, and upon consideration of all the evidence of record, the court makes the following findings of fact and conclusions of law.
Findings of Fact
1. Mr. Bandy was convicted of one count of interference with commerce by robbery and one count of interstate transportation of stolen property. On January 27, 1993, this court sentenced Mr. Bandy to seventy months imprisonment, to be followed by three years supervised release. The defendant was also ordered to pay a $100 special assessment and to pay restitution in the amount of $10,498. In imposing the sentence, the court granted the government's motion and departed downward from the applicable Sentencing Guidelines range due to the defendant's substantial assistance.
2. Mr. Bandy's criminal history category was IV. See J. at 5;[1]see also Gov't Proposed Findings of Fact and Conclusions of Law ¶ 13.
3. The conditions of Mr. Bandy's supervised release include: that he not commit another federal, state or local crime; that he notify his probation officer within seventy-two hours of being arrested or questioned by law enforcement officials; that he submit monthly written reports to his probation officer; and that he inform his probation officer within seventy-two hours of any change in residence or employment. See J. at 3.
4. Mr. Bandy's term of supervised release began on November 21, 1997. On January 23, 1998, Mr. Bandy was arrested in Montgomery County, Pennsylvania, and charged with retail theft, receiving stolen property, and criminal conspiracy. On February 13, 1998, while incarcerated in Montgomery County prison, he was arrested and charged with simple assault. Mr. Bandy posted bail and was released in May 1998. However, his bail was forfeited and a bench warrant was issued when he failed to appear on June 18, 1998. On August 6, 1998, Mr. Bandy was arrested in Delaware County, Pennsylvania, and charged with criminal conspiracy and retail theft. These charges were dismissed a few weeks later for lack of prosecution. Mr. Bandy was then taken back into custody by Montgomery County, and he was released again on bail on August 25, 1998. He failed to appear in Montgomery County on September 11, 1998, and a new bench warrant was issued. This warrant remains outstanding.
5. Mr. Bandy failed to inform his probation officer of his arrest in Delaware County.
6. On November 30, 1998, Mr. Bandy was arrested in Pennsauken, New Jersey and charged with unlawful means of conveyance, possession of a stolen handgun, unlawful possession of a weapon, resisting *480 arrest and possession of hollow-nose bullets. He was convicted of criminal offenses stemming from this arrest and is currently incarcerated in a New Jersey state prison.
7. Mr. Bandy has not submitted any monthly reports since December 1997.
8. A balance of $25 remains outstanding on the defendant's special assessment. In addition, he has failed to pay restitution.
9. Since his release from Montgomery County prison in May 1998, the defendant has failed to report his changes in residence to his probation officer.
Conclusions of Law
1. In determining the modification of supervised release, the court is to consider the nature and circumstances of the offense; the history and characteristics of the defendant; and the need for the sentence to provide just punishment, deter others, protect the public, and assist the defendant. See 18 U.S.C. § 3583(a), (e). Additional factors to be considered include the types of sentence available, relevant policy statements, and the need to avoid sentencing disparities. See id.
2. If, after considering the foregoing factors, the court finds by a preponderance of the evidence that the defendant committed the violations alleged, the court may revoke supervised release. See 18 U.S.C. § 3583(e)(3).
3. Under the Sentencing Guidelines, revocation is mandatory if the defendant commits a grade A or B violation of supervised release. See U.S.S.G. § 7B1.3(a)(1). In addition, the Guidelines state that any term of imprisonment imposed upon revocation of supervised release shall be consecutive to any sentence of imprisonment that the defendant is serving. See id. § 7B1.3(f).
4. Because the original offenses in this case were Class C and D felonies, the court may not sentence the defendant to more than two years imprisonment upon revocation of supervised release. See 18 U.S.C. § 3583(e)(3).
5. A court shall consider the applicable Sentencing Commission guidelines and policy statements in imposing sentences on or after September 13, 1994, for violations of probation and supervised release. See 18 U.S.C. § 3553(a)(4)(B). However, the Third Circuit affirmed in United States v. Schwegel, 126 F.3d 551 (3d Cir.1997), that the ranges set out in U.S.S.G. § 7B1.4 are only policy statements and, as such, are advisory and nonbinding. Therefore, the court may impose a sentence outside those ranges.
6. A Grade B violation is conduct that constitutes a federal, state, or local offense punishable by a term of imprisonment exceeding one year other than a crime of violence, a controlled substance offense, an offense involving possession of a firearm, or an offense punishable by a term of imprisonment of more than twenty years. See U.S.S.G. § 7B1.1(a). The government's proof and the submissions of the Probation Office establish by a preponderance of the evidence that Mr. Bandy's arrests in Pennsauken, New Jersey and Montgomery County, Pennsylvania constitute Grade B violations of his supervised release.
8. A Grade C violation includes a violation of any other condition of supervised release. See U.S.S.G. § 7B1.1(a)(3). The government's proof and the submissions of the Probation Office establish by a preponderance of the evidence that Mr. Bandy's failure to inform his probation officer of his arrest in Delaware County, failure to pay his special assessment in full, failure to pay restitution, failure to submit monthly reports, and failure to inform his probation officer of any changes in residence all constitute Grade C violations.
9. As there is more than one violation of the conditions of supervised release, the court utilizes the grade of the most serious violation. See U.S.S.G. *481 § 7B1.1(b). The defendant's grade of violation is therefore Grade B.
10. The range for a Grade B violation for a defendant with a criminal history category of IV is 12 to 18 months. See U.S.S.G. § 7B1.4(a).
11. In Mr. Bandy's case, a penalty of 12 months, to be served consecutively to any other sentence he is currently serving, is appropriate considering the defendant's persistent course of criminal conduct and his failure to comply with the conditions of his supervised release.
NOTES
[1] The criminal history category on the defendant's Judgment appears to be a typographical error. According to the Presentence Investigation Report (PSI) prepared by the Probation Office, the defendant's criminal history category was VI. See PSI ¶¶ 33-40, 61. In addition, the defendant's sentencing guideline range of 151 to 188 months, see J. at 5; PSI 61, was consistent with a criminal history category of VI. See U.S.S.G. Sentencing Table, Ch. 5 Pt.A. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2467949/ | 747 F. Supp. 2d 1008 (2010)
RNA CORPORATION, Plaintiff/Counter-Defendant,
v.
The PROCTER & GAMBLE COMPANY, Defendant/Counter-Plaintiff.
No. 08 C 5953.
United States District Court, N.D. Illinois, Eastern Division.
October 21, 2010.
*1011 Frederic A. Mendelsohn, Daniel S. Klapman, Burke, Warren, MacKay & Serritella PC, Chicago, IL, for Plaintiff/Counter-Defendant.
Paul F. Linn, Michael Best & Friedrich LLP, Milwaukee, WI, Christopher R. Parker, Michael Best & Friedrich, Chicago, IL, Heather D. Redmond, Meghan Elizabeth Lind, Peter M. Lancaster, Dorsey & Whitney LLP, Minneapolis, MN, for Defendant/Counter-Plaintiff.
MEMORANDUM OPINION AND ORDER
JAMES B. ZAGEL, District Judge.
I. PROCEDURAL HISTORY
Defendant and Counterclaimant, The Procter & Gamble Company ("P & G"), is an Ohio corporation with its principal place of business in Cincinnati, Ohio. P & G is a worldwide producer of branded products and services that sells products labeled HERBAL ESSENCES (including "hello hydration" moisturizing shampoo and conditioner) that feature P & G's registered trademarks and patented designs. Plaintiff and Counterclaim Defendant RNA Corporation ("RNA") is an Illinois corporation that is a contract manufacturer of private label products for stores like Walgreens and Family Dollar, and has sold products labeled "Hydrating Herbal Shampoo" and "Hydrating Herbal Conditioner" (the "Family Dollar product").
On August 21, 2008, P & G filed a complaint in the Southern District of Ohio, praying that RNA be permanently enjoined from manufacturing its hydrating herbal shampoo and conditioner for Family Dollar, and alleging that RNA's product infringes P & G's unregistered trade dress rights as well as a certain registered trademark and certain design patents. Neither Family Dollar nor GK Packaging, Inc. ("GK")the actual designer and manufacturer of the allegedly infringing bottlewere named as defendants in the Ohio Complaint.
RNA filed a motion to dismiss the complaint in September of 2008two weeks after GK was issued a Notice of Allowance of a design patent for the design of the bottle used in the Family Dollar product.[1] RNA's motion to dismiss was granted on the basis of lack of personal jurisdiction on December 19, 2008, and the dismissal was subsequently affirmed by the Federal Circuit.
On October 16, 2008, while the Ohio action was still pending, RNA filed a declaratory judgment action in the Northern District of Illinois. On November 12, 2008, this court entered an agreed stay of proceedings in the Northern District pending a ruling on the Ohio motion to dismiss. While the Ohio dismissal was pending appeal, P & G asserted counterclaims in this court, followed by a February 2, 2009 motion *1012 for preliminary injunction. The parties spent a couple of months in unsuccessful negotiations regarding the preliminary injunction. Meanwhile, on March 31, 2009, RNA received notice from Family Dollar that Family Dollar was ending its supply agreement with RNA for the shampoo and conditioner at issue.
In light of its cessation of production of the Family Dollar product, on April 6, 2009, RNA filed a Motion to Deem P & G's Motion for Preliminary Injunction Moot and to Schedule a Settlement Conference. This court denied RNA's Motion to Deem Moot, but granted RNA's motion for a settlement conference. On April 16, 2009, the parties agreed to the scope of a preliminary injunction, which was entered by this court on May 19, 2009. A settlement conference was also set for June 12, 2009.
At the settlement conference, the parties were able to reach a general agreement as to the scope of a permanent injunction, but could not resolve their dispute over damages. The parties agreed to continue to try and resolve their disagreement, but were unable to do so and required a second settlement conference with this court on August 21, 2009. At the second conference, the parties agreed to submit to a damage resolution procedure whereby they waived their rights to trial and agreed to submit all remaining disputes to Judge Zagel.
The Order Governing Damage Resolution Process, dated April 19, 2010, stipulates that the evidence shall consist of written submissions by the parties, and that, after trial, the court shall enter a final, binding, and non-appealable order stating the amount of damagesif any that the court determines should be awarded to either party. Separate from any damage award, all remaining claims in the matter were to be dismissed with prejudice. In the Consent Decree and Permanent Injunction, also dated April 19, 2010, RNA explicitly denies "that it in any way acted in bad faith or with intent to violate any of P & G's intellectual property rights." Consent Dec. & Perm. Inj. at 2. The agreed injunction further emphasizes that it was created "in order both to resolve this dispute without further expense and without any admission of liability by either party." Id.
Both parties' final responses were submitted on June 15, 2010.
II. ARGUMENTS OF THE PARTIES
Almost without exception, all of the testimony upon which either side bases its arguments comes from sworn statements given by each company's own employees.
A. P & G'S CLAIMS FOR DAMAGES AND ATTORNEYS' FEES
Procter & Gamble argues that the relevant statutes provide it rights to RNA's profits, its own damages, attorneys' fees, "and an adjustment in the discretion of the court for equitable reasons." P & G Memo at 5.[2] One such statute is the Lanham Act, which states:
When a violation . . . has been established, the plaintiff shall be entitled, subject to [statute] and the principles of equity, to recover (1) defendant's profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action . . . In assessing profits the plaintiff shall be required to prove defendant's sales only; *1013 defendant must prove all elements of cost or deduction claimed.
P & G Memo[3] at 5, citing 15 U.S.C. § 1117(a).
P & G further argues that it should receive enhanced damages in the `likely instance' that "imprecise damage calculations [would] fail to do justice." Taco Cabana Int'l, Inc. v. Two Pesos, Inc., 932 F.2d 1113, 1127 (5th Cir.1991), aff'd on other grounds, 505 U.S. 763, 112 S. Ct. 2753, 120 L. Ed. 2d 615 (1992). Continuing to cite Taco Cabana, P & G argues that, although enhancement of damages should be compensatory rather than punitive, it may be based on a finding of willful infringement.
P & G also cites the Patent Act reasonable royalty clause: "Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer. . ." 35 U.S.C. § 284. Here, P & G argues, a reasonable royalty based upon RNA's unit sales is appropriate.
Both the Lanham Act and the Patent Act also provide awards of attorneys' fees in "exceptional cases." 15 U.S.C. § 1117(a); 35 U.S.C. § 285. An example given by P & G in the Seventh Circuit of an exceptional trademark case "may be one in which the defendant engaged in purposeful or deliberate infringement of the plaintiff's mark." P & G Memo at 6. Basically, P & G argues that it is entitled to (1) RNA's profits; (2) P & G's damages; (3) P & G's attorneys' fees; and (4) an equitable damage award in the form of a reasonable royalty. Overall, P & G does not address liability in its first brief, aside from a short discussion of confusion as it related to creating a loss for P & G.
In its response brief, RNA argues that it received no profits from the Family Dollar product (and in fact suffered a loss). RNA contests the idea of customer confusion here, disparaging the manner in which P & G `manipulated' its quarterly financial data here to show confusion. Indeed, RNA says, the record demonstrates a lack of consumer confusion because of the prominence of the Family Dollar logo on the allegedly infringing product. Basically, RNA asserts P & G's damage claim relies entirely on the existence of diverted sales, which it cannot satisfactorily establish with its financial data.
As far as the `exceptional case' attorneys' fees, RNA argued "P & G can never be a prevailing party on its claims for patent infringement, nor can P & G prevail on its Lanham Act cases, as the elements of trade dress identified by P & G are neither protectable, nor present on the Family Dollar product. RNA also highlights that it is necessary to be a prevailing party in order to secure damages on all of the statute-based claims, indicating that P & G is not.
Substantively, RNA indicates that the presence of the GK patent demonstrates that the bottle used for the Family Dollar product was in fact patented and noninfringing. Additionally, RNA reiterates its lack of profits and asserts that P & G's claimed trade dress is not protectable because it is not inherently distinctive and does not have a secondary meaning. Furthermore, RNA argues that P & G cannot establish the requisite likelihood of confusion because of the existence of the obvious Family Dollar mark coupled with the 40% price difference between the Family Dollar product and the P & G products. *1014 RNA also argues P & G's claimed elements of trade dress are not present on the Family Dollar Product, and the totality of the circumstances demonstrates that a consumer would not be confused as to the source of the Family Dollar product.
RNA argues it did not infringe P & G's trademark because of the "Compare to Herbal Essences . . ." language on the Family Dollar product's bottle, and further incorporates the lack of confusion arguments from its trade dress defense. RNA also contests P & G's stated claim for damages in more detail, analyzing the quarterly sales information. According to RNA, an analysis of quarterly sales shows that "P & G sales at Family Dollar increased while overall sales decreased in the second and last quarters that the alleged infringing product was sold at Family Dollar." RNA Resp. at 19.
In P & G's response, it emphasizes RNA's insistence on `expensive' discovery between February and April 2009, delayed stipulation to a preliminary injunction, delayed stipulation to the eventually agreed-upon permanent injunction and delayed acceptance of this damages resolution process. Because of the delays and discovery, P & G asserts it is entitled to `special case' damages and attorneys' fees.
With regard to RNA's alleged liability for infringement overall, P & G argues that RNA's failure to produce "any reason why its actions do not constitute patent, trademark, and trade dress infringement," is tantamount to an admission of liability. However, P & G also attacks RNA's defenses to liability before asserting that standard liability analyses establish liability in this case.
P & G declares RNA is liable for trademark infringement because (1) the marks are confusingly similar; (2) the products are directly competitive and sold adjacent to each other in Family Dollar stores; (3) consumers exercise a low degree of care for this type of product; (4) the HERBAL ESSENCES logo is very strong; and (5) RNA deliberately copied P & G's product. P & G also mentions that discovery in this case did not advance far enough to generate evidence of actual confusion.
P & G argues RNA is liable for Trade Dress infringement because (1) the products were directly competitive; (2) consumers exercise a low degree of care for this type of product; (3) the HERBAL ESSENCES trade dress is strong both conceptually and in the marketplace; and (4) RNA had full knowledge of P & G's trade dress and intended to copy it, thus creating a presumption of likely confusion.[4]
P & G argues RNA is liable for Design Patent infringement because an ordinary observer would perceive P & G and RNA's designs to be substantially the same. P & G further argues that the GK Packaging patent, upon which RNA bases its defense, is irrelevant.
B. RNA'S CLAIM FOR ATTORNEYS' FEES
In the conclusion of its opening brief, RNA requests an award of "reasonable attorneys' fees incurred in defense of P & G's claims." There is no evidence provided with the first memo as to what such attorneys' fees might entail, but there is a footnoted explanation that RNA does not wish to create a further dispute over the reasonableness of its fees, and intends to prepare a detailed declaration of its fees "upon a finding of exceptionality." P & G asserts that RNA's failure to submit evidence should establish a waiver of any claim RNA might have for attorneys' fees. P & G Response at 2. In its final brief, *1015 RNA maintains that it has not waived its claim for attorneys' fees, and submits evidence in the form of its attorney's affidavit testifying to $118,625.98 in attorneys' fees.
In support of its claim that P & G's conduct was exceptional under both 15 U.S.C. § 1117(a) and 35 U.S.C. § 285, RNA asserts that P & G's continued pursuit of this litigation is oppressive, "reeks of abuse of process," and is intended to "discipline the private label market." RNA's arguments in support of attorneys' fees under 35 U.S.C. § 285 seem to be based on two premises: (1) the infringement claims are baseless, and (2) P & G engaged in litigation misconduct. RNA Memo I at 15. RNA's arguments in support of attorneys' fees under the Lanham Act are based on the assertions that P & G's actions in the litigation at hand were "oppressive" and that its litigation was unfounded.
III. APPLICABLE STANDARDS OF REVIEW
A. Agreed Injunction Standards
Neither party offers any specific case law regarding the determination of a prevailing party under the relevant trademark and patent statutes, and my own research has not revealed anything strikingly pertinent. However, there is some case law on the subject of prevailing party status generallymost of this case law seems to center around § 1983 claims and copyright claims.
The primary case on this subject is Buckhannon Board & Care Home, Inc. v. West Virginia Dep't of Health and Human Resources, 532 U.S. 598, 121 S. Ct. 1835, 149 L. Ed. 2d 855 (2001), a Supreme Court case dealing with attorneys' fees, the Fair Housing Act, and the Americans with Disabilities Act. In 2008 the Seventh Circuit applied and explained Buckhannon in addressing the matter of prevailing party status in a copyright case:
[A] litigant "prevails" (for the purpose of fee-shifting statutes) when it obtains a "material alteration of the legal relationship of the parties." A judgment in a party's favor has such effect, which is why a consent decree confers prevailing party status even though everyone denies liability as part of the underlying settlement, and the judge takes no position on the merits.
Riviera Distribs. v. Jones, 517 F.3d 926, 928 (7th Cir.2008) (internal citations omitted).
The Federal Circuit has addressed the Buckhannon prevailing party status issue from a copyright standpoint as well, and has reached the conclusion that "the term `prevailing party,' as that term is used in various federal attorneys' fees statutes, requires that the party has obtained some kind of relief from the court on the merits of the claim such that `a material alteration of the legal relationship of the parties' has occurred." Tavory v. NTP Inc., 297 Fed. Appx. 986, 989 (2008). However, the Federal Circuit goes on to explain in Tavory that, for example, "[m]any dismissals for want of jurisdiction do not affect the legal relationship of the parties because they are not decisions on the merits of the claim." Id. The Tavory court discusses that some dismissals for lack of jurisdiction have absolutely nothing to do with the merits of the case, while others may (e.g., a dismissal for lack of subject matter jurisdiction may result when the claim is found to be "essentially fictitious, wholly insubstantial, obviously frivolous, and obviously without merit"). Id.
B. Liability Standards
1. Trademark
In order to prove trademark infringement, the plaintiff must show (1) that *1016 it owns a protectable trademark; and (2) that the alleged infringer is using a trademark that is likely to cause confusion. Ty, Inc. v. Jones Group, 237 F.3d 891, 897 (7th Cir.2001). The Seventh Circuit uses the following factors to evaluate the existence of a likelihood of confusion: (1) the similarity of the marks in appearance and suggestion; (2) the similarity of the products; (3) the area and manner of concurrent use; (4) the degree of care likely to be used by consumers; (5) the strength of the Plaintiff's mark; (6) whether any actual confusion exists; and (7) the defendant's intent to palm off its goods as those of the plaintiff. Id.
2. Trade Dress
To obtain relief for trade dress infringement under 15 U.S.C. § 1125(a), a party must show that (1) its trade dress is protectable, and (2) the trade dress of the accused product is confusingly similar. Badger Meter, Inc. v. Grinnell Corp., 13 F.3d 1145, 1151 (7th Cir.1994). "A plaintiff satisfies the first prong, protectable trade dress, if it can show either that its trade dress is inherently distinctive or that it has acquired a secondary meaning." Id. quoting Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 769, 112 S. Ct. 2753, 120 L. Ed. 2d 615 (1992). Trade dress is inherently distinctive if it is suggestive, arbitrary, or fanciful, because its intrinsic nature serves to identify a particular source of a product. Two Pesos, 505 U.S. at 768, 112 S. Ct. 2753.
Even if the plaintiff meets its burden on the first two prongs, if the defendant can show that the plaintiff's trade dress is "functional," then it has an affirmative defense to the allegation of infringement. Id.
3. Design Patents
In making a determination regarding design patent infringement, the court must view the patented design in its entirety to determine whether "the effect of the whole design is substantially the same." Payless Shoesource, Inc. v. Reebok Int'l Ltd., 998 F.2d 985, 991-92 (Fed. Cir.1993) (citation omitted). The "ordinary observer" test is used to make a determination as to the similarity of the two designs. Egyptian Goddess, Inc. v. Swisa, Inc., 543 F.3d 665, 678 (Fed.Cir. 2008). Under the "ordinary observer" test:
[I]f, in the eye of an ordinary observer, giving such attention as a purchaser usually gives, two designs are substantially the same, if the resemblance is such as to deceive such an observer, inducing him to purchase one supposing it to be the other, the first one patented is infringed by the other.
Gorham Co. v. White, 81 U.S. 511, 528[, 14 Wall. 511, 20 L. Ed. 731] (1871)[5]
"The grant of a separate patent on [an] accused device does not automatically avoid infringement, either literal or by equivalency." National Presto Indus. v. West Bend Co., 76 F.3d 1185, 1191 (Fed. Cir.1996). "Whether a modified device is within the scope of the prior patent, literally or by equivalency, depends on the particular facts. The fact of separate patentability is relevant, and is entitled to due weight." Id. at 1192.
C. Lanham Act
Attorneys' fees under the Lanham Act are awarded according to the trial court's sound discretion. S. Indus., Inc. v. *1017 Centra 2000, Inc., 249 F.3d 625 (7th Cir. 2001). Regarding a plaintiff's recovery, the Lanham Act states:
When a violation . . . has been established, the plaintiff shall be entitled, subject to [statute] and the principles of equity, to recover (1) defendant's profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action . . . In assessing profits the plaintiff shall be required to prove defendant's sales only; defendant must prove all elements of cost or deduction claimed.
15 U.S.C. § 1117(a).
The standard for an award of attorneys' fees to the defendant is dependent upon whether the plaintiff's action was "oppressive." Id. at 627. "A suit is oppressive if it lack[s] merit, ha[s] elements of an abuse of process claim, and plaintiff's conduct unnecessarily increase[s] the cost of defending against the suit." Id., citing Door Sys., Inc. v. Pro-Line Door Sys., 126 F.3d 1028, 1031 (7th Cir. 1997).
D. Patent Act
The Patent Act provides a similar measure of damages as the Lanham Act, only to patent claims. The Patent Act states that "[u]pon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer. . ." 35 U.S.C. § 284.
Section 285 of the Patent Act provides for attorneys' fees only where the case is "exceptional." 35 U.S.C. § 285. Exceptionality is found where the totality of the circumstances show that the losing party acted in bad faith, or at least with gross negligence, in bringing and/or maintaining the suit. Interspiro USA v. Figgie Int'l Inc., 18 F.3d 927, 933 (Fed.Cir.1994). The prevailing party must demonstrate "material inappropriate conduct . . . such as willful infringement, fraud or inequitable conduct in procuring the patent, misconduct during litigation, vexatious or unjustified litigation, conduct that violates Fed.R.Civ.P. 11, or like infractions." Brooks Furniture v. Dutailier Int'l, 393 F.3d 1378, 1381 (Fed.Cir.2005).
IV. DISCUSSION
A. LEGAL DISCUSSION
1. P & G's Claims For Damages
If there is not to be a determination of infringement made at this time, then P & G's claims for damages and attorneys' fees rely on a decision of whether the agreed injunction so altered the legal relationship of the parties as to grant P & G prevailing party status. The case law at this time seems to give a district court judge the option of deciding whether a judgment on the merits is a necessary part of the `alteration' of the parties' legal relationship. I am inclined to say (and in the context of this case, do say) that some judgment on the merits is indeed necessary, in which case the agreed injunction alone is not sufficient to grant P & G prevailing party status, and damages can only be awarded if a determination of infringement is made.
Trademark Infringement
To prove trademark infringement, P & G must show that (1) it owns a protectable trademark; and (2) RNA used a trademark that is likely to cause confusion. Ty, Inc. v. Jones Group, 237 F.3d 891, 897 (7th Cir.2001). Here, P & G's ownership of a protectable trademark is indisputable, but the second infringement factor requires further analysis. The Seventh Circuit's likelihood of confusion factors are: (1) the similarity of the marks in appearance and suggestion; (2) the similarity of the products; (3) the area and *1018 manner of concurrent use; (4) the degree of care likely to be used by consumers; (5) the strength of the Plaintiff's mark; (6) whether any actual confusion exists; and (7) the defendant's intent to palm off its goods as those of the plaintiff. Id.
The photos submitted as exhibits by both parties indicate fairly similar marks that certainly suggest the same type of swirling natural imagery. However, the hologram and lack of actual foliage depicted in the HERBAL ESSENCES trademark seem to limit the possibility of confusion. Overall, the similarity of the appearance of the marks themselves does not obviously lean in favor of either party. The similarity of the products is very high, which weighs the second factor in favor of P & G. The third factor also favors P & G, as the products are sold through similar, and, as this case demonstrates, sometimes identical trade channels. P & G asserts that consumers do not exercise much care in selecting which shampoos and conditioners to use, however the huge amount of time, effort, and money P & G spends educating the public about its product beyond just creating awareness of the brand name seems to suggest otherwise. Thus, without more evidence, the fourth factor cannot be found to weigh in either party's favor.
P & G has provided ample support indicating the strength of its mark, weighing the fifth likelihood of confusion factor in its favor. However, even P & G admits that discovery did not progress far enough for sufficient evidence to be collected showing whether or not actual confusion occurred. Thus, the sixth factor also cannot be evaluated for lack of evidence. The seventh and final factor may suffer the same lack, for all that has been successfully shown thus far is that RNA at least intended to make a legal generic substitute for the Herbal Essences product Such a substitute frequently evokes a popular brand name product, as here.
Thus, with only two out of seven factors weighing clearly in P & G's favor, and at least three more important factors suffering from the failure to complete discovery prior to the consent decree, it is impossible at this time to assign or deny liability to RNA.
Trade Dress Infringement
To obtain relief for trade dress infringement, P & G must show that (1) its HERBAL ESSENCES trade dress is protectable, and (2) RNA's trade dress is confusingly similar. Badger Meter, Inc. v. Grinnell Corp., 13 F.3d 1145, 1151 (7th Cir.1994). P & G satisfies the protectable trade dress prong if it can show either that its trade dress is inherently distinctive or that it has acquired a secondary meaning. Id. Even if P & G meets its burden on the first two prongs, if the RNA can show that the P & G's trade dress is "functional," then it has an affirmative defense to the allegation of infringement. Id.
A great deal more evidence, including surveys and studies, is necessary to determine whether trade dress has acquired a secondary meaning. Thus, a secondary meaning determination cannot be made at this time. Trade dress is inherently distinctive if it is suggestive, arbitrary, or fanciful, because its intrinsic nature serves to identify a particular source of a product. Two Pesos, 505 U.S. at 768, 112 S. Ct. 2753. Here, the HERBAL ESSENCES trade dress is suggestive of something that is floral in nature, and its success in the marketplace and in the industry as evidenced by P & G's submissions suggests a strong source identification with the mark.
RNA argues that P & G's claimed trade dress is not protectable because the elements P & G identifies as protectable trade dress are not the same elements that *1019 are discussed in the publications and articles submitted by P & G. For the purposes of the liability determination at hand, the information provided is sufficient to at least create a presumption of protectable trade dress. The point becomes moot as, as discussed supra under "Trademark Infringement," there is insufficient evidence to make a determination of confusing similarity. P & G admits that discovery did not progress far enough for sufficient evidence to be collected showing whether or not actual confusion occurred. There is a similar deficiency in evidence necessary to make a clear finding of confusing similarity, which cannot be overcome without evidence of actual confusion.
Thus, there can be no determination of trade dress infringement at this time.
Design Patent Infringement
The ordinary observer test requires that I determine if, "in the eye of an ordinary observer, giving such attention as a purchaser usually gives," the P & G and Family Dollar product bottle designs are substantially the same, such that an observer would be deceived, inducing him to purchase one supposing it to be the other. Gorham Co. v. White, 81 U.S. 511, 528, 14 Wall. 511, 20 L. Ed. 731 (1871). Given my observations of photographs of the bottles at issue (RNA Response Exhibits A and B), I find it quite difficult to imagine the ordinary observer would be deceived to the point of inducement to purchase the Family Dollar product when he meant to purchase the P & G product.
Without actually handling the products, I can conceive how there might be some initial confusion if the similarly colored competing products were combined together on a shelf. However, it seems to me that upon removal of the product from the shelf, the distinctly sharpened edges of the P & G product will be noticeably missing if one is holding the Family Dollar product. The P & G design has a more sophisticated quality to it overall that is lacking in the overall effect of Family Dollar product design.
There is some debate between the parties as to the relevance of the GK design patent. Its primary use at this juncture is to lend support to the lack of infringement of P & G's patented design by the Family Dollar product. RNA submitted an affidavit from Robert Kellerman, the CFO of GK Packaging, establishing that the design of the bottles used by RNA is the same design in the GK patent.[6] This design was purchased from GK by RNA for use with the Family Dollar product. The fact that the GK patent was awarded offers it the same presumption of validity that is claimed by P & G for its designs.
P & G complains that a "comparison of the GK patent (RNA Ex. G) to the bottles RNA sold shows that its bottles are actually more similar to the P & G patents." P & G Response at 3. I find that I must disagree with P & G. If anything, the small differences between the two-dimensional diagram of the GK design and the three-dimensional manifestation serve to further differentiate the Family Dollar product from the GK design. The "sharpened corners" frequently mentioned by P & G can actually more easily be seen on P & G's product design than GK's, and facilitate an overall distinction between the two designs.
*1020 Given my conclusions based on the ordinary observer test and the presence of GK's patent, which supports the nonobviousness of its design, I cannot find that the design of the Family Dollar Product infringed P & G's design patents.
2. The Parties' Claims For Attorneys' Fees
The Seventh Circuit's stance on prevailing party status does not appear to support either party's claim for attorneys' fees.
RNA's argument that it should win attorneys' fees in this case is not supported by the law, as even if the consent decree were found to have materially altered the legal relationship of the parties, it would certainly be in P & G's favor. That being said, RNA offers its own explanation of its prevailing party status in its Reply brief. RNA claims that, as a prevailing party does not have to have prevailed on all of its claims, "RNA need only `prevail' on one of its claims or defenses (i.e. determination of non-infringement of P & G's trade dress, trademark, or one of the P & G patents) to establish technical entitlement to fees." RNA Reply at 3. RNA claims I have made it clear he was going to make a determination of liability at this stage, thereby choosing a prevailing partyregardless of whether an agreed injunction yields prevailing party status to either party. Id.
A thorough liability analysis based on what the parties have submitted demonstrates that, even if a mere determination of non-infringement were sufficient to secure RNA prevailing party status, it is impossible to firmly reach such a determination on any of the counts at issue. The trademark and trade dress claims at issue clearly lack the evidentiary findings necessary here to fully carry out the required analyses. The design patent claim comes closest to a finding of non-infringement, but the lack of completed discovery leading up to the briefs before the court, as well as the lack of opportunity to present fully tangible evidence, prevent me from making an official finding of non-infringement here. Thus, while I do not necessarily agree that a mere determination of non-infringement on any count would be sufficient to establish prevailing party status, I need not reach a conclusion on the matter as no such determination can properly be made.
As to whether the consent degree alters the legal relationship between the parties to the extent necessary to grant P & G prevailing party status, as expressed supra under "P & G's Claims For Damages," it does not appear to do so. A requirement of at least some judgment on the merits in order to determine a prevailing party is a logical necessity for the continued encouragement of consent decrees, thus facilitating judicial economy. As such, the agreed injunction alone in this case is not sufficient to grant P & G prevailing party status, and damages can only be awarded on a legal basis if a determination of infringement is madewhich has not occurred here.
B. EQUITABLE DISCUSSION
1. P & G's Claims for Damages
The above paragraph regarding the lack of prevailing party in this case, as well as the previously discussed inadequacy of evidentiary proceedings in this case prior to the agreed injunction, both support a decision that P & G has not demonstrated a sufficient claim for further equitable relief in this case.
2. The Parties' Claims for Attorneys' Fees
Each side cites the other as being responsible for excessive delays and expense in this case. The rancor verging on out-right *1021 animosity between the two parties is regrettable (and spans numerous pages of emails, as well as appearing in the briefs before this court), but appears to have been equally expressed. Any net delay resulting from this difficult relationship is attributable to both parties (and is inherent in the adversarial nature of our system), and therefore neither party has demonstrated an equitable requirement for attorneys' fees.
V. CONCLUSION
There has not been enough data (under the parties' agreed process for adjudicating this current dispute) to properly establish or deny infringement liability to either party. Without a finding of liability or its absence, no prevailing party can be determined, and without a prevailing party, no attorneys' fees can be awarded according to statute. The equitable considerations for attorneys' fees indicate that it is fair for each party to pay its own attorneys' fees and nothing more.
NOTES
[1] RNA makes sure to note, on several different occasions, that Dinsmore & Shohl LLPP & G's local counsel in Cincinnatiprosecuted the GK patent. However, even if a fact of this nature could provide legally significant repercussions, in this case I am disinclined to assume that each of the over 450 attorneys at Dinsmore & Shohl has intimate knowledge of every project that is completed by the firm even within the same large office this is impractical.
[2] From the first Memo to the last Reply, the main argument between the parties morphed from one that seemed to be strictly about damage calculations to one of infringement liability. I tried to accurately convey all of the arguments of the parties here, but the dramatic change in subject matter (and the thinly veiled animosity between the parties) yielded a plethora of excess arguments and protestations.
[3] For the sake of simplicity, I have labeled the parties' briefs as follows: P & G Memo, P & G Response, P & G Reply, RNA Memo, RNA Response, and RNA Reply.
[4] P & G offers no case law to support its `presumption of confusion' assertion.
[5] P & G does not cite anything more recent than 1871 regarding the ordinary observer test.
[6] The first Declaration of Robert Kellerman was submitted to the Federal District Court for the Southern District of Ohio during the initial suit filed by P & G. It can be found at S.D. Ohio, Doc. No. 41, Ex. B. The court is allowed to "take judicial notice of matters in the public record, such as filings in other courts." Langone v. Miller, 631 F. Supp. 2d 1067, 1070 (N.D.Ill.2009). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2467779/ | 49 F. Supp. 2d 870 (1999)
UNITED STATES of America
v.
Patrick SAYES, et al.
No. CRIM. A. 98-117-A.
United States District Court, M.D. Louisiana.
May 19, 1999.
*871 L.J. Hymel, United States Attorney., Middle District of Louisiana, Frederick Angelo Menner, Jr., Assistant U.S. Attorney, MDLA, Middle District of Louisiana, Baton Rouge, Mark Kappelhoff, U.S. Department of Justice, Civil Rights Division, Criminal Section, Washington, DC, for U.S.
Joseph R. Streva, Jr., Federal Public Defenders Office, Middle and Western Districts of Louisiana, Lafayette, LA, for Defendant, Patrick Sayes.
John S. McLindon, Rainer & Anding, Baton Rouge, LA, for Defendant, Harrison Daniels.
Kenneth R. Fabre, The Fields Law Firm, Baton Rouge, LA, for Defendant, John Swan.
REVISED RULING ON MOTION FOR PARTIAL DISMISSAL OF INDICTMENT
JOHN V. PARKER, District Judge.
The ruling dated May 17, 1999 (doc. no. 92) is hereby revised so as to read as follows:
This matter is before the court on a motion by the government for leave to file a partial dismissal without prejudice of Counts 2 and 3 of the indictment as to defendant Patrick Sayes only. Defendant opposes the proposed dismissal without prejudice and the government has filed a reply. There is no need for oral argument.
Defendant Patrick Sayes is a former Correctional Lieutenant with the Louisiana State Penitentiary at Angola, Louisiana. Sayes has been indicted for two counts of violating 18 U.S.C. § 242, by depriving another person (inmate Rayfield Jackson) of his civil rights while defendant was acting under color of state law. In Count 2, Sayes is charged with willfully permitting other correctional officers under his supervision (defendants Daniels and Swan) to violate Jackson's civil rights by unlawfully assaulting and beating Jackson. In Count 3, Saves is charged with aiding and abetting Daniels and Swan in willfully preventing Jackson from receiving medical care and treatment following the alleged beating.
The government seeks to dismiss the indictment as to Sayes without prejudice. Rule 48(a) of the Federal Rules of Criminal Procedure provides that a government attorney "may by leave of court file a dismissal of an indictment ... and the prosecution shall thereupon terminate." The requirement for leave of court has *872 been construed as allowing the court to exercise its discretion in ruling on a prosecutorial motion to dismiss. U.S. v. Reyes, 102 F.3d 1361 (5th Cir.1996); U.S. v. Welborn, 849 F.2d 980 (5th Cir.1988). It has been repeatedly noted that the requirement for leave of court is intended to "prevent harassment of a defendant by charging, dismissing and re-charging without placing a defendant in jeopardy." Reyes at 1367. Consequently, the main consideration for the court is whether the government is acting in good faith, i.e. in the public interest rather than to harass the defendant.
When the defendant does not contest the matter, the court may presume that the government is acting in good faith. Id. However, when as in this case, defendant opposes the motion, the government is obligated to furnish "more than a conclusory reason" to obtain a dismissal without prejudice. Id. "Although the burden of proof is not on the prosecutor to prove that dismissal is in the public interest, the prosecutor is under an obligation to supply sufficient reasons reasons that constitute more than `a mere conclusory interest.'" U.S. v. Salinas, 693 F.2d 348, 352 (5th Cir.1982) (citations omitted.)
Accordingly, the government contends that it is acting in the public interest in seeking to dismiss the indictment as to Patrick Sayes. As more fully outlined in the government's reply brief, the parties have presented evidence and submitted briefs in connection with motions by defendant Sayes to either dismiss the indictment or to suppress evidence at trial. The defense motions are essentially rooted upon defendant's contention that he made statements under promise of immunity made to him by Warden Cain during an internal investigation conducted by the prison authorities at Angola. Defendant contends that the government must affirmatively show that his subsequent indictment was, and that the trial will be, based upon evidence derived wholly independent of his compelled statements.
A Kastigar[1] hearing was conducted on the motion to suppress which was reopened in April in connection with the subsequently filed motion by defendant to dismiss the indictment.
The evidence presented on the defense motions established that an internal investigation was conducted by the prison authorities and Sayes Initially denied any knowledge or involvement in the matter. However, on December 24, 1997, Sayes made oral and written statements implicating himself in the conduct charged in the indictment. These statements were given only after Sayes was assured by Warden Cain that if he told them what had happened he would receive a demotion rather than being fired and that no criminal charges would be brought against him. Prior to giving his written statement, defendant was read, and asked to sign, an "Internal Investigation Warning". That document specifically provided that "neither your statements nor any information or evidence which is gained by reason of such statements can be used against you in any subsequent criminal proceeding." Defendant's Exh. 3 (Emphasis added).
According to defendant, the evidence showed that he was granted informal use immunity by the State. Hence, defendant argued that the burden had shifted to the government to affirmatively show that the indictment was, and that the trial would *873 be, based upon evidence derived wholly independent of his compelled statements. In response, the government argued that Sayes was not granted immunity because Warden Cain did not have the power to grant him immunity and the evidence merely established that the warden agreed not to call the local district attorney that immunity was neither promised nor discussed.
The defense motions were primarily directed toward the statement that Sayes made on December 24, 1997. However, as the proceedings developed, it became apparent that Sayes made an additional statement on January 13, 1998, after Major Eric Sivula took over the investigation, which was clearly presented to the grand jury. While the government correctly notes that defendant was read his "Miranda rights" by Major Sivula prior to giving the January 13th statement, serious questions were raised by the defense as to whether Sayes should have reasonably understood that his prior deal made with the Warden was no longer in place.
In view of the testimony received over the course of the proceedings and the arguments of defense counsel, the government "now recognizes that presenting defendant's [January 13, 1998] statement to the grand jury may have created some legal issues" pertaining to the validity of the indictment "not only at the trial court level, but also through the appellate courts." The government further explains that it seeks "to promote judicial and prosecutorial efficiency" by having the "potentially flawed indictment" dismissed and by having defendant re-indicted "free of any taint" thereby "eliminating any potential legal or constitutional prejudice against the defendant".
Defendant argues that the government has not acted in good faith. According to defendant, it has long been apparent that the grand jury proceedings were tainted and the government brings its motion to dismiss at the last moment in an attempt to escape an adverse ruling by the court on defendant's motion to dismiss. Defendant additionally argues that any further proceedings would be futile because "witnesses essential to the government's case were exposed to the immunized statements of the defendant" and the "taint which has resulted from that exposure cannot be undone".
While the government has been somewhat slow to react, the court accepts the representations made by the prosecuting attorneys that they actually seek to expedite matters in the long run and to avoid unnecessary legal entanglements that could be avoided by re-indicting defendant. The court has no "affirmative reason to believe" that the government's motion to dismiss without prejudice is "motivated by considerations contrary to the public interest." U.S. v. Salinas, 693 F.2d 348, 352 (5th Cir.1982) (quoting U.S. v. Hamm, 659 F.2d 624, 631 (5th Cir.1981)).
As defendant is quick to point out, there have been serious issues raised as to whether the January 13, 1998 statement which was considered by the grand jury was effectively made under a promise of immunity.[2] Even if these issues were resolved in defendant's favor, the court could *874 not have dismissed the indictment without having first performed a harmless error analysis. See, U.S. v. Schmidgall, 25 F.3d 1533 (11th Cir.1994), cert. denied, 513 U.S. 1128, 115 S. Ct. 938, 130 L. Ed. 2d 883 (1995).
At the Kastigar hearing, the government presented evidence from which it might be found that its investigation was conducted independently of that conducted by the prison authorities. Theoretically, the court could suppress the statements and the government could proceed to try Sayes with evidence wholly independent of his compelled statements. But, the January 13th statement was presented to the grand jury thereby creating a thorny issue as to whether that presentation was harmless error. The effect of such clenching evidence upon the grand jury would be difficult to surmise. It is apparently in recognition of this factor and the legal questions emanating therefrom that the government moves to dismiss the indictment as to Sayes.
Significantly, even if the court were to grant defendant's motion to dismiss the indictment on this basis, the government would not have been barred from re-indicting defendant using evidence obtained wholly independently of defendant's statements.[3] Citing Kastigar, supra, 406 U.S. at 457, 92 S. Ct. 1653 the government persuasively argues that defendant would only be entitled to placed "in substantially the same position" that he would have been in but for the use of the immunized statement. The government contends that a new indictment free of such tainted evidence would be sufficient to accomplish that purpose. The court agrees. Defendant cannot claim to be prejudiced by the government's actions in dismissing the indictment without prejudice under the circumstances presented here.
Finally, the court is cognizant of defendant's argument that it would be futile to dismiss without prejudice because the government cannot obtain another indictment absent tainted evidence. The court is not persuaded, however, that it would be futile for the government to proceed with its reindictment strategy. Neither the defendant nor this court is privy to all of the information available to the government or to the sources of such information and neither of us can predict at this time whether a "taint free" indictment can be obtained.
Defendant's arguments relating to the government's bad faith are simply misplaced.
Accordingly, the motion by the government (doc. no. 89) to dismiss the indictment without prejudice as to Count 2 and Count 3 as to defendant Patrick Sayes only is hereby GRANTED.
NOTES
[1] Kastigar v. U.S., 406 U.S. 441, 92 S. Ct. 1653, 32 L. Ed. 2d 212 (1972). As noted in Kastigar, the Fifth Amendment privilege against self-incrimination generally allows a citizen to remain silent when asked questions requiring an incriminatory answer. The government may, however, compel testimony from an unwilling witness by conferring on the witness immunity from use of the compelled testimony in subsequent criminal proceedings. Id. When the defendant provides testimony under such a grant of immunity, the government has the affirmative duty of proving at a "Kastigar hearing" that the evidence it proposes to use is derived from a legitimate source wholly independent of the compelled testimony.
[2] Under the facts of this case, it is immaterial (1) whether or not the warden actually had the power to grant defendant immunity; and (2) whether the promises made by the warden are properly characterized as an informal grant of immunity. To be voluntary, the government must establish that "under the `totality of the circumstances' the statements are the product of the accused's `free and rational' choice." U.S. v. Martinez-Perez, 625 F.2d 541 (5th Cir.1980). The statement provided by Sayes in December of 1997 was clearly made under threat of immediate arrest and termination coupled with the assurances that if he gave the statement he would only be demoted and that his statement would not be used in any subsequent criminal proceeding. In the words of Major Shirley Cooty, the union president representing Sayes: "He had been told there was a deputy en route to Angola to make arrests. I mean it was Christmas Eve. He had been threatened with arrest, he was scared, he was upset." Tr. p. 27. At that point, Warden Cain informed Sayes that he has just gotten off the phone with the Secretary for the Department of Corrections and that they were prepared to offer Sayes a deal, i.e. if he talked, he would not be arrested, he would only be demoted and that would be the extent of it. Tr. 24. If this did not constitute an informal grant of immunity, it certainly raised serious issues as to the voluntariness of the December 24, 1997 statement. As previously noted, that in turn raised serious issues as to whether the subsequent statement made on January 13, 1998 was likewise tainted. The court points out that no ruling is made here on the voluntariness/admissibility of either of the statements made by defendant. The court, for purposes of ruling on the motion to dismiss the indictment without prejudice, assumes that evidence would establish the inadmissibility of those statements. The court also assumes for the same purposes that the government here is held to the Kastigar standard as to the federal investigation.
[3] See, United States v. Blue, 384 U.S. 251, 86 S. Ct. 1416, 16 L. Ed. 2d 510 (1966). In that case, the defendant argued that the prosecution had obtained evidence in violation of the his privilege against self-incrimination. The Supreme Court observes: "It does not seem to be contended that tainted evidence was presented to the grand jury; but in any event our precedents indicate this would not be a basis for abating the prosecution pending a new indictment, let alone barring it altogether." 384 U.S. at 255 n. 3, 86 S. Ct. at 1419 n. 3. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2467820/ | 49 F. Supp. 2d 496 (1999)
WASHINGTON SPEAKERS BUREAU, INC., Plaintiff,
v.
LEADING AUTHORITIES, INC., Defendant.
No. C.A. 98-634-A.
United States District Court, E.D. Virginia, Alexandria Division.
May 19, 1999.
*497 William H. Bode, James M. Ludwig, Daniel E. Cohen, Bode & Beckman, LLP, Washington, DC, for Plaintiff.
Stephen A. Horvath, Trichilo Bancroft McGavin Horvath & Judkins, PC, Fairfax, VA, for Defendant.
ORDER
ELLIS, District Judge.
I.
Final judgment in this trademark infringement suit ordered defendant Leading Authorities to (i) cease using and (ii) relinquish ownership of the domain names www.washington-speakers.com; www.washingtonspeakers.com; www.washingtonspeakers.net; and www.washington-speakers.net because these names infringed plaintiff's trademark, "Washington Speakers Bureau." See Washington Speakers Bureau, Inc. v. Leading Auths., Inc., 33 F. Supp. 2d 488 (E.D.Va.1999). Leading Authorities moved to stay the injunction pursuant to Rule 62(c), Fed.R.Civ.P., which motion was granted in part and denied in part. Specifically, the portion of the judgment relating to the use of the infringing domain names was not stayed; Leading Authorities was ordered to cease using those domain names immediately.[1] But a stay was granted as to that portion of the judgment mandating that Leading Authorities relinquish ownership of the domain names, because of a concern that the domain names could be lost to a third party if relinquished. See Washington Speakers Bureau, Inc., v. Leading Auths., Inc., Memorandum Opinion and Order, C.A. No. 98-634, ___ F.Supp.2d ___ (April 15, 1999). At issue now is Washington Speakers Bureau's (WSB) motion to reconsider this stay.
*498 II.
A guiding principle underlying the April 15, 1999, Order was that by prevailing in this action, WSB had won the right to enjoin infringement, but had acquired no right of ownership over the four domain names. Nothing in trademark law requires that title to domain names that incorporate trademarks or portions of trademarks be provided to trademark holders. Instead, the law simply prevents others from making use of a company's trademarks in a manner likely to confuse the consuming public. As a result, WSB's victory in its infringement suit does not mean that Leading Authorities must transfer ownership of the names to WSB; it simply means that Leading Authorities must cease using the infringing domain names. In addition, it means that Leading Authorities must ultimately relinquish ownership of the names, for if Leading Authorities were permitted to retain registration of the names, even after it had been ordered to make no further use of them, it would be in a position to use this registration as a club to extort payment from WSB; this behavior, known as "cybersquatting," constitutes continued infringement of the mark. See, e.g., Panavision Intl. v. Toeppen, 141 F.3d 1316, 1325 (9th Cir.1998) (finding that when a domain name owner acts as a "spoiler," preventing others from doing business on the Internet under their trademarked names unless they pay his fee, this is a commercial use of the name). As a result, enforcement of the judgment requires Leading Authorities to return the domain names to the appropriate domain name registrar or registrars, at which point the names will be again available on a first-come, first-served basis to any interested takers.[2]
Since Leading Authorities is to return the names to the domain name registrar, not transfer them to WSB, enforcement of the judgment carries some risk that the domain names will thereafter be registered to a stranger to this lawsuit,[3] leaving Leading Authorities without the means to reclaim the names were it to succeed in its appeal. Put another way, requiring Leading Authorities to return the names to the proper registrar would create a risk that the "eggs could not be unscrambled" were Leading Authorities to prevail on appeal. This risk led to entry of a partial stay in this matter.[4]
Nevertheless, WSB correctly points out that this is not the end of the analysis. As noted in the April 15, 1999, Order, four factors guide a district court's *499 decision whether to issue a stay of a judgment pending appeal: (1) whether the stay applicant has made a strong showing that the appeal is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties to the appeal; and (4) where the public interest lies. See Hilton v. Braunskill, 481 U.S. 770, 776, 107 S. Ct. 2113, 95 L. Ed. 2d 724 (1987); Long v. Robinson, 432 F.2d 977, 979 (4th Cir.1970); Odetics, Inc. v. Storage Tech. Corp., 14 F. Supp. 2d 785, 797 (E.D.Va. 1998). Also noted in the April 15 Order is that Leading Authorities has failed to make a strong showing that the appeal is likely to succeed on the merits. See Washington Speakers Bureau, ___ F.Supp.2d at ___. Nor did Leading Authorities demonstrate that its appeal raises a "substantial legal question." Odetics, 14 F.Supp.2d at 798. Herein lies the difficulty with the stay.
While "[a] stay movant need not prove at the district court that its chances of prevailing on appeal are greater than fifty percent," the movant must "[i]n any event ... show that its appeal raises at least a `substantial legal question.'" Id. The four-factor test contemplates individualized judgments rather than the application of rigid rules, see id., yet upon review of the precedent, it seems clear that at least in the usual case, a stay movant must demonstrate, at minimum, a substantial legal question to prevail in its motion. WSB's infringement case against Leading Authorities presented hotly contested questions. Yet these questions are, under applicable law, questions of fact. For instance, the appeal challenges the finding that Leading Authorities' choice of domain names created a likelihood of consumer confusion and thus infringed upon WSB's trademark; this likelihood of confusion inquiry is a primarily factual analysis, and the Fourth Circuit reviews such determinations under a "clearly erroneous" standard, overturning district court determinations only when there is no evidence in the record to support the district court's conclusion or when upon a survey of the record, the reviewing court is left with the firm and definite conviction that a mistake has been committed. See Petro Stopping Ctrs. v. James River Petroleum, Inc., 130 F.3d 88, 91-92 (4th Cir.1997). Similarly, the "clearly erroneous" standard of review applies to Leading Authorities's challenge to the finding that "Washington Speakers Bureau" is a descriptive mark that has acquired secondary meaning and is thus protectible.[5] Leading Authorities fails to show either a substantial legal question or a likelihood of prevailing under the demanding "clearly erroneous" standard on these issues.
III.
Given this failure to demonstrate a substantial legal question, and given that Leading Authorities has failed to show that it will suffer the type of truly compelling, severe, and irreparable injury absent a stay that might arguably permit it to succeed in its motion even despite this failure, it was error to stay the judgment pending appeal.
Accordingly, WSB's motion to reconsider is GRANTED. The previous Order of April 15, 1999, is VACATED, and Leading Authorities is ORDERED to cease using *500 and relinquish ownership of the relevant domain names immediately.
It is further ORDERED that Leading Authorities shall give notice to WSB of the precise date on which it will relinquish the domain names to Network Solutions, Inc., or the appropriate domain name registrar, thus minimizing the risk that the names will be registered to a third party in the interim.
The Clerk is directed to forward copies of this Order to all counsel of record.
NOTES
[1] Indeed, Leading Authorities had voluntarily discontinued use of the domain names by "turning them off" upon the initiation of this lawsuit. The names have not been "pointed to" a website since this time.
[2] As of April 1999, Network Solutions, Inc. (NSI), the company previously responsible for registering domain names ending in ".com," ".org," and ".net" to owners, no longer holds a monopoly on this service. In April, the Internet Corporation for Assigned Names and Numbers (ICANN) announced five companies, including America Online, which will compete with NSI as domain name registrars for a two-month test period, after which period NSI will be required to open the registration system and its database of domain names to all registrars approved by ICANN. See Mark Grossman & Brian Nelson, Domain Names Are Now Big Business, Legal Times, March 29, 1999, at 21.
[3] This risk is magnified by the fact that one who registers a domain name with NSI is not required to perform a search to determine that the name does not infringe or dilute another's trademark; instead a registrant must merely represent that to the best of his or her knowledge, the name does not interfere with or infringe upon the rights of any third party. Nor does NSI determine the legality of any domain name registration. See Network Solutions, Inc., Network Solutions Domain Name Dispute Policy (visited May 18, 1999) .
[4] It now appears that this risk is likely small, since Leading Authorities may cooperate with WSB to ensure that the domain names, when returned to the registrar, are thereafter registered immediately to WSB. While Leading Authorities is not required to cooperate so, it is to be noted that Leading Authorities' self-interest lies in minimizing third parties' opportunities to appropriate the names, since if the names are registered to WSB, they remain within the control of parties to this lawsuit and thus may be returned to Leading Authorities if its arguments are vindicated on appeal
[5] See, e.g., Pebble Beach Co. v. Tour 18 I Ltd., 155 F.3d 526, 537 (5th Cir.1998) ("The functionality, distinctiveness, or secondary meaning of a mark ... and the existence of a likelihood of confusion are questions of fact."); RFE Indus., Inc. v. SPM Corp., 105 F.3d 923, 925 (4th Cir.1997) ("The controversy here ... centers on whether RFE's `Popcorn' mark is suggestive ... or merely descriptive.... The district court's findings [on this issue] may be disturbed on appeal only if they are clearly erroneous."); Boston Beer Co. v. Slesar Bros. Brewing Co., 9 F.3d 175, 180 (1st Cir.1993) ("Whether a term is generic, descriptive, or inherently distinctive is a question of fact [reveiwable] only for clear error."). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2449346/ | 56 F. Supp. 2d 1158 (1999)
Binh PHAN, Petitioner,
v.
Richard SMITH, Director, Department of Immigration & Naturalization, Respondent.
No. C98-234Z.
United States District Court, W.D. Washington, at Seattle.
July 9, 1999.
Susan L. Barnes, McKay, Chadwell, PLLC, Seattle, WA, for petitioner.
Quynh Vu, U.S. Dept. of Justice, Office of Immigration Litigation, Christopher Lee Pickrell, U.S. Attorney's Office, Seattle, WA, for respondent.
ORDER
ZILLY, District Judge.
I. Background
This Order applies the legal framework set forth in the Joint Order[1] to the facts of petitioner Phan's case. Petitioner Binh Phan is a 27-year-old native and citizen of Vietnam. He entered the United States in 1984, and became a lawful permanent resident in 1986. His first criminal conviction occurred in 1991, for possession of stolen *1159 property. Between 1992 and 1995, he was convicted of malicious mischief, criminal assault, possession of stolen property, and domestic violence. Phan's 1996 conviction for unlawful delivery of cocaine[2] formed the basis of his order of deportation, which was issued February 25, 1997. He did not appeal.
Phan was transferred from state to INS custody in February 1997. The INS District Director released him in September 1998, after he filed the present habeas corpus petition. The Director concluded that Petitioner had established by clear and convincing evidence that he was not a flight risk or a danger to the community after reviewing the criteria found at 8 C.F.R. § 236.1(c)(5). Director's Memorandum re: Conditions of Release, AR-14. The Director noted that Phan "has not attempted escape from custody, fied from an immigration checkpoint, nor been convicted of any of the crimes specified in [8 C.F.R.] § 236.1(c)(5)(i)(A)." Id. With the understanding that Phan would reside with his adopted mother in Tacoma, Washington, the Director released Phan without a bond, under various conditions of release. Id. at 13-15. Two months after his release, however, Phan was arrested and charged in Pierce County Superior Court for first degree theft in connection with cashing a $1780 counterfeit check. The charges were later dismissed[3] and Phan was transferred back into INS custody on February 9, 1999. The District Director denied Phan's subsequent request for release from custody, finding that Phan was now a danger to the community and a flight risk. The Director concluded by letter dated March 19, 1999 that "His release is not appropriate. He has proved repeatedly that he is a danger to the community. He remains a deportable alien who is subject to detention pending his removal." INS Ex. E. Phan has appealed this decision to the BIA. Phan has now been in INS custody for approximately five months; his previous detention pending deportation lasted approximately 20 months. The INS unsuccessfully requested travel documents for Phan to Vietnam on May 16, 1997 and April 2, 1999. No response has been received from the Government of Vietnam regarding these requests.
II. Substantive Due Process
As set forth in the Joint Order, this Court must determine whether Phan's indefinite detention is excessive in relation to the government's goals of ensuring his removal, preventing his flight pending deportation, and protecting the public from him. Phan has a fundamental right to be at liberty. The Court therefore balances the strength of the deprived liberty interest and the likelihood the government will be able to effectuate deportation, against his actual dangerousness and the likelihood that he will abscond if released.
It is extremely unlikely that Phan will be deported in the foreseeable future. At this time, the United States does not have a repatriation agreement with Vietnam. INS Ex. H, ¶ 7. Although efforts to reach such an agreement were first informally raised in the early 1990s and are ongoing, the United States has not yet submitted a proposed repatriation agreement to Vietnam. Id. Furthermore, the INS has only requested travel documents twice for petitioner Phan, even though he has been in INS custody for a total of over two years. Because petitioner's deportation is unlikely, the government only has a slight interest in detaining him to effectuate that deportation.
The government's interests in preventing Phan from harming the community and from absconding are similarly weak. The INS previously determined that Phan was not a danger to the community, and released him on conditions but without any bond in September 1998. Although petitioner was rearrested and charged with first degree theft for cashing a $1780 counterfeit check, those charges were later dismissed. *1160 This is not the type of crime which poses a serious threat to the community and is balanced against Petitioner's basic right to liberty. It appears that petitioner has served more time in INS custody than he served on his sentences for all his prior crimes. Although Phan was in INS custody for 20 months before his previous release, he did not flee when released. He has no history of failing to appear for court or INS hearings. Considering all these factors together, the Court concludes that petitioner Phan's continued detention violates his substantive due process rights as a matter of law.[4] Accordingly, the Court ORDERS that he be released immediately, subject to the supervision of the Attorney General on conditions of release found in 8 C.F.R. § 241.5.
IT IS SO ORDERED.
NOTES
[1] The Court hereby incorporates by reference the Joint Order dated July 9, 1999, entered on issues common to all petitioners.
[2] Petitioner sold a $20 rock of cocaine to a Tacoma Police Officer. AR-86.
[3] Order of Dismissal dated February 8, 1999, Petitioner's Reply Exhibit J at 29-30.
[4] The Court also notes that his rearrest and detention has also violated his procedural due process rights. Phan was deprived of his liberty and contends that "he was never told why a detainer was placed on him, what condition of his release he violated and never given an opportunity to challenge, what appeared to be the basis of the Service's action, the mere allegation that he committed a new crime." Pet. Am. Opening Brief at 35-36. Without notice of the allegations against him and an opportunity to be heard, there is a substantial risk of erroneous deprivation. Additionally, Phan's conditions of release, as contained in the administrative record, do not include a clause providing that violating the law, or being arrested for an alleged violation, would subject Phan to being taken back into INS custody. See AR at 13-14. Furthermore, the burden on the government of providing a post-arrest revocation hearing would be minimal. The Court therefore finds that procedural due process requires that Phan should have promptly been given notice and a hearing after the revocation of his release. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2449587/ | 18 F. Supp. 2d 126 (1998)
In re The Complaint of David MARTIN, as the owner of the vessel Flicka, for exoneration from or limitation of liability.
Civil Action No. 97-11559-JLT.
United States District Court, D. Massachusetts.
September 2, 1998.
*127 David Farrell, Jr., Connors & Farrell, South Chatham, MA, for Plaintiff.
Richard K. Latimer, Kistin, Babitsky, Latimer & Beitman, Falmouth, MA, for Claimant.
MEMORANDUM
TAURO, Chief Judge.
Pursuant 46 U.S.C.App. § 183(a), Plaintiff, David Martin, seeks exoneration from, or limitation of, liability for any injuries arising out of the September 28, 1996 voyage of the vessel Flicka. The Limitation of Liability Act, § 181 et seq., establishes a procedure by which a shipowner can deposit with the court a sum equal to the value of his ownership interest in the vessel and can sue to limit his liability for any injuries sustained on the vessel to the amount of that ownership interest. See 46 U.S.C.App. § 185 (Supp.1997).
Claimant, Phyllis Cerce, contests Plaintiff's attempt to limit his liability. Claimant argues that, as the operator of the vessel at the time of the alleged accident, Plaintiff is not entitled to protection under the statute. See 46 U.S.C.App. § 183(a) and 46 U.S.C.App. § 187 (Supp.1997). Claimant further avers that she was a passenger on the vessel Flicka during its September 28, 1996 voyage and that she sustained personal injuries, resulting from Plaintiff's negligent operation of the boat. Specifically, she claims that, as the captain of the vessel, David Martin operated the boat at an excessive rate of speed, in rough seas, causing her to sustain severe and permanent injuries to her coccyx.
Claimant now moves for summary judgment, seeking the denial of Plaintiff's Petition for Exoneration or Limitation of Liability.[1] For the reasons discussed below, the court ALLOWS Claimant's motion.
I.
ANALYSIS
A. Choosing the Proper Approach
As an initial matter, this court must decide whether it can rule on the limitation of liability issue alone or whether it must first decide the negligence question. Plaintiff argues that the court must determine what acts of negligence, if any, caused the accident, before it can consider the validity of Plaintiff's limitations claim. Farrell Lines, Inc. v. Jones, 530 F.2d 7, 10 (5th Cir.1976); see also Hercules Carriers, Inc. v. Claimant State of Florida, 768 F.2d 1558, 1563-64 (11th Cir.1985); Keller v. Jennette, 940 F. Supp. 35, 37 (D.Mass.1996). Claimant counters that, where no limitation of liability is possible, she is entitled to have the petition dismissed, so that she can proceed with her negligence claim in a common law forum of her choosing. Fecht v. Makowski, 406 F.2d 721, 722-23 (5th Cir.1969); see also In re Complaint of Ingoglia, 723 F. Supp. 512, 514-15 (C.D.Cal.1989).
The court in Farrell Lines did, indeed, state that:
[t]he determination of whether a shipowner is entitled to limitation employs a two step-process. First, the court must determine what negligence or conditions of unseaworthiness caused the accident. Second, the court must determine whether the shipowner had knowledge or privity of those same acts of negligence or conditions of unseaworthiness.
Farrell, 530 F.2d at 10. And, later courts have added that it is only after the injured party demonstrates negligence that the burden shifts to the shipowner to prove lack of privity or knowledge. See, e.g., Keller, 940 *128 F.Supp. at 37 n. 4 (citing In re Petition of M/V Sunshine II, 808 F.2d 762, 764 (11th Cir.1987)).
This approach certainly makes sense in cases where the liability question is a complicated one. Not only is it a matter of judicial convenience to the parties to have the negligence and limitation of liability issues decided in the same action, see In re M/V Sunshine II, 808 F.2d at 764, but proceeding in this manner also guards against the problems that would result if the state court awarded a claimant an amount of damages that exceeded the limitations amount subsequently established by the federal court. See Avera v. Florida Towing Corp., 322 F.2d 155, 158 (5th Cir.1963).
Blind adherence to Farrell's two-step approach in all circumstances, however, ignores a claimant's important rights to a jury trial and to the full compliment of common law remedies available in state court. In re Complaint of Marine Sports, Inc., 840 F. Supp. 46, 48 (D.Md.1993); In re Complaint of Ingoglia, 723 F.Supp. at 513. This is particularly true when, for some reason, limitation of liability is not possible, see Lake Tankers Corp. v. Henn, 354 U.S. 147, 153, 77 S. Ct. 1269, 1 L. Ed. 2d 1246 (1957), or a single claimant has unambiguously expressed an interest in a proceeding in different forum. See Langnes v. Green, 282 U.S. 531, 543-44, 51 S. Ct. 243, 75 L. Ed. 520 (1931); see also In re Complaint of Ingoglia, 723 F.Supp. at 514 ("Where a claimant has originally filed a claim in another forum, his desire to have the liability tried in that forum must be considered."). The Limitations Act provides for the enjoining of state court suits when a petition, such as the one here, is filed in order to effectively distribute limited funds in a single proceeding, not to "transform the [Limitations] Act from a protective instrument [in]to an offensive weapon by which ... shipowner[s] can deprive suitors of their common-law rights." Lake Tankers Corp., 354 U.S. at 152, 77 S. Ct. 1269. "Where no grant of limitation is possible, ... a boat owner should not be treated more favorably than an automobile driver." Fecht, 406 F.2d at 723.
An analysis of the language of the statute only serves to confirm this conclusion. In relevant part, § 183(a) limits an owner's liability for personal injuries that occur on a vessel, but only when those injuries occur without privity or the owner's knowledge. See 46 U.S.C.App. § 183(a) (Supp.1997). Furthermore, § 187 explicitly reserves to the claimant, in the absence of this statutory protection, the right to sue the operator of the vessel in a forum of her choosing for the full extent of her injuries, notwithstanding any ownership interest that the operator might have in the vessel. See 46 U.S.C.App. § 187 (Supp.1997). In fact, even 28 U.S.C. § 1333, which confers on district courts original and exclusive jurisdiction in admiralty cases, reserves to claimants "all other remedies to which they are otherwise entitled." 28 U.S.C. § 1333(1) (1993). Accordingly, where no limitation of liability appears possible from the pleadings and preliminary discovery, this court finds that the wiser approach is for the court to consider the validity of Plaintiff's limitations claim prior to addressing the negligence issue.
B. Application to This Case
As is apparent from Plaintiff's pleadings, the protections ordinarily afforded the owner of a vessel do not apply here. In his complaint, Plaintiff admits that "[he] was at all times material to this action the sole owner and operator of [the vessel] Flicka." Complaint, ¶ 3.[2] As if this were not enough, in an affidavit submitted in opposition to Claimant's Motion for Summary Judgment, Plaintiff again swears, "I was the owner/operator of [the vessel] Flicka during all relevant times." Aff. David Martin, ¶ 1. If there was negligence in the operation of the vessel Flicka, therefore, only Plaintiff could be liable for it. In such an instance, either privity or knowledge exists, and limitation of liability must be denied. See Joyce v. Joyce, 975 F.2d 379, 385 (7th Cir.1992); In re Complaint *129 of Marine Sports, Inc., 840 F.Supp. at 49; In re Complaint of Ingoglia, 723 F.Supp. at 515. In any case, because Plaintiff's admissions undermine his limitations petition, the court must dismiss Plaintiff's petition at Claimant's request.
Moreover, under the framework discussed above, Plaintiff's argument that he piloted the boat with reasonable care misses the point. Before this court will consider the merits of the underlying tort claim, Plaintiff must demonstrate that he is entitled to the protection afforded by the statute. Plaintiff, in this case, fails to make such a prima facie showing.
Similarly, in opposition to the motion for summary judgment, Plaintiff submits an affidavit that suggests that Claimant's alleged injuries are, in fact, the result of a preexisting condition. Although such evidence, if proven true, would be relevant to the underlying tort claim, it is irrelevant to the limitations issue. The only question raised by Claimant's Motion for Summary Judgment is whether there exists a disputed issue of material fact as to Plaintiff's privity with the operator of the vessel. As evidenced above, the court finds that no such issue exists.[3]
Finally, Plaintiff's reliance on Keller v. Jennette, 940 F.Supp. at 35, is misplaced. Although the court in Keller held that "[t]he owner's presence is not necessarily fatal to his right to limit if the evidence suggests that his conduct was in all respects prudent," the court was considering a very different set of facts. Id. at 38. In Keller, the claimant did not allege that the owner/operator who was seeking to limit his liability was the only possible negligent party. Instead, the claimant asserted that his injuries were caused, at least in part, by the negligent operation of another vessel. And so, the court's holding in Keller does not apply here.
II.
CONCLUSION
In conclusion, Claimant's Motion for Summary Judgment is ALLOWED, and Plaintiff's Petition for Exoneration or Limitation of Liability is DISMISSED. Having dismissed the action in admiralty, Claimant is free to pursue any legal remedy that she might have in whatever other forum she deems appropriate.
NOTES
[1] Note that, in opposing Plaintiff's Petition for Exoneration or Limitation of Liability, Claimant has not filed a counterclaim against Plaintiff. See Fed.R.Civ.P. Supp. R. F(5). In fact, the memorandum accompanying Claimant's Motion for Summary Judgment makes clear that, if successful, Claimant intends to pursue any remedy in tort that she might have against Plaintiff in state court.
[2] See also Complaint, ¶ 6-7 ("At all times during this afternoon voyage, [the vessel] Flicka was operated by Martin in full compliance with prudent seamanship, the International Rule of the Road, and all other applicable laws and regulations. At all times during this afternoon voyage, Martin was operating [the vessel] Flicka in a safe manner, appropriate for the sea conditions.").
[3] Relying on 28 U.S.C. § 1333, some courts have characterized the dismissal question as one of subject matter jurisdiction. See Joyce, 975 F.2d at 385. The Supreme Court has stated, however, that "jurisdiction cannot be made to stand or fall upon the way the court may chance to decide an issue as to the legal sufficiency of the facts alleged." Langnes, 282 U.S. at 535, 51 S. Ct. 243. In similar circumstances, therefore, the Court found that it is more appropriate to resolve the issue as a decision on the merits, and not as a dismissal for want of jurisdiction. Id.; see also Joyce, 975 F.2d at 383 n. 3. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2449232/ | 56 F. Supp. 2d 1167 (1999)
Khamsaene SIVONGXAY, Petitioner,
v.
Janet RENO, United States Attorney General; United States Immigration and Naturalization Service; and Richard C. Smith, Seattle INS District Director, Respondents.
No. C99-341WD.
United States District Court, W.D. Washington, at Seattle.
July 9, 1999.
Jay Warren Stansell, Jennifer Wellman, Federal Public Defender's Office, Khamseane Sivongxay, [Pro Se], FDC SEA-TAC, Seattle, WA, for Khamseane Sivongxay, petitioners.
Quynh Vu, U.S. Department of Justice, Office of Immigration Litigation, Washington, DC, for U.S. Immigration and Naturalization Service, Richard Smith, respondents.
ORDER ON PETITION FOR WRIT OF HABEAS CORPUS
DWYER, District Judge.
This is a petition for a writ of habeas corpus by Khamsaene Sivongxay, an alien held indefinitely by the Immigration and Naturalization Service (INS) for deportation but undeportable because his country of origin refuses to receive him. Sivongxay's amended petition named the INS as the sole respondent, but the Attorney General and the INS District Director are proper respondents in this action, and they have appeared through counsel and have filed briefs in opposition to the petition. The respondents are referred to collectively as the INS. The case has been designated as one of five "lead" cases representative of many others brought by aliens similarly held in custody. See Dkt. # 8. The four other lead cases are Phan v. Smith, 56 F. Supp. 2d 1158 (W.D.Wash 1999); Huynh v. INS, 56 F. Supp. 2d 1160 *1168 (W.D.Wash. 1999); Batyuchenko v. INS, C99-185R, 56 F.Supp.2d ___ (W.D.Wash. 1999); and Ma v. INS, 56 F. Supp. 2d 1165 (W.D.Wash. 1999). The common issues were briefed together, and oral argument by the parties and amici curiae was heard on June 17, 1999, by the five district judges to whom the lead cases are assigned. The July 9, 1999, Joint Order entered in the five lead cases establishes a framework to analyze the constitutional issues presented.
The record shows that Sivongxay, a citizen of Laos, entered this country lawfully as a refugee in 1987 and became a permanent resident in 1989. He is married and has one child. His wife and child are citizens of the United States. In 1990 Sivongxay was convicted of theft and criminal mischief, and sentenced to five years' probation. Neither offense made him deportable. But in 1993 he was convicted of being a felon in possession of a weapon, which is a deportable offense; the weapon in question was a .22 caliber rifle. The INS initiated deportation proceedings against him and took him into custody on September 23, 1993. After his request for political asylum was denied, Sivongxay was ordered deported on January 19, 1994. In February 1994 he was released from custody after posting a bond. The order of deportation became final on April 20, 1994, when it was affirmed by the Board of Immigration Appeals (BIA). When Sivongxay failed to appear for deportation, the INS issued a warrant for his arrest. He was arrested on April 16, 1997, and has remained in custody since then, a period of more than two years. He cannot be deported to Laos because the Laotian government refuses to issue travel documents to him.
Sivongxay and the other four lead petitioners raise constitutional challenges to their continued detention by the INS. They allege that their detention violates their right to substantive due process under the Fifth Amendment because any limited interest the government may have in detaining them to prevent flight and protect the public does not justify their indefinite detention when there is little chance, if any, that they will be removed. They also allege a denial of procedural due process in that they have been detained without a hearing before an impartial decision-maker. In addition to these constitutional arguments, Sivongxay contends that the INS was required by statute either to deport him or to release him after six months in custody. For the reasons given below, Sivongxay's case is now decided on statutory grounds. In addition, although the constitutional issues ordinarily would not be reached, see Gomez v. United States, 490 U.S. 858, 864, 109 S. Ct. 2237, 104 L. Ed. 2d 923 (1989), they will be decided in this instance because they are necessarily decided in the Joint Order filed in the five lead cases.
The jurisdictional issue must be decided first. The INS argues that the court lacks jurisdiction and that Sivongxay has failed to exhaust his administrative remedies. But, as held in the Joint Order, habeas corpus jurisdiction exists under 28 U.S.C. § 2241 to decide the non-discretionary questions of statutory and constitutional law raised by this petition. Goncalves v. Reno, 144 F.3d 110 (1st Cir.1998), cert. denied, ___ U.S. ___, 119 S. Ct. 1140, 143 L. Ed. 2d 208 (1999). There is no exhaustion of remedies requirement in the immigration statutes. See generally the Antiterrorism and Effective Death Penalty Act of 1996 (AEDPA), Pub.L. 104-132, 110 Stat. 1214 (enacted on April 24, 1996), and the Illegal Immigration Reform and Immigrant Responsibility Act of 1996 (IIRIRA), Pub.L. 104-208, 110 Stat. 3009-546 (enacted on September 30, 1996). Moreover, there is no administrative proceeding in which Sivongxay could litigate the statutory and constitutional claims raised in his petition. Under the circumstances, "sound judicial discretion" advises against imposing an exhaustion requirement. See McCarthy v. Madigan, 503 U.S. 140, 144, *1169 112 S. Ct. 1081, 117 L. Ed. 2d 291 (1992). Accordingly, the issues raised in this petition are properly before the court.
Sivongxay's statutory argument is based on the presumption against retroactive application of new laws. He contends that the recent changes in the detention requirements of the immigration laws do not apply to his case, and that under the applicable statute he cannot be detained for more than six months.
Before AEDPA and IIRIRA were enacted, the Attorney General was authorized but not required to take into custody any alien who had been charged with deportability. 8 U.S.C. § 1252(a)(1) (1994). Following issuance of a deportation order, an alien generally could not be detained pending deportation for more than six months: "When a final order of deportation ... is made against any alien, the Attorney General shall have a period of six months from the date of such order, or if judicial review is had, then from the date of the final order of the court, within which to effect the alien's departure from the United States." 8 U.S.C. § 1252(c) (1994). When the six-month period expired, the alien had to be released but remained subject to the supervision of the Attorney General. 8 U.S.C. § 1252(d) (1994). For an alien who had committed an aggravated felony, different rules applied. "[U]pon release of the alien," the Attorney General had to take him or her into custody and could release the person only if he or she did not present a flight risk or other risk to the community. 8 U.S.C. § 1252(a)(2) (1994). The prohibition against release of an aggravated felon applied to both pre- and post-deportation order detention. 8 U.S.C. § 1252(a)(2)(A) (1994). It is undisputed that Sivongxay was not ordered deported for having committed an "aggravated felony" within the statutory definition. His case, in this respect, differs from many others now pending.
AEDPA eliminated the Attorney General's discretion to release aliens convicted of certain crimes, see AEDPA § 440(c), but left the six-month detention rule intact for other aliens. For most aliens, this section of AEDPA was in effect only between April 24, 1996, when it was enacted, and October 9, 1996, when the transition period custody rules of IIRIRA, § 303(b)(3) took effect. See IIRIRA § 303(b)(2).
Section 303 of IIRIRA again modified the rules regarding detention of criminal aliens. Under the permanent rules, which went into effect on October 10, 1998, the Attorney General is required to take into custody, upon his or her release from prison, any alien who is deportable for having committed an aggravated felony, a controlled substance violation, a firearms offense, two or more crimes of moral turpitude, or certain other offenses not at issue here. See IIRIRA § 303(a); 8 U.S.C. § 1226(a), (c). Such a person may be detained "pending a decision on whether the alien is to be removed from the United States." See IIRIRA § 303(a); 8 U.S.C. § 1226(a), (c). The Attorney General generally has no discretion to release such an alien pending the outcome of the proceedings. See IIRIRA § 303(a); 8 U.S.C. § 1226(c)(2).
Anticipating that the INS might not have the immediate capacity to identify and detain all such aliens, Congress implemented transitional rules that were in effect from October 9, 1996 to October 9, 1998. See IIRIRA § 303(b)(2), (3); In re Garvin-Noble, Interim Decision 3301, 1997 WL 61453 (B.I.A. Jan 16, 1997). The transitional rules supplanted section 440(c) of AEDPA and delayed the effective date of IIRIRA's permanent rules regarding detention of aliens in removal proceedings. Id. Under the transitional rules, the Attorney General had discretion to release criminal aliens upon a showing that they were neither a danger to the community nor a flight risk. IIRIRA § 303(b)(3)(B).
Section 305 of IIRIRA established new rules governing the detention and removal *1170 of aliens after they have been ordered removed:[1]
An alien ordered removed who is inadmissible under section 1182 of this title, removable under section 1227(a)(1)(C), 1227(a)(2), [making aliens convicted of certain crimes removable], or 1227(a)(4) of this title or who has been determined by the Attorney General to be a risk to the community or unlikely to comply with the order of removal, may be detained beyond the [90-day] removal period and, if released shall be subject to [conditions of supervision].
8 U.S.C. § 1231(a)(6) (West 1999). Such aliens must be detained for the first 90 days after the order of removal is entered, 8 U.S.C. § 1231(a)(2), and may be released after that time only if they can demonstrate by clear and convincing evidence that "the release would not pose a danger to the community or a significant flight risk." 8 C.F.R. § 241.4 (1999) ("Continued detention beyond the removal period").
Unlike many other sections of IIRIRA, section 305 does not have its own effective date provision. Section 309 of IIRIRA states that "[e]xcept as provided in this section and sections 303(b)2), 306(c), 308(d)(2)(D), or 308(d)(5) of this division, this subtitle [IIRIRA] and the amendments made by this subtitle shall take effect on the first day of the first month beginning more than 180 days after the date of the enactment of this Act." Accordingly, because IIRIRA was enacted on September 30, 1996, it went into effect on April 1, 1997. Section 309(c) further provides that
[s]ubject to the succeeding provisions of this subsection [not applicable here], in the case of an alien who is in exclusion or deportation proceedings as of the title III-A effective date
(A) the amendments made by this subtitle shall not apply, and
(B) the proceedings (including judicial review thereof) shall continue to be conducted without regard to such amendments.
IIRIRA § 309(c)(1). The Attorney General has discretion, however, to terminate proceedings under the old laws and reinitiate them under the new laws. IIRIRA § 309(c)(2). Generally, an alien is considered to be "in deportation or exclusion proceedings" from the time a charging document is issued until a final order of deportation or exclusion is issued.[2]
It is necessary to determine which of the various detention provisions potentially applies here. In 1993, Sivongxay was convicted of being a felon in possession of a weapon, which was a deportable offense but not an aggravated one at that time. The INS began deportation proceedings against him and took him into custody on September 23, 1993. He was ordered deported on January 19, 1994, and the order became final on April 20, 1994. When Sivongxay was initially taken into INS custody in 1993, when deportation proceedings against him commenced, and when deportation proceedings concluded, the applicable post-deportation order detention statutes were 8 U.S.C. § 1252(c) & (d) (1994). Had he been detained at that time, the INS could not have held him for *1171 more than six months. Because Sivongxay failed to turn himself in, he was not detained by the INS until April 16, 1997. By that time, the six-month limitation had been repealed and the post-deportation order detention scheme of IIRIRA § 305 was in effect. 8 U.S.C. § 1231(a)(6) (1997).[3] Application of the latter rules to Sivongxay would mean that he could obtain release only by demonstrating by clear and convincing evidence that he did not present a flight risk or risk to the community. 8 C.F.R. § 241.4. Thus the relevant retroactivity question is whether 8 U.S.C. § 1231(a)(6), which states that "an alien ordered removed ... may be detained," with no specified time limit, applies to an order of removal or deportation entered prior to April 1, 1997.
In Landgraf v. USI Film Products, 511 U.S. 244, 280, 114 S. Ct. 1483, 128 L. Ed. 2d 229 (1994), the Supreme Court set out a two-part retroactivity test: First, if Congress clearly prescribes the statute's proper reach, that is the end of the matter. Id. Second, in the absence of such a clear prescription, the Court must assess "whether the new statute would have retroactive effect, i.e., whether it would impair rights a party possessed when he acted, increase a party's liability for past conduct, or impose new duties with respect to transactions already completed." Id. "If so, then in keeping with the `traditional presumption' against retroactivity, we presume that the statute does not apply to that conduct." Martin v. Hadix, ___ U.S. ___, 119 S. Ct. 1998, 2003, ___ L.Ed.2d ___ (1999) (citing Landgraf, 511 U.S. at 280, 114 S. Ct. 1483).
Here, Congress did not indicate whether the detention provisions of 8 U.S.C. § 1231(a)(6) apply to orders of deportation or removal entered before the section's effective date. The question therefore turns on whether the change in the post-deportation order detention scheme would have a prohibited retroactive effect.
The Supreme Court held last month that the test of whether a statute has a retroactive effect is a practical one: "The inquiry into whether a statute operates retroactively demands a common sense, functional judgment about whether the new provision attaches new legal consequences to events completed before its enactment. This judgment should be informed and guided by familiar considerations of fair notice, reasonable reliance, and settled expectations." Martin, ___ U.S. ___, at ___, 119 S. Ct. 1998, 2006, ___ L.Ed.2d ___, at ___ (citing Landgraf, 511 U.S. at 270, 114 S. Ct. 1483) (citation and quotation marks omitted). The Court rejected the notion that retroactivity analysis turns on whether a statute is "substantive" or "procedural": "[I]n Landgraf ... we also cautioned that the mere fact that a new rule is procedural does not mean that it applies to every pending case. We took pains to dispel the suggestion that concerns about retroactivity have no application to procedural rules. When determining whether a new statute operates retroactively, it is not enough to attach a label (e.g., `procedural,' `collateral') to the statute; we must ask whether the statute operates retroactively." Martin, ___ U.S. ___, at ___, 119 S. Ct. 1998, 2006, ___ L.Ed.2d ___, at ___ *1172 (citations and internal quotation marks omitted).
In light of these principles, it becomes clear that application of § 1231(a)(6) to Sivongxay would cause a "retroactive effect."
Following entry of his final order of deportation, Sivongxay retained a liberty interest: the right to be released from INS custody after six months if he could not be deported within that time. Had he known that the rules would change to permit him to be detained indefinitely, he might well have reported for deportation as scheduled, in which event he would have been released under pre-IIRIRA law. Section 1231(a)(6) thus "increases liability for past conduct" and upsets settled expectations. For Sivongxay, the difference is between short-term detention in aid of deportation and detention for an uncertain and open-ended time.
The cases the government cites are not on point. In Alvarez-Mendez v. Stock, 941 F.2d 956, 960 (9th Cir.1991), the court held that a 1990 amendment to the immigration laws that authorized the indefinite detention of aliens convicted of certain crimes did not retroactively legalize any pre-1990 detention. The court stated that "the only issue before us is whether [the petitioner's] detention is illegal today." Id. Whether the amendment applied retroactively to pre-1990 orders of deportation was not before the court because the detention scheme was based on criminal convictions, not orders of deportation or exclusion. Id. In Thanh v. McElroy, 964 F. Supp. 913 (E.D.Pa.1997), the court held that the petitioner's detention under AEDPA § 440(c) was lawful because the technical amendments made by IIRIRA made clear that the detention rules applied regardless of when the petitioner had been convicted of crimes of moral turpitude. Whether AEDPA § 440(c) applied to orders of deportation entered prior to AEDPA's enactment was not at issue. Id.
Sivongxay cites cases holding that AEDPA § 440(c) applies neither to aliens who were already being detained under the pre-AEDPA version of 8 U.S.C. § 1252, see, e.g., United States v. Igbonwa, 1996 WL 694178 (E.D.Pa. Nov.29, 1996), nor to aliens who were released from incarceration prior to AEDPA's enactment. See, e.g., Pastor-Camarena v. Smith, 977 F. Supp. 1415, 1416-17 (W.D.Wash.1997); Montero v. Cobb, 937 F. Supp. 88 (D.Mass. 1996). He cites no case stating that 8 U.S.C. § 1231(a)(6) cannot be applied to pre-IIRIRA deportation orders, and none appears to exist.[4] Three unreported district court cases have applied § 1231(a)(6) to aliens whose orders of deportation became final before IIRIRA's effective date, but none considered the presumption against retroactivity. See Cankat v. Reno, 1999 WL 350125 (S.D.N.Y. May 27, 1999); Cholak v. United States, 1998 WL 249222 (E.D.La. May 15, 1998); Kai v. INS, 1997 WL 786946 (S.D.N.Y. Dec.22, 1997).
A useful comparison is provided by United States v. McCahill, 765 F.2d 849 (9th Cir.1985). The Ninth Circuit there held that a new statute governing bail pending appeal applied to persons convicted before the act's effective date, notwithstanding the ex post facto clause, because no change in the length of confinement was involved:
As the time served in custody pending appeal will be credited to the ultimate sentence imposed, see 18 U.S.C. § 3568 (1982), the change merely advances the date of custody. The law does not alter or affect the length, severity, weight or other significant condition of the punishment. The law is procedural because it does not alter the quantum of punishment.
Id. at 850. Here, in contrast, the quantum of Sivongxay's detention has increased *1173 dramatically as a result of the new post-deportation detention scheme of IIRIRA, going from a maximum of six months to two-plus years with no end in sight. McCahill, as a criminal case, involved ex post facto rather than due process jurisprudence and relied on a distinction between "substantive" and "procedural" that has since been rejected in the context of retroactivity analysis, see Martin, ___ U.S. ___, 119 S. Ct. 1998, ___ L.Ed.2d ___, at*10, but it supports the conclusion that § 1231(a)(6) cannot be applied to prolong Sivongxay's detention.
Because § 1231(a)(6) would have a retroactive effect if applied here, and because Congress has not clearly indicated that this detention provision should apply to aliens whose orders of deportation became final before IIRIRA went into effect on April 1, 1997, Sivongxay's detention is governed by pre-IIRIRA law. Accordingly, since he has been held for more than the allowable six-month period, he must be released.
Although the statutory ground requires that the petition be granted, the constitutional issues, for the reasons given above, will be considered as well. As discussed in the Joint Order, although Sivongxay has been ordered deported, he remains on United States soil and is a "person" with rights to substantive and procedural due process under the Fifth Amendment to the United States Constitution. See Landon v. Plasencia, 459 U.S. 21, 32-33, 103 S. Ct. 321, 74 L. Ed. 2d 21 (1982); see also, Joint Order, at 5-7. Because the right to be free is fundamental, heightened scrutiny applies. See Reno v. Flores, 507 U.S. 292, 301-02, 113 S. Ct. 1439, 123 L. Ed. 2d 1 (1993).
Sivongxay's detention violates the substantive component of the due process clause if it is excessive in relation to permissible government interests. See Martinez v. Greene, 28 F. Supp. 2d 1275, 1282 (D.Colo. 1998) (citing Salerno, 481 U.S. at 747, 107 S. Ct. 2095); Tam v. INS, 14 F. Supp. 2d 1184, 1191 (E.D.Cal.1998) (quoting Gisbert v. U.S. Attorney General, 988 F.2d 1437, 1441 (5th Cir.1993)); Zadvydas v. Caplinger, 986 F. Supp. 1011, 1025-26 (E.D.La.1997); Bell v. Wolfish, 441 U.S. 520, 536-40, 99 S. Ct. 1861, 60 L. Ed. 2d 447 (1979); see also Joint Order, at 7-10. The government has an interest in deporting Sivongxay, but the record shows that it is unlikely he will be deported at any time in the foreseeable future. He is a Laotian refugee without a Laotian passport, Laos will not issue travel documents to persons without valid passports, and the INS has not shown that Laos is likely to reverse its position. The government has an interest in protecting the public from dangerous felons pending deportation, but in this instance the record does not show any serious level of danger to the public. Sivongxay was ordered deported for having possessed a low-caliber hunting rifle; he has not been convicted of a crime of violence, was never charged in regard to his 1997 arrest on suspicion of vehicle prowling, and was incarcerated for a total of only 60 days for his crimes. He presents some flight risk, but that clearly cannot justify indefinite detention.
The minimal interest the government has in continuing to detain Sivongxay after more than two years pales in relation to his constitutional liberty interest. His continued detention is excessive in relation to the permissible government interests involved. Accordingly, the substantive component of the Due Process Clause of the Fifth Amendment requires that the petition be granted.
Because the statutory and substantive due process grounds are decisive, there is no need in this case to reach the procedural due process issue. See United States v. Salerno, 481 U.S. 739, 746, 107 S. Ct. 2095, 95 L. Ed. 2d 697 (1987).
For the reasons stated, the petition for a writ of habeas corpus is granted. Respondents are directed forthwith to release Sivongxay *1174 from custody, subject to the supervision of the Attorney General.
NOTES
[1] See also Moro v. INS, 1999 WL 342721, at *2 n. 6 (N.D.Ill. May 17, 1999) (stating that 8 U.S.C. § 1226 [IIRIRA § 303] governs the "apprehension, detention, and release of aliens pending [a removal] decision," whereas 8 U.S.C. § 1231 [IIRIRA § 305] governs detention and release after a final order of removal has been entered).
[2] 8 U.S.C. § 1229a (1999) governs but does not explicitly define the scope of "removal proceedings." Deportation proceedings commence when the alien is charged with deportability. See 8 C.F.R. § 3.14 (1999). From the context of the INA, it is clear that an alien is no longer "in deportation proceedings" once a final order of deportation or removal has been entered. Compare 8 U.S.C. § 1229a (titled "removal proceedings," the section describes the procedures for determining whether an alien is removable, but does not address detention after an order of removal has been entered) with 8 U.S.C. § 1231 ("Detention and removal of aliens ordered removed").
[3] The government contends that Sivongxay was detained on April 16, 1997 under the transition period custody rules. Those rules, however, apply only if aliens are taken into custody by the INS "when the alien[s][are] released" from prison for the underlying offenses that made them deportable. See IIRIRA § 303(b)(3)(A). Numerous cases have held the nearly identical "upon release" provisions of AEDPA § 440(c) and former 8 U.S.C. § 1252(a)(2) inapplicable to releases that occurred before the effective dates of the respective acts. See, e.g., Morales-Villagomez v. Smith, 1996 WL 622451, at *7-8 (W.D.Wash. July 31, 1996); Pastor-Camarena v. Smith, 977 F. Supp. 1415, 1417-18 (W.D.Wash.1997). The government's implicit position i.e., that Sivongxay was "released" for purposes of the transition period custody rules when he was transferred from the custody of the Everett police to the INS on the same day that he had been picked up on suspicion of vehicle prowling is unsupportable.
[4] A June 29, 1999 Westlaw search for the numbers 1231(a)(6) or 241(a)(6) revealed no such cases. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2471643/ | 749 F. Supp. 2d 852 (2010)
Annie O. and Herbert E. LEWIS, Plaintiffs,
v.
AETNA INSURANCE AGENCY, INC., also known as ING Insurance Services, Sherwin Williams Company as Plan Administrator, and Sherwin Williams Salaried Medical Plan, Defendants.
Case No. 09-cv-641-JPG.
United States District Court, S.D. Illinois.
October 29, 2010.
*854 John A. Wolters, Cavanagh & O'Hara, Springfield, IL, John T. Long, Cavanagh & O'Hara, Swansea, IL, for Plaintiffs.
MEMORANDUM AND ORDER
J. PHIL GILBERT, District Judge.
This matter comes before the Court on the parties' cross-motions for summary judgment. Specifically, Plaintiffs filed a Motion for Summary Judgment and Memorandum in Support Thereof (Doc. 75), to which Defendants submitted a Response (Doc. 79). Defendants also filed a Motion for Summary Judgment (Doc. 76) and Memorandum in Support Thereof (Doc. 77), and Plaintiffs tendered a Response (Doc. 78) thereto. In addition, this matter comes before the Court on Defendants' Motion to Strike (Doc. 83), to which Plaintiffs filed a Response (Doc. 84).
For the following reasons, the Court, inter alia, DENIES the Plaintiffs' summary judgment motion, GRANTS in part and DENIES in part Defendants' summary judgment motion, and GRANTS in part and DENIES in part Defendants' motion to strike.
BACKGROUND
I. Facts
In analyzing a motion for summary judgment, the reviewing court must construe the evidence in the light most favorable to the nonmoving party and draw all reasonable inferences in favor of that party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986); Spath v. Hayes *855 Wheels Int'l-Ind., Inc., 211 F.3d 392, 396 (7th Cir.2000). The Court, construing the evidence and all reasonable inferences in the light most favorable to Plaintiffs, finds as follows:
Over the last nine years, Plaintiff Herbert Lewis (hereinafter individually referred to as "Herbert") has worked for Defendant Sherwin Williams Company (hereinafter "Sherwin Williams")[1] in its paint and stain production facility in Flora, Illinois. He currently works in general production, and his duties include putting labels on cans and packing products into boxes.
As part of his employee benefits package, Herbert is a participant in the company's health plan, namely the Defendant Sherwin Williams Salaried Medical Plan (hereinafter "the Plan"). Sherwin Williams is the administrator of the Plan, and Defendant Aetna Insurance Agency, Inc. (hereinafter "Aetna") is the Plan's fiduciary and claims administrator in charge of reviewing claims filed thereunder. To retain coverage under the Plan, Herbert has to make copayments and/or pay coinsurance. At all times relevant to this litigation, Herbert fulfilled all of his payment obligations under the Plan. Further, at all relevant times, Herbert's wife, Plaintiff Annie Lewis (hereinafter individually referred to as "Annie"), was a dependent and beneficiary under the Plan.
On December 17, 2006, Herbert and Annie (hereinafter collectively referred to as "the Lewises") went horseback riding. Annie eventually came upon a limb on the trail. In her effort to avoid the limb, Annie's saddle broke, and she fell off her horse. She was taken for treatment at Clay County Hospital, which transferred Annie to a hospital in Mt. Vernon, Illinois, that same day. There, doctors reported that she had two broken ribs and a broken collarbone. When her collarbone did not heal, doctors referred Annie to the Bonutti Clinic in Effingham, Illinois. On March 6, 2007, Annie underwent surgery on her collarbone at St. Anthony's Hospital in Effingham, Illinois. By the time of Annie's release from care on May 21, she had incurred medical bills that spanned December 17, 2006, to May 30, 2007, and totaled $38,165.92.
In light of Annie's hefty medical bills, the Lewises began calling Aetna in March 2007. Aetna informed them that the claims were not yet being paid due to questions about Annie's preexisting conditions and other health insurance. Rather than formally denying these claims, Aetna "pended" them until it could satisfactorily conclude the requisite investigation.[2] To move this investigation along, Annie submitted forms on multiple occasions that indicated she had no medical insurance other than the Plan.
Despite the "pended" status of Annie's claims, the Bonutti Clinic sued the Lewises in April 2008, and St. Anthony's Hospital and Clay County Hospital sued the Lewises in August 2008. The Bonutti Clinic received a judgment in its favor in the amount of $6,497.77, and St. Anthony's Hospital and Clay County Hospital received a judgment in their favor in the amount of $13,756.11. Having grown increasingly frustrated with Aetna's failure to pay and its consequences, Herbert *856 turned to the human resources officer at Sherwin Williams. Dissatisfied with the efforts of the human resources department, Herbert thereafter retained attorney Bryan Robbins (hereinafter "Robbins").
On December 2, 2008, Robbins spoke with an Aetna customer service representative over the phone to see what needed to be done in order for Annie's claims to be processed. That same day, Robbins sent a letter to the representative that requested an explanation of Aetna's "denial" of Annie's medical bills. On December 9, Robbins spoke with the representative on the phone to confirm receipt of his letter, which she acknowledged. Robbins' subsequent calls to the representative were unsuccessful, and he was frequently referred to another representative of Aetna. Robbins sent another letter on February 6, 2009, in an effort to address the concerns previously voiced by Aetna representatives. In April 2009, an Aetna representative informed Robbins that the Lewises' claims had been referred to the company's legal department. Sometime during the next month, Robbins learned that, while some of the bills had been paid, a significant amount remained untouched. He subsequently drafted a third letter on May 22, 2009. Like the two before it, Robbins never received a response to this letter.
The Lewises and Robbins all believe that Aetna never provided a written explanation regarding its non-payment of Annie's medical bills. The Lewises, however, concede that neither they nor their attorney made a written request for information from Sherwin Williams.
Between March 2007 and approximately March 2009, Aetna completed its investigation into Annie's claims and made a number of payments thereon. Specifically, the company reduced the claims by $3,523.46 in accordance with the applicable provider agreement, paid $23,978.63 on the claims, and informed the Lewises that they owed $6,291.89 in copayments and coinsurance. With respect to Aetna's total payment of $23,978.63, the company paid $12,351.95 of this amount before December 2, 2008, $11,622.48 of this amount between December 2, 2008 and March 2009, and $4.20 of this amount on December 21, 2009.[3] As Aetna periodically satisfied Annie's claims, it sent the Lewises several written "Explanation of Benefits" (hereinafter "EOBs"). These EOBs explained the payments and adjustments made by Aenta and identified the portions of Annie's claims for which the Lewises bore responsibility. The EOBs also informed the Lewises of their appeal rights, which they never invoked. Instead, they sued.
II. Relevant Procedural Posture
On July 7, 2009, the Lewises had Robbins file suit in Clay County, Illinois, alleging a sole breach of contract claim against Aetna. At that time, the Lewises sought to recover $34,328.37 (Aetna had allegedly paid $3,837.55 prior to suit). Aetna thereafter removed the matter to this Court on the grounds that the Lewises' claims were preempted by the Employee Retirement Income Security Act of 1974 (hereinafter "ERISA"), 29 U.S.C. § 1001, et seq.
After retaining new counsel, the Lewises eventually filed an Amended Complaint (Doc. 27), which remains the operative *857 complaint in this litigation. This complaint not only added Sherwin Williams and the Plan as defendants but pled six separate claims for relief. These claims are as follows: engagement in arbitrary and capricious actions by Aetna (Count I); violation of ERISA § 502(a)(1)(B), codified at 29 U.S.C. § 1132(a)(1)(B), by the Plan (Count II), and; violation of ERISA § 502(c)(1), codified at 29 U.S.C. § 1132(c)(1), by Aetna and Sherwin Williams (Counts III-VI). More specifically, Count III is an action by Annie against Aetna for violation of ERISA § 502(c)(1), Count IV is an action by Herbert against Aetna for violation of ERISA § 502(c)(1), Count V is an action by Annie against Sherwin Williams for violation of ERISA § 502(c)(1) and Count VI is an action by Herbert against Sherwin Williams for violation of ERISA § 502(c)(1). With respect to Counts III-VI, the Lewises seek the maximum statutory penalty and attorneys' fees and costs.
The Lewises now move for summary judgment on Counts III-VI, and Defendants move for summary judgment on all counts. Both assert several theories to justify the relief sought.
ANALYSIS
Following a general overview of the law governing summary judgment, the Court will delve into the relevant law surrounding each of the Lewises' ERISA claims.
I. Summary Judgment Generally
Summary judgment is proper where "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 moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c)(2); see Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986); Spath v. Hayes Wheels Int'l-Ind., Inc., 211 F.3d 392, 396 (7th Cir.2000). In responding to a summary judgment motion, the nonmoving party may not simply rest upon the allegations contained in the pleadings but must present specific facts to show that a genuine issue of material fact exists. Fed. R.Civ.P. 56(e) (2); Celotex, 477 U.S. at 322-26, 106 S. Ct. 2548; Johnson v. City of Fort Wayne, 91 F.3d 922, 931 (7th Cir. 1996).
A genuine issue of material fact is not demonstrated by the mere existence of "some alleged factual dispute between the parties," Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986), or by "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, 89 L. Ed. 2d 538 (1986). Rather, a genuine issue of material fact exists only if "a fair-minded jury could return a verdict for the [nonmoving party] on the evidence presented." Anderson, 477 U.S. at 252, 106 S. Ct. 2505.
II. Counts I and II Are Duplicitous, Thereby Mandating Dismissal of Count I
As Defendants rightfully point out, the only real difference between Counts I and II is that Count I is brought against Aetna and Count II is brought against the Plan. Although Count I is captioned as a claim for "arbitrary and capricious actions," (Doc. 27, p. 3), the operative complaint makes clear that Counts I and II are civil actions for violations of ERISA § 502(a)(1)(B). Id. at 1, ¶ 1. More precisely, Count I is a claim under ERISA § 502(a)(1)(B) that alleges Aetna's actions fell below the arbitrary and capricious standard articulated in the medical plan at issue. (See Doc. 2-4, p. 65) ("Aetna may not abuse its discretionary authority by acting arbitrarily and capriciously.").
In ERISA benefits cases, the plan is typically the proper partynot the employer. *858 29 U.S.C. § 1132(d)(2) (2006); Garratt v. Knowles, 245 F.3d 941, 949 (7th Cir.2001) (affirming dismissal of complaint against employer for benefits under a retirement plan and leaving open the option of bringing suit against the plan as an entity); Jass v. Prudential Health Care Plan, Inc., 88 F.3d 1482, 1490 (7th Cir. 1996). While a plaintiff may be able to sue the employer, he must show that the plan and employer are closely intertwined and that the employer is the plan administrator. Mein v. Carus Corp., 241 F.3d 581, 585 (7th Cir.2001) (wherein plaintiff insisted he did not seek any relief from the plan).
Here, the Lewises have not argued or put forth evidence regarding any significant interrelationship between the Plan and Aetna, at least to the extent contemplated by Mein and its progeny. Rather, their response to Defendants' motion contends that Count I should stand because Aetna breached its fiduciary duties a la ERISA § 404, codified at 29 U.S.C. § 1104. Section 404 actions are brought under ERISA § 409, codified at 29 U.S.C. § 1109, or ERISA § 502(a)(3), codified at 29 U.S.C. § 1132(a)(3). Mondry v. Am. Family Mut. Ins. Co., No. 06-C-320-S, 2006 WL 2787867, at *4 (W.D.Wis. Sept. 26, 2006); see also Adamczyk v. Lever Bros. Co., Div. of Conopco, 991 F. Supp. 931, 933 (N.D.Ill.1997). However, nowhere in the operative complaint did the Lewises allege a breach of fiduciary duty against Aetna[4] or cite to ERISA § 409 or § 502(a)(3). The Lewises chose their means to the relief sought, and they are now stuck with the claims contained in the amended complaint. Moreover, binding precedent dictates that the Lewises cannot seek relief under ERISA § 502(a)(3) because they can seek and are seeking relief under ERISA § 502(a)(1)(B). Varity Corp. v. Howe, 516 U.S. 489, 512, 116 S. Ct. 1065, 134 L. Ed. 2d 130 (1996); Clark v. Hewitt Assocs., LLC, 294 F. Supp. 2d 946, 950 (N.D.Ill.2003) ("Plaintiff . . . does have the right to bring a claim under § 1132(a)(1)(B), regardless of its merits; therefore, she may not seek relief under § 1132(a)(3).") (emphasis in original).
Put simply, Counts I and II are duplicitous, and the Court subsequently DISMISSES Count I with prejudice.
III. Genuine Issues of Material Fact Exist with Respect to Count II
ERISA § 502(a)(1)(B) holds that "[a] civil action may be brought by participant or beneficiary . . . 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. . . ." 29 U.S.C. § 1132(a)(1)(B) (2006).
Here, the Plan cites the affidavit of Kathy Stollings, Senior Customer Service Rep for Aetna's Natl Accounts Customer Operations, as evidence that almost all of *859 the Lewises' claims were paid several months before they brought legal action against the company. The Lewises cannot and do not argue that the Plan paid a large number of their claims, but they do dispute several of the Plan's purported payments.
First, the Lewises argue that Salem-Flora Radiology never received a $542.00 (or $433.60 after negotiations with the provider) payment that the Plan claims was made. To support their argument, the Lewises have attached an affidavit from Sara Harris, who assists the office manager of Salem-Flora Radiology, that states the provider has yet to receive payment from the Plan. The Court is satisfied with the competency of Sara Harris and the contents of said affidavit. Accordingly, there is a genuine issue of material fact as to whether the Plan paid Salem-Flora Radiology the $542.00 (or $433.60) it claims.
Similarly, the Lewises argue that the Plan has not properly paid the Bonutti Clinic. For support, the Lewises cite a letter from the Bonutti Clinic's attorney that states the amount paid by the Plan as of November 5, 2009. Indeed, this amount is less than the Plan alleges to have paid. The letter also states the balance owed by the Lewises. After subtracting costs, fees, and interests, this balance is greater than what the Plan claims is owed in copayments and coinsurance. These discrepancies create another genuine issue of material fact, namely whether the Plan still owes money to the Bonutti Clinic.
The remainder of the Lewises' argument concerning Count II is that the Plan's arbitrary and untimely processing of Annie's claims unnecessarily led to their liability to the Bonutti Clinic, St. Anthony's Hospital, and Clay County Hospital for post-judgment interest, court costs, and attorneys' fees. There is evidence that Aetna did not process Annie's claims in a timely manner; nevertheless, this untimeliness does not impute additional liability to the Plan in an action for benefits. The scope of relief of ERISA § 502(a)(1)(B) is confined to a participant or beneficiary's recovery of benefits or enforcement/clarification of rights under a plan. This equitable relief scheme means that ERISA § 502(a)(1)(B) does not provide for compensatory damages, monetary damages, or extracontractual relief. Jass v. Prudential Health Care Plan, Inc., 88 F.3d 1482, 1491 (7th Cir.1996) (wherein plaintiff wrongfully sought compensatory damages, medical expenses, pain and suffering, and lost wages under ERISA); Harsch v. Eisenberg, 956 F.2d 651, 656 (7th Cir.1992) (wherein plaintiffs wrongfully sought compensation for injuries directly resulting from administrator's alleged breach of fiduciary duty).
While the instant case is not factually analogous to Jass or Harsch, the doctrines promulgated by those Seventh Circuit decisions have preclusive effect on the Lewises' ERISA § 502(a)(1)(B) claim. Any claim against the Plan that relates to judgments in favor of the Lewises' creditors is purely monetary or compensatory. Even if such a claim could be deemed equitable, it is not recoverable in an action for benefits under ERISA § 502(a)(1)(B). The Lewises do not argue or cite any authority to the contrary, and the Court will not do so for them. It is for these reasons that no genuine issue of material fact exists with respect to the civil judgments against the Lewises.
In sum, apart from Annie's claims regarding Salem-Flora Radiology and the Bonutti Clinic for which genuine issues of material fact exist, Count II is effectively moot because the Plan has provided the relief allowable to the Lewises. See Egert v. Conn. Gen. Life Ins. Co., 900 F.2d 1032, 1038 n. 5 (7th Cir.1990) (holding that the case was not moot because defendant had *860 not provided all relief requested by plaintiff).
IV. Herbert Lacks Constitutional Standing to Continue as a Plaintiff in This Case
The foregoing disposes of yet another issue raised by the parties: Herbert's standing. The Lewises argue that Herbert has constitutional standing to be in this case because of the judgments achieved by the Bonutti Clinic, St. Anthony's Hospital, and Clay County Hospital. The Court's analysis, however, has shown that the interest, costs, and fees that the Lewises seek in relation to said judgments are unrecoverable under ERISA § 502(a)(1)(B). Further, because Annie has asserted and continues to assert her rights as a beneficiary, and any recovery by Herbert would be tantamount to double recovery.
Herbert no longer has constitutional standing in this case and is no longer a necessary party to this litigation. As such, the Court DISMISSES him with prejudice.
V. Annie Is Exempt from Exhausting Her Administrative Remedies on Count II
The question next becomes whether Annie failed to administratively exhaust her claims concerning Salem-Flora Radiology and the Bonutti Clinic.
"The text of 29 U.S.C. § 1132, providing for civil actions to redress violations of ERISA, does not address whether a claimant must exhaust [his] administrative remedies before filing suit in federal court." Gallegos v. Mount Sinai Med. Ctr., 210 F.3d 803, 807 (7th Cir.2000). See also Call v. Ameritech Mgmt. Pension Plan, No. Civ. 01-717-GPM, 2004 WL 483199, at *3 (S.D.Ill. Mar. 10, 2004). However, in light of ERISA § 503, codified at 29 U.S.C. § 1133, directing employee benefit plans to provide adequate written notice of the reasons for denials of claims by plan participants and to create procedures for the review of such denials of claims, the Seventh Circuit interprets ERISA as requiring exhaustion of administrative remedies as a prerequisite to bringing suit under the statute. See Powell v. A.T. & T. Commc'ns, Inc., 938 F.2d 823, 826 (7th Cir.1991). "[T]he decision to require exhaustion as a prerequisite to bringing suit is a matter within the discretion of the trial court." Salus v. GTE Directories Serv. Corp., 104 F.3d 131, 138 (7th Cir.1997) (quoting Lindemann v. Mobil Oil Corp., 79 F.3d 647, 650 (7th Cir.1996)).
In general, "implementing the exhaustion requirement enhances the ability of plan fiduciaries to expertly and efficiently manage their plans by preventing premature judicial intervention and because fully considered actions by plan fiduciaries may assist the courts when they must resolve controversies." Powell, 938 F.2d at 826 (citing Kross v. W. Elec. Co., Inc., 701 F.2d 1238, 1244 (7th Cir.1983)). Exhaustion benefits the district court by clarifying the issues and disputes before it. Lindemann, 79 F.3d at 650. Furthermore, exhaustion may result in the non-judicial settlement of the plan participant's claims. Id. Therefore, it is not lightly set aside. That being said, the court may excuse an ERISA plaintiff's failure to exhaust administrative remedies where there is a lack of meaningful access to review procedures or where pursuing internal plan remedies would be futile. See Robyns v. Reliance Standard Life Ins. Co., 130 F.3d 1231, 1236 (7th Cir.1997); Wilczynski v. Lumbermens Mut. Cas. Co., 93 F.3d 397, 402 (7th Cir.1996); Smith v. Blue Cross & Blue Shield United of Wis., 959 F.2d 655, 658-59 (7th Cir.1992).
*861 Here, Annie is excused from exhausting her administrative remedies with respect to the still-viable claims. The Plan argues that Annie was or should have been well-aware of the administrative process as it was clearly spelled out in the Summary Plan Description (hereinafter "SPD") and all EOBs. The Court has scoured the record, however, and cannot find any EOB relating to Salem-Flora Radiology or all of the EOBs relating to the Bonutti Clinic. The Court will not require Annie to have appealed payments that she possibly did not know the Plan had made.
The parties make much ado about whether Annie's claims were truly "pended" or denied, and both parties cite several exhibits to support their opposing contentions. Having considered all of the evidence, the Court believes Annie's claims were "pended." See note 2. But, the Court also believes Annie was at the very least justifiably confused as to which claims had been paid so that she could appeal therefrom, creating a lack of a meaningful access to the Plan's review procedures. Perhaps more importantly, the Court notes that it has been the Plan's contention for some time that Annie's claims have been fully paid. It obviously continues to take this stance in the summary judgment phase. The Court believes that, had Annie internally appealed the Plan's payment to Salem-Flora Radiology and the Bonutti Clinic, she would have been told that the Plan had already made all necessary payments. In other words, any pursuit of the Plan's internal remedies would have been futile.
There exists no genuine issue of material fact on the exhaustion issue.
VI. The Lewises Cannot Sustain Claims on Counts III-VI
ERISA § 502(c)(1) provides, in relevant part, as follows:
Any administrator who fails or refuses to comply with a request for any information which such administrator is required by this subchapter to furnish to a participant or beneficiary . . . by mailing the material requested to the last known address of the requesting participant or beneficiary within 30 days after such request may in the court's discretion be personally liable to such participant or beneficiary in the amount of up to $100 a day from the date of such failure or refusal, and the court may in its discretion order such relief as it deems proper.
29 U.S.C. § 1132(c)(1)(B) (2006). In other words, to sustain a claim under ERISA § 502(c)(1), a participant must prove "(1) that the administrator was required by ERISA to make available to the participant the information the participant requested, and (2) that the participant requested and the administrator failed or refused to provide the information requested. . . ." Kleinhans v. Lisle Sav. Profit Sharing Trust, 810 F.2d 618, 622 (7th Cir.1987) (affirming grant of defendants' motion for summary judgment because plaintiff failed to request "information" concerning the trust at issue or his rights thereunder); Hakim v. Accenture U.S. Pension Plan, 656 F. Supp. 2d 801, 821 (N.D.Ill.2009). "If these elements of standing to sue and an appropriate request are satisfied, the plan administrator's failure to provide the requested information to a participant or beneficiary carry severe consequences." Ronald J. Cooke, ERISA Practice and Procedure § 8:28, p. 8-219 (2d ed.2009).
Here, the Lewises have brought four claims for violation of ERISA § 502(c)(1). Three of these claims may be dismissed out of hand. Two (Counts IV and VI) are brought by Herbert. However, for reasons discussed supra, Herbert does not have constitutional standing to be *862 in this case. Therefore, the Court DISMISSES Counts IV and VI with prejudice. Like Herbert, Annie brings one claim against Aetna (Count III) and one claim against Sherwin Williams (Count V). Annie, however, has not made any allegation or put forth any evidence that she made a request for information from Sherwin Williams. ERISA § 502(c)(1) is explicitly predicated upon such a request for information. Annie's failure to make such a request of Sherwin Williams dictates that the Court DISMISS Count V with prejudice.
All that remains is Annie's claim against Aetna. In the operative complaint, Annie alleges that Aetna is liable for violation of ERISA § 502(c)(1) due to its "fail[ure] to respond to the December 2, 2008 request for information regarding the denial of medical claims submitted on behalf of Annie Lewis." (Doc. 27, p. 7, ¶ 28) (emphasis added). Indeed, Robbins' letter of December 2, 2008, to Aetna sought "an explanation for the denial of each of [Annie's] claims." (Doc. 75-13, p. 5). Since Aetna "pended" Annie's claims and never truly denied them, the company first argues that it was not required to respond to Robbins' letter. The Court has reviewed the entire record and believes Annie's claims were in fact "pended." That being said, there is at least some evidence that Aetna told the Lewises that Annie's medical claims had been denied. See note 2; (see also Doc. 75-7, p. 6) ("Your claim has been denied because information requested about the claim was not received."). There is even greater evidence that Aetna had told Annie's medical providers that her claims had been denied, (see, e.g., Doc. 75-6), generating a reasonable inference that Annie would have thought the same if she contacted her providers before Aetna paid them. Aetna occasionally represented to the Lewises and Annie's medical providers that Annie's claims had been denied. Even though the claims were in fact "pended," the Court will not deem the December 2 letter inadequate for using the same language that Aetna occasionally employed. The Plan's reliance on a "denial prerequisite," espoused in Kleinhans v. Lisle Savings Profit Sharing Trust, 810 F.2d 618 (7th Cir.1987), is misplaced due to the occasional representations that Aetna made to the Lewises and their creditors. See note 2. Aetna's first argument therefore falls flat.
Aetna next argues that Annie cannot recover under ERISA § 502(c)(1) because she cannot meet the first half of the Kleinhans test, i.e. Aetna was not required by ERISA to furnish the information that Annie had requested. By its very terms, ERISA § 502(c)(1) is confined to Subchapter I of ERISA, which spans 29 U.S.C. § 1001 through § 1191c. Indeed, nowhere in Annie's summary judgment motion does she cite to an appropriate section of Subchapter I that required Aetna to explain any denial of her claims upon demand.
Annie does cite to 29 U.S.C. § 1104, which sets forth the general standard of care governing ERISA fiduciaries. The Court, however, fails to see any link between the general fiduciary standards and the failure to comply statute at issue, especially considering Annie did not bring a claim for breach of fiduciary duty against Aetna.
Annie also cites to 29 U.S.C. § 1022(b) and § 1024(b)(1), which govern SPDs and their publication. Annie reasons that, since the standards governing SPDs are promulgated in Subchapter I and since the SPD at issue provides for an explanation if one's benefits are denied, Aetna violated ERISA § 502(c)(1). Aetna's SPD, however, is not a part of Subchapter I, at least in the sense that ERISA § 502(c)(1) contemplates. The Seventh Circuit has taken a restrictive view with respect to ERISA § 502(c)(1) and has not even allowed *863 ERISA § 502(c)(1) to serve as a means to impose civil liability for violations of agency regulations. Wilczynski v. Lumbermens Mut. Cas. Co., 93 F.3d 397, 406 (7th Cir.1996). To enlarge the statute governing SPDs to include the contents of all SPDs created thereunder would not only fly in the face of Wilczynski and other relevant precedent but could open the floodgates of ERISA § 502(c)(1) litigation.
Put simply, Robbins' letter did not request the type of information referenced in ERISA § 502(c)(1).[5] The Court also finds that Robbins' letter was not specific enough in its request for purposes of ERISA § 502(c)(1). For these reasons, the Court DISMISSES Count III with prejudice.
CONCLUSION
For the foregoing reasons, the Court DENIES the Lewises' Motion for Summary Judgment (Doc. 75). The Court GRANTS in part and DENIES in part Defendants' Motion for Summary Judgment (Doc. 76). Specifically, the Court GRANTS summary judgment in favor of Defendants and against the Lewises on Counts I, III, IV, V, and VI, thereby DISMISSING Aetna and Sherwin Williams from this matter with prejudice. Meanwhile, the Court DENIES summary judgment on Count II as brought by Annie for the aforesaid reasons. The Court, however, DISMISSES Herbert from this matter with prejudice. The Court DIRECTS the Clerk of Court to enter judgment accordingly at the close of this case.
The Court GRANTS in part and DENIES in part Defendants' Motion to Strike (Doc. 83). The Court considered said motion while it researched, analyzed, and drafted the motions at issue. Specifically, to the extent the Court relied on any allegations or exhibits sought to be stricken, as perhaps evidenced by their reference herein, the Court DENIES said motion. Further, the Court DENIES Defendants' Motion for Leave to File an Answer (Doc. 80) to Counts III-VI as moot. Finally, the Court will address Defendants' Motion to Continue (Doc. 87) in a separate minute order.
IT IS SO ORDERED.
NOTES
[1] Sherwin Williams is named a defendant only in its capacity as administrator of the medical plan at issue.
[2] The parties dispute whether the claims were actually "pended" or denied. While the Lewises have put forth some evidence that they and their creditors had been told that Annie's claims were denied, (see, e.g., Doc. 75-7, p. 6; Doc. 75-6), the record overwhelmingly demonstrates that Aetna "pended" the claims.
Regardless, as will be seen, this factual contention is of no consequence.
[3] Aetna paid most of the claims of Clay County Hospital on September 18, 2008 (dates of service were from December 17, 2006, to January 24, 2007), most of the claims of the Bonutti Clinic in February or March 2009 (dates of service were from January to April 2007), and most of the claims of St. Anthony's Hospital on February 26, 2009 (date of service was March 6, 2007).
[4] The only language in the operative complaint hinting at a breach of fiduciary duty is as follows:
Aetna failed to follow the procedures required by 29 CFR 2560.503-1 in that: Aetna unduly inhibited and hampered the processing of claims for benefits by continuously requesting the same information previously provided by Plaintiffs; Aetna's claim denials were not in accordance with the Summary Plan Description; Aetna failed to notify the Plaintiffs of an adverse determination at a time sufficiently in advance of the denial of services; Aetna failed to provide Annie Lewis with an appeal of the adverse determination or a full and fair review of the adverse determination.
(See Doc. 27, p. 4-5, ¶ 24). The Court, however, is convinced that this language only relates to the alleged arbitrary and capricious breach of the medical plan at issue. Again, the Court will not allow a claim where one has not been asserted.
[5] Almost every case involving any overlap between ERISA § 502(c)(1) and SPDs involves allegations that the SPD itself was not produced upon request. See, e.g., Hakim v. Accenture U.S. Pension Plan, No. 08-cv-3682, 735 F. Supp. 2d 939, 942-44, 2010 WL 3257898, at *1 (N.D.Ill. Aug. 16, 2010); Killian v. Concert Health Plan, 651 F. Supp. 2d 770, 777 (N.D.Ill.2009). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2468759/ | 737 F. Supp. 2d 1116 (2010)
Connie DEVLYN, Paul Glau and Krsto Knezevich, Plaintiffs,
v.
LASSEN MUNICIPAL UTILITY DISTRICT, Defendant.
No. 2:10-cv-00286-MCE-DAD.
United States District Court, E.D. California.
August 6, 2010.
*1118 Joseph E. Maloney, Attorney at Law, Auburn, CA, for Plaintiffs.
Shaye Nicole Harrington, Downey Brand LLP, Sacramento, CA, for Defendant.
MEMORANDUM AND ORDER
MORRISON C. ENGLAND, JR., District Judge.
Through the present action Plaintiffs Connie Devlyn, Paul Glau, and Krsto Knezevich ("Plaintiffs") collectively allege twenty causes of action against Defendant Lassen Municipal Utility District ("Defendant") for wrongful conduct alleged to have been committed in the course of their employment by Defendant. Presently before the Court is Defendant's Motion to Dismiss Plaintiffs' First Amended Complaint in its entirety. Specifically, Defendant moves to dismiss Plaintiffs' first, second, third, fourth, fifth, seventh, eighth, eleventh, twelfth, fourteenth, fifteenth, eighteenth, and nineteenth claims for relief for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1). Defendant concurrently moves to dismiss Plaintiffs' second, fifth, sixth, seventh, eighth, ninth, tenth, thirteenth, fourteenth, fifteenth, sixteenth, seventeenth, eighteenth, nineteenth, and twentieth claims for relief for failure to state a claim upon which relief may be granted pursuant to 12(b)(6). Additionally, pursuant to Federal Rule of Civil Procedure 12(f), Defendant moves to strike the portion of Plaintiffs' prayer for relief seeking penalties under California Labor Code § 1102.5.
For the reasons set forth below, Defendant's Motions are denied in part and granted in part.[1]
BACKGROUND[2]
A. Connie Devlyn
Plaintiff Connie Devlyn ("Devlyn") has been employed by Defendant since 1975. She alleges that she has been subject to a hostile work environment throughout her career because of her gender. Devlyn states that her co-workers routinely engaged in overtly sexual conduct such as posting photographs of nude women in her work area, leaving sexually oriented magazines in the restroom, making sexual comments and suggestions to her, and performing mock sex in front of her on other male employees or on a training dummy. Her male co-workers are also said to have *1119 committed various pranks including coming into her office to pass gas, hanging a purple bra in the break room after she endured surgery for breast cancer, hiding a dead skunk in her work area, and tying the emergency exit door to her work area shut.
Devlyn states she repeatedly reported the misconduct to management but they failed to take adequate action. Instead, Devlyn alleges that her manager ignored her reports and attempted to intimidate her into not filing a Complaint. An investigation was conducted, but Devlyn believes it was cursory. The investigator found Devlyn's claims to be without merit.
Devlyn states Defendant later retaliated against her for her complaints by diminishing her working conditions and relocating her to a less safe work area. She eventually complained to the California Department of Fair Employment and Housing and the Equal Employment Opportunity Commission. In February 2009, she received a right to sue letter.
B. Paul Glau
Plaintiff Paul Glau ("Glau") worked as a Facilities Manager for Defendant from 1991 until December 31, 2009. Glau states that in that time he opposed the campaign of sexual harassment against a fellow employee (Devlyn) and provided a statement to management in support of her complaints.
In May 2008, Glau began to suspect that excess levels of toxic substances were present at one of Defendant's work sites. He reported his findings but reviewing officials determined that Glau had mistaken the scientific notations reflecting the contamination levels. No corrective action was taken.
Glau contends that subsequent to his reports of contamination and his statement regarding the sexual harassment claim, Defendant retaliated against him by taking away his company vehicle, withholding information from him, and assigning him lesser work than the executive job responsibilities previously given to him.
Defendant also proposed Glau's termination. However when an internal investigator found termination to be unwarranted, Glau alleges that a General Manager told him that if he did not retire by the end of 2009 he would be fired. Glau agreed to retire on December 31, 2009. He asserts that his retirement was a constructive discharge.
C. Krsto Knezevich
Plaintiff Krsto Knezevich ("Knezevich") has worked for Defendant since 1997. During that time he served as a subordinate under co-Plaintiff Paul Glau. As part of his duties, Knezevich states he participated in reporting suspected high levels of toxic substances present at one of Defendant's work sites. Knezevich alleges that he also opposed the sexual harassment of a co-worker (Devlyn) and he submitted a statement in support of her complaints.
As a result of these actions, Knezevich alleges that Defendant retaliated against him by wrongfully issuing him a written reprimand and assigning him lesser more dangerous tasks with reduced potential for promotion. Knezevich asserts that these tasks resulted in him being injured and now unable to work.
On the basis of the aforesaid conduct by Defendant and Defendant's employees, Plaintiffs collectively filed suit, alleging twenty causes of action.
STANDARD
A. Motion to Dismiss Pursuant to Rule 12(b)(1)
In moving to dismiss for lack of subject matter jurisdiction pursuant to Rule *1120 12(b)(1), the challenging party may either make a "facial attack" on the allegations of jurisdiction contained in the complaint or can instead take issue with subject matter jurisdiction on a factual basis ("factual attack"). Thornhill Publishing Co. v. General Tel. & Elect. Corp., 594 F.2d 730, 733 (9th Cir.1979); Mortensen v. First Fed. Sav. & Loan Ass'n, 549 F.2d 884, 891 (3d Cir.1977). If the motion constitutes a facial attack, the court must consider the factual allegations of the complaint to be true. Williamson v. Tucker, 645 F.2d 404, 412 (5th Cir.1981); Mortensen, 549 F.2d at 891. If the motion constitutes a factual attack, however, "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." Thornhill, 594 F.2d at 733 (quoting Mortensen, 549 F.2d at 891).
If the court grants a motion to dismiss a complaint, it must then decide whether to grant leave to amend. Generally, leave to amend should be denied only if it is clear that the deficiencies of the complaint cannot be cured by amendment. Broughton v. Cutter Labs., 622 F.2d 458, 460 (9th Cir.1980).
B. Motion to Dismiss Pursuant to Rule 12(b)(6)
On a motion to dismiss for failure to state a claim under Rule 12(b)(6), all allegations of material fact must be accepted as true and construed in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir.1996). Rule 8(a)(2) requires only "a short and plain statement of the claim showing that the pleader is entitled to relief" in order to "give the defendant fair notice of what the ... claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 1964, 167 L. Ed. 2d 929 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957)). While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the "grounds" of his "entitlement to relief" requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Id. at 1964-65 (internal citations and quotations omitted). A court is not required to accept as true a legal conclusion couched as a factual allegation. Ashcroft v. Iqbal, ___ U.S. ___, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009). Factual allegations must be enough to raise a right to relief above the speculative level. Twombly, 127 S.Ct. at 1965 (citing 5 C. Wright & A. Miller, Federal Practice and Procedure § 1216, pp. 235-36 (3d ed. 2004) ("The pleading must contain something more ... than ... a statement of facts that merely creates a suspicion [of] a legally cognizable right of action")).
"Rule 8(a)(2) ... requires a `showing,' rather than a blanket assertion of entitlement to relief. Without some factual allegation in the complaint, it is hard to see how a claimant could satisfy the requirements of providing not only `fair notice' of the nature of the claim, but also `grounds' on which the claim rests." Id.
A pleading must contain "only enough facts to state a claim to relief that is plausible on its face." Id. at 570, 127 S. Ct. 1955. If the "plaintiffs ... have not nudged their claims across the line from conceivable to plausible, their complaint must be dismissed." Id. Nevertheless, "[a] well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and `that a recovery is very remote and unlikely.'" Id. at 556, 127 S. Ct. 1955.
A court granting a motion to dismiss a complaint must then decide whether to grant leave to amend. A court should "freely give" leave to amend when there is *1121 no "undue delay, bad faith[,] dilatory motive on the part of the movant, . . . undue prejudice to the opposing party by virtue of . . . the amendment, [or] futility of the amendment. . . ." Fed. R. Civ. P. 15(a); Foman v. Davis, 371 U.S. 178, 182, 83 S. Ct. 227, 9 L. Ed. 2d 222 (1962). Generally, leave to amend is denied only when it is clear the deficiencies of the complaint cannot be cured by amendment. DeSoto v. Yellow Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir.1992).
C. Motion to Strike
The Court may strike "from any pleading any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed. R. Civ. P. 12(f). "(T)he function of a 12(f) motion to strike is to avoid the expenditure of time and money that must arise from litigating spurious issues by dispensing with those issues prior to trial. . . ." Sidney-Vinstein v. A.H. Robins Co., 697 F.2d 880, 885 (9th Cir. 1983). Immaterial matter is that which has no essential or important relationship to the claim for relief or the defenses being pleaded. Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir.1993) (rev'd on other grounds Fogerty v. Fantasy, Inc., 510 U.S. 517, 114 S. Ct. 1023, 127 L. Ed. 2d 455 (1994)) (internal citations and quotations omitted). Impertinent matter consists of statements that do not pertain, and are not necessary, to the issues in question. Id.
ANALYSIS
A. Motion to Dismiss Pursuant to Rule 12(b)(1)
Defendant moves to dismiss Counts 1-5, 7-8, 11-12, 14-15, and 18-19 of Plaintiffs' Complaint for lack of subject matter jurisdiction. Defendant asserts that these claims are jurisdictionally defective in that Plaintiffs have failed to allege exhaustion of applicable administrative remedies. As to Counts 1-5, 7-8, and 14-15, Defendant argues that Plaintiffs failed to obtain prerequisite right to sue letters from the Equal Employment Opportunity Commission ("EEOC") and California Department of Fair Employment and Housing ("DFEH") as required for claims arising under Title VII of the Civil Rights Act ("Title VII") and California's Fair Employment and Housing Act ("FEHA") respectively.
As to Counts 11-12 and 18-19, Defendant asserts that Plaintiffs failed to apply to the Secretary of Labor for review as required for claims arising out of the Comprehensive Environmental, Compensation, and Liability Act ("CERCLA") and Solid Waste Disposal Act ("SWDA").[3] Defendant alleges that Plaintiffs' failure to obtain right to sue letters or apply to the Secretary of Labor for review deprive this Court of subject matter jurisdiction over Plaintiffs' claims.
1. Right to Sue Letter
Plaintiffs' Counts 1-5, 7-8, and 14-15 allege sexual harassment in violation of 42 U.S.C. § 2000e-2, retaliation in violation of 42 U.S.C. § 2000e-2, sexual harassment in violation of Cal. Gov't Code § 12940(j), failure to prevent sexual harassment in violation of Cal. Gov't Code § 12940(k), and retaliation in violation of Cal. Gov't Code § 12940(h).
For federal claims arising under Title VII, 42 U.S.C. 2000e, et seq., a plaintiff *1122 must first file an administrative complaint with EEOC and receive a right to sue letter. 42 U.S.C. § 2000e-5. Similarly, for state claims arising under FEHA, Cal. Gov't Code 12900, et seq., a plaintiff must first file an administrative complaint with DFEH and receive a right to sue letter.
Defendant complains that Plaintiffs initiated suit on February 9, 2010 but did not file their administrative claims and receive right to sue letters until February 26, 2010, after they filed the civil action. Defendant asserts that, resultantly, Plaintiffs' relevant claims are jurisdictionally defective.
However, subsequent to receiving right to sue letters, Plaintiffs filed a First Amended Complaint on April 6, 2010. Under this operative complaint, Plaintiffs have properly alleged exhaustion of applicable administrative mandates such that they are now authorized to file suit in district court. In the operative complaint, Plaintiffs have alleged that they obtained right to sue letters. Jurisdiction has been sufficiently established.
Accordingly, Defendant's Motion to Dismiss Plaintiffs' Counts 1-5, 7-8, and 14-15 pursuant to Rule 12(b)(1) is denied.
2. Application for Review by the Secretary of Labor
Plaintiffs' Counts 11-12 and 18-19 allege retaliation for reporting contamination addressed by CERCLA in violation of 42 U.S.C. § 9610(a), and retaliation for reporting contamination addressed by SWDA in violation of 42 U.S.C. § 6971.
Defendant argues that for claims arising under CERCLA or SWDA that Plaintiffs were required to apply to the Secretary of Labor for a review of their claims pursuant to 42 U.S.C. §§ 6971(a), 9610(a). In support of this proposition, Defendant relies on a Northern District of Indiana case, Rhode v. City of West Lafayette, 850 F. Supp. 753 (N.D.Ind.1993). However, the jurisdictional question in Rhode regarded an attempt to appeal an administrative decision rendered by the Department of Labor, not whether review by the Department of Labor was a necessary precursor to civil suit. Moreover, Rhode holds no binding authority over this Court and nothing in the statute or in Ninth Circuit precedent requires that a plaintiff first apply to the Secretary of Labor for review in order to assert a claim under CERCLA or SWDA. Rather, the text of both CERCLA and SWDA state that any employee who believes he has been fired or discriminated against for reporting suspected contamination "may . . . apply to the Secretary of Labor for review of such firing or alleged discrimination." 42 U.S.C. §§ 6971(a), 9610(a) (emphasis added). The language employed is permissive, not obligatory. This Court may properly exercise jurisdiction over Plaintiffs' claim without prior administrative review.
Accordingly, Defendant's Motion to Dismiss Plaintiffs' Counts 11-12 and 18-19 pursuant to Rule 12(b)(1) is denied.
B. Motion to Dismiss Pursuant to Rule 12(b)(6)
Jurisdiction having been established, the Court now turns to Defendant's Motion to Dismiss Plaintiffs' Counts 2, 5-10, and 13-20 for failure to state a claim upon which relief may be granted pursuant to Rule 12(b)(6). Defendant argues that Plaintiffs' allegations are cursory, failing to sufficiently state facts in support of their claims as necessary under the notice pleading standard. The Court will address the claims brought by each individual Plaintiff in turn.
1. Claims Alleged by Devlyn
Defendant seeks to dismiss Plaintiffs' Counts 2, 5 and 6, as alleged individually *1123 by Plaintiff Connie Devlyn. Defendant argues that these claims consist of mere legal conclusions that fail to meet the pleading standard.
Counts 2 and 5 allege that Defendant, in response to Devlyn's complaints of sexual harassment, retaliated against her in violation of 42 U.S.C. § 2000e-3 and Cal. Gov't Code § 12940(h) "by changing her working conditions in a negative manner, isolating her, and changing her work location to a less convenient and safe area in the workplace". Count 6 alleges threats of violence in the workplace in violation of Cal. Civil Code §§ 51.7 and 52.1.
To support her claim, Devlyn alleges several inappropriate acts by her coworkers including hiding a dead skunk in her work area, operating equipment in her vicinity in a manner calculated to startle her, tying the emergency exit door in her work area shut, and writing "Ding Dong the Witch is Dead" on a bulletin board after Devlyn returned from surgery to treat breast cancer. She also believes one of her coworkers tampered with the brakes of her car.
For each of these claims, the allegations provided are by no means mere "legal conclusion" but rather factual descriptions of actions allegedly taken against Devlyn and her belief that such action was committed in retaliation and constituted threats of violence. Defendant need only be placed on notice of the facts alleged and armed with the ability to construct a viable defense. That standard has been met here.
Defendant additionally argues that Count 6 for "threats of violence in the workplace" also falls short of the pleading standard for failing to allege compliance with the California Tort Claims Act. Defendant asserts that because the allegations of Count 6 fall under California's Ralph and Bane Acts respectively, that Plaintiff is therefore required to follow the presentment obligations of the California Tort Claims Act in order to bring a claim. See Cal. Gov. Code § 910, et seq. In asserting this requirement, Defendant relies on Doe By and Through Doe v. Petaluma City School Dist., 830 F. Supp. 1560 (N.D.Cal.1993); Gatto v. County of Sonoma, 98 Cal. App. 4th 744, 120 Cal. Rptr. 2d 550 (Ct.App.2002); and Gates v. Superior Court, 32 Cal. App. 4th 481, 38 Cal. Rptr. 2d 489 (Ct.App.1995).
However, the case law Defendant relies upon is inapplicable. Both Doe and Gatto concern the Unruh Act, not the Ralph and Bane Acts. Nor does Gates apply to the case at bar; although it touches on Cal. Civ. Code § 51.7 of the Ralph Act, there the court's ruling focused on the protections afforded to police officers against "threats of violence" lawsuits for conduct committed in the course of their duties. Here, Defendant's argument that Plaintiffs must first allege compliance with the California Tort Claims act in order to state a claim for "threats of violence in the workplace" is without merit.
As to Counts 2, 5 and 6, Plaintiffs have met their burden under the notice pleading standard. Accordingly, Defendant's Motion to Dismiss Plaintiff's Counts 2, 5, and 6 pursuant to Rule 12(b)(6) is denied.
2. Claims Alleged by Glau
Defendant seeks to dismiss Plaintiffs' Counts 7-8, 10 and 13, as alleged by Plaintiff Paul Glau, for failure to meet the pleading standard under Rule 12(b)(6).
Counts 7-8 allege that after Glau expressed support for a fellow employee (Devlyn) in her complaints of sexual harassment, Defendant retaliated against him by charging him with misconduct and forcing his early retirement in violation of 42 U.S.C.2000e-3 and Cal. Gov't Code § 12940(h). Count 10 alleges that after Glau engaged in the "protected activity" of reporting toxic substances, Defendant retaliated *1124 against him by forcing his early retirement in violation of Cal. Labor Code § 1102.5.
Finally, in Count 13, Glau alleges that his forced retirement constituted a "constructive discharge" in violation of his procedural due process rights.
All of these claims are comprised of facts sufficient to meet the notice pleading standard. Defendant has been made aware of the conduct and circumstances that Glau believes is unlawful, and therefore may adequately prepare a defense in response to the facts alleged.
Defendant further argues that as regards to Count 10, Glau has failed to state a claim as he did not participate in a "protected activity" as required under Cal. Labor Code § 1102.5. Under the statute, a protected activity exists "where the employee has reasonable cause to believe that the information discloses a violation of state or federal statute." Defendant argues that because investigators later found that the toxic levels Glau reported were not dangerous, that Glau therefore did not have reasonable cause to believe a statute was being violated.
However Defendant's argument inappropriately alters the definition of "protected activity," implying that the person reporting the suspected violation must be correct in order to be protected. That is not what the statute requires. "Reasonable cause" is the relevant standard, and here Defendant has alleged that he reasonably believed that a statute was being violated.
Finally, Defendant argues for dismissal of Counts 7-8, 10, and 13 on the alternate ground that Glau did not suffer an adverse employment action. Defendant argues Glau retired voluntarily and was not subjected to a hostile working environment.
However, Defendant's argument inherently invokes a dispute regarding the terms of Glau's "discharge." Such a determination is not a legal question but a factual one, which would benefit from the discovery process going forward. All that is required at this stage is that Glau provide factual support for his allegation that he suffered adverse employment action by Defendant. That standard has been met.
Resultantly, Defendant's Motion to Dismiss Counts 7, 8, 10 and 13 pursuant to Rule 12(b)(6) is denied.
3. Claims Alleged by Knezevich
Defendant seeks to dismiss Counts 17-19, as alleged by Plaintiff Krsto Knezevich, for failing to state a claim upon which relief may be granted. Counts 17-19 alleged that after Knezevich participated in reporting suspected high levels of toxic substances, Defendant retaliated against him by wrongfully charging him with misconduct, reprimanding him, and assigning him lesser tasks in violation of Cal. Labor Code § 1102.5, 42 U.S.C. § 9610(a), and 42 U.S.C. § 6971.
Again, the facts alleged are sufficient to place Defendant on notice of the claims brought against it such that Defendant may construct a defense. Plaintiffs have met the necessary pleading standard.
Defendant additionally attacks Count 17 on the grounds that Knezevich did not participate in a "protected activity" as required for a retaliation claim under Cal. Labor code § 1102.5. Defendant argues that because Knezevich was employed as a subordinate he cannot be said to have participated in the "protected activity" of reporting suspected high levels of toxic substances, as he was not the authority who actually submitted the report.
However, Plaintiffs' Complaint alleges that despite Knezevich's role as a subordinate he was still "irrationally blamed" for the reporting of toxic substances (Pls.' Compl. 14:7) and that Defendant "was *1125 aware that Knezevich had participated in the reports" (Pls.' Compl. 15:11-12). When evaluating a Motion to Dismiss, the Court must take the factual allegations of the Complaint as true. In so doing, the Court finds that Knezevich was sufficiently a participant in a protected activity as to belie a claim for violation of Cal. Labor code § 1102.5.
Accordingly, Defendant's Motion to Dismiss Counts 17-19 pursuant to Rule 12(b)(6) is denied.
4. Non-Opposition to Dismissal
Plaintiffs do not oppose dismissal of Counts 9, 14-16, and 20. Defendant's Motion to Dismiss these claims is granted.
C. Motion to Strike
Plaintiffs do not oppose Defendant's Motion to Strike Plaintiffs' prayer for relief for civil penalties under California Labor Code § 1102.5 as Defendant is a public entity. Accordingly, Defendant's Motion to Strike is granted.
CONCLUSION
For the reasons set forth above, Defendant's Motion to Dismiss (Docket No. 8) is DENIED as to Counts 1-8, 10-13, and 17-19. Defendant's Motion to Dismiss is GRANTED as to Counts 9, 14-16, and 20. Defendant's Motion to Strike is GRANTED.
Plaintiffs may file an amended complaint not later than twenty (20) days after the date this Memorandum and Order is filed electronically. If no amended complaint is filed within said twenty (20)-day period, without further notice, Plaintiffs' Counts 9, 14-16, and 20 will be dismissed without leave to amend.
IT IS SO ORDERED.
NOTES
[1] Because oral argument will not be of material assistance, the Court orders this matter submitted on the briefs. E.D. Cal. Local Rule 230(g).
[2] The factual assertions in this section are based on the allegations in Plaintiffs' Amended Complaint unless otherwise specified.
[3] Plaintiffs' Complaint addresses its claims as arising under the Solid Waste Disposal Act ("SWDA"), whereas Defendant's Motion refers to such claims as arising under the Resource Conservation Recovery Act ("RCRA"). The Court acknowledges that the RCRA was enacted as an amendment to the SWDA, and therefore reference to either would be appropriate. For consistency, the Court will refer only to the SWDA. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2468800/ | 503 F. Supp. 2d 608 (2007)
Joseph POPE, Plaintiff,
v.
R.N.A. PETERS, Individually and in his/her Official Capacity, R.N.J. Brink, Individually and in his/her Official Capacity, Defendants.
No. 04-CV-6108L.
United States District Court, W.D. New York.
September 6, 2007.
*609 Joseph Pope, Apex, NC, pro se.
Gary M. Levine, New York State Office of the Attorney General, Rochester, NY, for Defendants.
DECISION AND ORDER
LARIMER, District Judge.
Plaintiff, Joseph Pope, appearing pro se, commenced this action pursuant to 42 U.S.C. § 1983. Plaintiff, who at the time this action was commenced was an inmate in the custody of the New York State Department of Correctional Services ("DOCS") alleges that defendants Jennifer Brink and Agnes Peters, who at all relevant times' were registered nurses employed by DOCS, violated his constitutional rights in connection with plaintiffs medical care and treatment on various dates while plaintiff was incarcerated at Southport Correctional Facility.
Defendants have moved for summary judgment. Plaintiff has not responded to the motion. For the reasons that follow, the motion is granted.
DISCUSSION
I. Plaintiffs Failure to Respond to the Summary Judgment Motion
Rule 56(e) of the Federal Rules of Civil Procedure provides that
[w]hen a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denial of the adverse party's pleading, but the adverse party's response by affidavits or as otherwise provided in this rule must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party.
The Court of Appeals for the Second Circuit has held that when a party moves for summary judgment against a pro se litigant, either the movant of the district court must provide the pro se litigant with notice of the consequences of failing to respond to the motion. Vital v. Interfaith Med. Ctr., 168 F.3d 615, 620 (2d Cir.1999); see also Irby v. New York City Transit Auth., 262 F.3d 412, 413 (2d Cir.2001).
In the instant case, defendants' notice of motion (Dkt.# 21) and the Court's scheduling order (Dkt.# 27) both gave plaintiff notice of the requirements of Rule 56 and the consequences of failing to respond to a motion of summary judgment. The notice of motion states, in part, that "[a]ny factual assertions in our affidavit will be accepted by the Court as being true unless you submit affidavits or other documentary evidence contradicting our assertions. If *610 you do not respond to the defendants' motion as described above, summary judgment, if appropriate, may be entered against you. If summary judgment is entered against you, your case . . . will be dismissed."
Likewise, the scheduling order states, in part, that "Rule 56 provides that plaintiff may NOT oppose summary judgment simply by relying upon the allegations in the complaint. Rather, plaintiff must submit evidence, such as witness statements or documents, countering the facts asserted by the defendant and raising issues of fact for trial," and that "[a]ny issue of fact that plaintiff wishes to raise in opposition to the motion for summary judgment must be supported by affidavits or by other documentary evidence contradicting the facts asserted by defendants." It further states, "THE CLAIMS PLAINTIFF ASSERTS IN HIS COMPLAINT MAY BE DISMISSED WITHOUT A TRIAL IF HE DOES NOT RESPOND TO THIS MOTION by filing his own sworn affidavits or other papers as required by Rule 56(e)."
The Court's scheduling order, which was issued on February 22, 2007 and gave plaintiff until March 22, 2007 to respond to defendants' motion, was mailed to plaintiff at Auburn Correctional Facility, which was the address on filed for him at that time. The order was returned to the Court on February 27 by the Postal Service as undeliverable. According to the DOCS inter net inmate lookup service, http:// nysdocslookup.docs.state.ny.us, plaintiff was released from custody in October 2006.
The docket sheet for this case reflects that on March 5, 2007, "[p]er plaintiffs phone call," the Court Clerk's Office "updated plaintiffs address" to a street address in Apex, North Carolina. The scheduling order was then re-sent to plaintiff at that address on March 7. Since that copy of the order bore the original response deadline of March 22, 2007, which effectively shortened plaintiffs time to respond, another scheduling order was issued on June 5, 2007, giving plaintiff until July 6 to file a response to defendants' motion. As stated, no response has ever been received by the Court.[1]
It is clear, then, that plaintiff has been adequately advised of the pendency of the motion, of the need for him to respond and the form in which he should do so, and of the consequences of not responding to the motion. Since plaintiff has not filed any responding papers, the Court will accept the truth of defendants' factual allegations, and determine whether defendants are entitled to summary judgment.
II. Defendants' Motion for Summary Judgment
The gist of plaintiffs claims is that on a number of occasions in 2003 and 2003, he submitted sick call slips concerning certain symptoms that he was experiencing, such as dizziness and shortness of breath, and that defendants refused to allow him to see a physician. The record reflects, however, that when defendants would arrive at plaintiffs cell in response to his sick call requests, plaintiff would refuse to speak to them. Brink Decl. (Dkt. # 23) ¶ 6; Peters Decl. (Dkt. # 24) ¶ 6; Defendants' Rule 56 Statement (Dkt. # 25) ¶ 5.
In addition, plaintiffs medical records do not indicate that he suffered from any serious medical problems or physical limitations *611 during the period in question. A number of tests were administered to plaintiff during 2003 and 2004, none of which revealed evidence of any significant health problems. Dkt. # 25 ¶ 9.
In light of this undisputed evidence, I see no basis for plaintiffs claims against Brink or Peters. Plaintiff has presented no evidence that defendants' actions or omissions amounted to "deliberate indifference to a serious medical need." Estelle v. Gamble, 429 U.S. 97, 106, 97 S. Ct. 285, 50 L. Ed. 2d 251 (1976). Not only has plaintiff failed to show that he suffered from any serious medical condition, see Chance v. Armstrong, 143 F.3d 698, 702 (2d Cir.1998), but he has also not shown that defendants had a culpable state of mind or that they intended wantonly to inflict pain or suffering on him. Wilson v. Seiter, 501 U.S. 294, 298-99, 111 S. Ct. 2321, 115 L. Ed. 2d 271 (1991). Even assuming arguendo that defendants were negligent in not having plaintiff seen by a physician (though I do not believe that the evidence would support such a finding, given plaintiffs refusal even to speak with them about his alleged symptoms), that "does not state a valid claim of medical mistreatment under the Eighth Amendment. Medical malpractice does not become a constitutional violation merely because the victim is a prisoner." Estelle, 429 U.S. at 106, 97 S. Ct. 285.
CONCLUSION
Defendants' motion for summary judgment (Dkt. # 21) is granted, and the complaint is dismissed.
IT IS SO ORDERED.
NOTES
[1] I also note that on July 31, 2007, the Court dismissed another lawsuit that had been filed by plaintiff for failure to prosecute, based on Pope's failure to comply with Court orders and his failure to communicate with the Court. See 03-CV-6445, Dkt. # 30. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2468099/ | 755 F. Supp. 2d 293 (2010)
Bob BARR, Wayne A. Root, Libertarian Party of Massachusetts, and Libertarian National Committee, Inc., Plaintiffs,
v.
William F. GALVIN, as Secretary of the Commonwealth of Massachusetts, Defendant.
Civil Action No. 08-11340-NMG.
United States District Court, D. Massachusetts.
December 13, 2010.
*294 Matthew C. Baltay, Jennifer S. Behr, Amrish V. Wadhera, Foley Hoag LLP, John Reinstein, American Civil Liberties Union, Boston, MA, for Plaintiffs.
Timothy James Casey, Office of the Attorney General, Worcester, MA, Julie B. Goldman, Amy Spector, Office of the Attorney General, Boston, MA, for Defendant.
MEMORANDUM & ORDER
GORTON, J.
This action is before the Court on remand from the First Circuit Court of Appeals.
I. Background
In September, 2008, this Court entered a preliminary injunction ordering defendant William F. Galvin ("Galvin"), in his capacity as the Secretary of the Commonwealth of Massachusetts, to place the names of Bob Barr ("Barr") and Wayne A. Root ("Root") as the Libertarian candidates for president and vice president, respectively, on the Massachusetts ballot for the 2008 election. In September, 2009, the Court allowed the plaintiffs' motion for summary judgment and entered judgment in their favor. The defendant appealed that determination to the First Circuit shortly thereafter.
In November, 2010, the First Circuit issued a Judgment, in which it: 1) found that a live dispute remains, 2) concluded that the Equal Protection Clause does not require the Commonwealth of Massachusetts to afford a substitution mechanism applicable to non-party candidates and 3) determined that the relevant statute is not unconstitutionally vague but does require interpretive clarification. The First Circuit held that the Massachusetts courts should be afforded the opportunity, in the first instance, to effect that interpretation, pursuant to principles of Pullman abstention, which is warranted where 1) substantial uncertainty exists over the meaning of the state law in question and 2) settling the question of state law may obviate the need to resolve a significant federal constitutional question.
Although the First Circuit acknowledged the lack of a pending state court proceeding, it referenced "the anticipated state-court action" and repeatedly noted that the next presidential election is not for another two years, providing ample time to litigate the question in state courts. In sum, the First Circuit's Order to this Court states:
The decision of the district court on the equal protection claim is reversed, its decision and judgment in all other respects is vacated, and the matter is remanded to the district court with instructions *295 to abstain on the "void for vagueness" claim and dismiss what remains of the action without prejudice.
II. Analysis
The First Circuit has ordered this Court to abstain on the "void for vagueness" claim pursuant to the Pullman abstention doctrine. Although an order "to abstain" would ordinarily result in the dismissal of the case before the Court rather than deferral to the state proceedings, here, in the context of the Pullman doctrine, the Court finds deferral to be suitable. See Growe v. Emison, 507 U.S. 25, 32 & n. 1, 113 S. Ct. 1075, 122 L. Ed. 2d 388 (1993) (noting that "to bring out more clearly, however, the distinction between those circumstances that require dismissal of a suit and those that require postponing consideration of its merits, it would be preferable to speak of Pullman `deferral'").
When Pullman abstention is exercised, the district court retains jurisdiction over the federal claim but stays, rather than dismisses, the federal suit pending determination of state-law questions in state court. See Harris Cnty. Comm'rs Court v. Moore, 420 U.S. 77, 83, 95 S. Ct. 870, 43 L. Ed. 2d 32 (1975) (citing R.R. Comm'n of Tex. v. Pullman Co., 312 U.S. 496, 501, 61 S. Ct. 643, 85 L. Ed. 971 (1941)). Once the state court has ruled on the state-law question, the parties may return to the district court for a determination of any remaining federal constitutional questions. See Muskegon Theatres, Inc. v. City of Muskegon, 507 F.2d 199, 200 (6th Cir.1974) (holding district court had power to abstain from exercising jurisdiction but should have retained jurisdiction pending state court proceedings).
Accordingly, this Court will effect Pullman abstention by staying the "void for vagueness" claim pending determination in a Massachusetts court with respect to the question of the statute's application to non-party presidential and vice-presidential candidates. In the meantime, this Court retains jurisdiction over the corresponding federal claim but dismisses all other claims without prejudice, pursuant to the mandate of the First Circuit Court of Appeals.
ORDER
In accordance with the foregoing, this Court hereby:
1) abstains on the "void for vagueness" claim, thereby staying that claim pending a state court interpretive clarification of the state statute; and
2) dismisses all other claims without prejudice.
So ordered. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2471761/ | 598 F. Supp. 2d 875 (2009)
STROITELSTVO BULGARIA LTD., Plaintiff,
v.
The BULGARIAN-AMERICAN ENTERPRISE FUND, and The Bulgarian-American Credit Bank, Defendants.
No. 08 C 3056.
United States District Court, N.D. Illinois, Eastern Division.
February 24, 2009.
*879 Philip M. Musolino, Musolino & Dessel, Washington, DC, Sylvia Jiva Rolinski, Danielle M. Espinet, Rolinski & Suarez, L.L.P., Gaithersburg, MD, for Plaintiff.
Brian Douglas Sieve, Karen Natalie Walker, Brian Douglas Sieve, Eunnice H. Eun, Samantha A Gingold, Stephanie A Brennan, Kirkland & Ellis LLP, Chicago, IL, for Defendants.
*880 MEMORANDUM OPINION AND ORDER
RUBEN CASTILLO, District Judge.
Stroitelstvo Bulgaria Ltd. ("Plaintiff"), a Bulgarian company, seeks to recover for damages to its business and property allegedly caused by the Bulgarian-American Enterprise Fund ("BAEF") and the Bulgarian-American Credit Bank ("Bank") (collectively "Defendants"). (R. 22, Pl.'s First Am. Compl. ¶ 2.) Plaintiff alleges violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1964, along with claims for breach of contract, intentional interference with contract, intentional interference with prospective advantage, breach of fiduciary duty, abuse of process, violation of Bulgarian law, and civil conspiracy. (Id. ¶¶ 3-4, 55-113.) Defendants move to dismiss based on lack of personal jurisdiction, improper venue, insufficient process, insufficient service of process, failure to state a claim for relief, and alternatively, under the doctrine of forum non conveniens. (R. 58, 59, 60.) For the following reasons, the Court dismisses this action under the doctrine of forum non conveniens.
RELEVANT FACTS
Plaintiff is a corporation organized under the laws of Bulgaria. (R. 22, Pl.'s First Am. Compl. ¶ 5.) BAEF is a nonprofit corporation established pursuant to the Support for East European Democracy Act ("SEED Act"),[1] 22 U.S.C. §§ 5402, 5421. (Id. ¶ 6.) BAEF commenced its operations in 1992 with $58 million in funding from the American government. (Id.) BAEF is based in Chicago, and at all pertinent times also maintained an office in Sofia, Bulgaria. (Id.) BAEF is the parent company of the Bank, a Bulgarian joint stock company registered under the Bulgarian Trade Act. (Id. ¶ 7.) The Bank commenced operations in May 1997, and its sole purpose is to lend money to small and medium sized enterprises in Bulgaria. (Id.)
Plaintiff designed and undertook a residential construction project in Sofia and on March 24, 2005, executed a loan agreement with the Bank to help finance this project ("Loan Agreement"). (Id. ¶¶ 9-10.) The Loan Agreement was executed in Sofia, and provides that it is to be governed by and construed in accordance with Bulgarian law. (Id. ¶ 10 & Ex. A § 17.07.) Plaintiff alleges that on November 11, 2005, the Bank wrongfully and without cause suspended credit and asserted a default under the Loan Agreement, along with the right to recover 970,438 euro. (Id. ¶ 19.) As a result of these actions, Plaintiff alleges substantial injuries, including the withdrawal of project unit purchasers from their contracts and the loss of members of its construction team. (Id. ¶¶ 25-29.) On December 12, 2005, the Bank, proceeding ex parte, obtained a decree of execution from the Sofia City Court in the amount of 970,438 euro, which the Bank used to attach and freeze Plaintiffs assets. (Id. ¶¶ 31, 36-37.) On May 9, 2006, under the alleged "duress" created by the Bank's improper suspension of credit and the Sofia City Court's enforcement of the judgment, Plaintiff took out another loan from the Bank in order to repay the amount ordered by the decree of execution. (Id. ¶¶ 34-35.) Plaintiff alleges that the Bank's actions constituted "extortion, blackmail, bank fraud and predatory lending" and that the Bank has engaged in "a pattern of racketeering activity as defined in 18 U.S.C. § 1961(l)." (Id. ¶ 38.) Plaintiff further claims that BAEF had a *881 duty to supervise the actions of the Bank, and that in failing to do so, permitted the improper use of U.S. funds. (Id. ¶¶ 49, 52-53.)
PROCEDURAL HISTORY
On April 4, 2007, Plaintiff filed this action in the U.S. District Court for the District of Columbia. (R. 1, Pl.'s Compl.) Defendants moved to dismiss under Federal Rules of Civil Procedure 9(b), 12(b)(2), 12(b)(6) and the doctrine of forum non conveniens, or alternatively, to transfer the case to the Northern District of Illinois pursuant to 28 U.S.C. § 1404(a). (See R. 10-12.) Shortly thereafter, Plaintiff filed an amended complaint. (R. 22, First Am. Compl.) On April 29, 2008, the District Court granted Defendants' motion to transfer the case to this Court. (R. 38, Order.)
Defendants now move to dismiss on numerous grounds, including lack of proper service under the Hague Convention, lack of personal jurisdiction over the Bank, and failure to state a claim for relief. (R. 59, BAEF's Mot. to Dismiss; R. 60, Bank's Mot. to Dismiss.) Defendants also jointly move for dismissal under the doctrine of forum non conveniens, arguing that the parties' dispute should be litigated in Bulgaria rather than in the United States. (R. 58, BAEF's Mot. to Dismiss.)[2]
ANALYSIS
The common law doctrine of forum non conveniens allows the Court to dismiss a case over which it would normally have jurisdiction if doing so "best serves the convenience of the parties and the ends of justice." Kamel v. Hill-Rom Co., Inc., 108 F.3d 799, 802 (7th Cir.1997) (citing Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 507, 67 S. Ct. 839, 91 L. Ed. 1055 (1947)). In Sinochem Int'l Co. Ltd. v. Malaysia Int'l Shipping Corp., 549 U.S. 422, 127 S. Ct. 1184, 167 L. Ed. 2d 15 (2007), the U.S. Supreme Court expanded the doctrine, concluding that "a district court has discretion to respond at once to a defendant's forum non conveniens plea, and need not take up first any other threshold objection," including questions of personal or subject matter jurisdiction, if it determines that "a foreign tribunal is plainly the more suitable arbiter of the merits of the case." Id. at 425, 127 S. Ct. 1184. Put simply, a court can bypass jurisdictional issues and proceed directly to a forum non conveniens motion where it is appropriate to do so. Id. Indeed, where it is easier to consider the issue of forum non conveniens than to determine jurisdiction, it is proper to take the "less burdensome course." Id. at 436, 127 S. Ct. 1184. Because that is the case here, the Court proceeds directly to Defendants' forum non conveniens motion.
I. Forum Non Conveniens Analysis
"Dismissal for forum non conveniens reflects a court's assessment of a range of considerations, most notably the convenience to the parties and the practical difficulties that can attend the adjudication of a dispute in a certain locality." Sinochem, 549 U.S. at 429, 127 S. Ct. 1184. Under the doctrine of forum non conveniens, a case may be dismissed only when two conditions are met: (1) there is an available and adequate alternative forum that has jurisdiction over the case; and (2) the balance of private and public interest factors weighs in favor of dismissal. Clerides v. Boeing Co., 534 F.3d 623, 628 (7th Cir.2008); In re Bridgestone/Firestone, Inc., 420 F.3d 702, 703-04 (7th Cir.2005). The defendant bears the burden of persuading *882 the Court that a case should be dismissed on forum non conveniens grounds. In re Ford Motor Co., 344 F.3d 648, 652 (7th Cir.2003). There is typically a strong presumption in favor of a plaintiffs choice of forum, especially when the plaintiff has chosen her home forum, and thus, a defendant seeking dismissal on grounds of forum non conveniens "bears a heavy burden." Sinochem, 549 U.S. at 430, 127 S. Ct. 1184.
Nevertheless, when a foreign plaintiff has chosen to litigate in the United States, this presumption applies with considerably less force, and the assumption that the chosen forum is appropriate is "less reasonable." Id.; see also Clerides, 534 F.3d at 628 ("[A foreign plaintiffs] choice of the United States as a forum should be accorded less deference than if the choice is made by a United States plaintiff."). Here, Plaintiff is not a U.S. citizen or corporation, but is instead a Bulgarian company with its offices located in Bulgaria. This district is not Plaintiff's "home" forum, and thus, Plaintiffs decision to litigate in the United States is entitled to less deference. See U.S.O. Corp. v. Mizuho Holding Co., 547 F.3d 749, 751 (7th Cir.2008) ("A foreign company that chooses to sue in the United States rather than in its own country is unlikely to experience inconvenience if the court invokes forum non conveniens against it."). With this in mind, the Court turns to an analysis of the specific factors governing dismissal under the doctrine of forum non conveniens.
A. Alternative Forum
The Court must first determine whether an alternative forum exists for this dispute. Clerides, 534 F.3d at 628; Bridgestone, 420 F.3d at 704. In making this determination, both the availability and the adequacy of the proposed alternative forum should be assessed. Bridgestone, 420 F.3d at 703.
1. Availability
A forum is considered to be "available" if "all parties are amenable to process and are within the forum's jurisdiction." Bridgestone, 420 F.3d at 703. It appears that under Bulgarian law, Defendants would be amenable to process in Bulgaria and within the jurisdiction of the Bulgarian courts, and Plaintiff does not argue otherwise. Although BAEF is headquartered in Chicago and incorporated in Delaware, it asserts that it is in fact subject to jurisdiction in Bulgaria, given that Bulgarian courts have jurisdiction over corporations that transact business in Bulgaria, as well as entities that have caused injuries to a party in Bulgaria. (R. 58, BAEF's Mot. at 6; id., Ex. 2 ¶¶ 16-18.) To remove any doubt, BAEF has agreed to consent to the jurisdiction of the Bulgarian courts as a condition of dismissal. (R. 58, BAEF's Mot. at 6.) A party's express consent to a forum's jurisdiction obviates any concern about availability. See Kamel, 108 F.3d at 803 (Saudi Arabia an available forum where defendants expressly agreed to consent to jurisdiction of its courts); In re Air Crash Near Athens, Greece, 479 F. Supp. 2d 792, 797 (N.D.Ill. 2007) (granting dismissal where defendants agreed to submit to jurisdiction of foreign court). The Bank, as a Bulgarian company with its offices located exclusively in Bulgaria, would also be amenable to process and within the Bulgarian court's jurisdiction. (R. 60, Bank's Mot., Ex. 2 at ¶¶ 16-18.) Accordingly, the Court concludes that Bulgaria is an available forum.
2. Adequacy
A forum is "adequate" if "the parties will not be deprived of all remedies or treated unfairly." Bridgestone, 420 *883 F.3d at 704. An alternative forum will be considered adequate even where it does not offer the same theories of recovery as courts in the United States. See Piper Aircraft Co. v. Reyno, 454 U.S. 235, 250-54, 102 S. Ct. 252, 70 L. Ed. 2d 419 (1981); Kamel, 108 F.3d at 803. Only when the "remedy provided by the alternative forum is so clearly inadequate or unsatisfactory that it is no remedy at all" will the forum be deemed inadequate. Piper Aircraft, 454 U.S. at 254, 102 S. Ct. 252. A court may find an alternative forum adequate as long as there is "some potential avenue for redress." Kamel, 108 F.3d at 803.
Plaintiff argues that Bulgaria is an inadequate forum for the following three reasons: (1) the filing fee imposed by Bulgarian courts is prohibitively high; (2) the claims in the present case are beyond the administrative and substantive capacity of the Bulgarian courts; and (3) the Bulgarian courts are "too tainted with corruption." (R. 65, Pl.'s Mem. Opp'n at 17.) Defendants counter each of these arguments, and assert that Bulgaria is fully adequate to adjudicate this dispute.[3]
a. Filing Fee
Plaintiff first argues that the four percent filing fee imposed by the Bulgarian courts is so high as to be prohibitive, thus making litigation in Bulgaria unfeasible. (R. 65, Pl.'s Mem. in Opp'n 17-19.) Because Plaintiff is seeking in excess of $30 million in damages from Defendants, a four percent filing fee would amount to $1.2 million. (See R. 22, First Am. Compl. at 20.) This filing fee is recoverable, along with other incurred expenses, if Plaintiff ultimately prevails in the litigation. (R. 58, BAEF's Mot., Ex. 4 at 135.)
The costs of suing abroad must be considered by the Court in deciding whether to dismiss under the doctrine of forum non conveniens. Macedo v. Boeing Co., 693 F.2d 683, 690 (7th Cir.1982). Although the Seventh Circuit has not decided this precise issue, numerous courts have held that filings fees, even when substantial, do not render a foreign legal system inadequate. For example, the Ninth Circuit has held that the "mere existence of filing fees, which are required in many civil law countries, does not render a forum inadequate as a matter of law." Altmann v. Republic of Austria, 317 F.3d 954, 972 (9th Cir. 2002); see also Nai-Chao v. Boeing Co., 555 F. Supp. 9, 16 (N.D.Cal.1982) (holding Taiwan to be an adequate forum despite *884 filing fees amounting to one percent of claim and an additional one-half percent for each appeal), aff'd sub nom. Cheng v. Boeing Co., 708 F.2d 1406 (9th Cir.1983). Other circuits have reached similar conclusions. See, e.g., Mercier v. Sheraton Int'l, Inc., 981 F.2d 1345, 1353 (1st Cir.1992) (despite fifteen percent cost bond requirement, Turkey held to be an adequate alternative forum); Wien Air Alaska Inc. v. Brandt, No. 01-10450, 2001 WL 1085140, at *1 (5th Cir. Sept. 5, 2001) (Germany was an adequate forum, despite a filing fee of one percent of the total recovery sought); Satz v. McDonnell, 244 F.3d 1279, 1283 (11th Cir.2001) (Argentina held to be an adequate forum, despite filing fees); Overseas Partners, Inc. v. PROGEN Musavirlik ve Yonetim Hizmetleri, Ltd. Sikerti, 15 F. Supp. 2d 47, 55 (D.C.Cir.1998) (cost bond of ten percent of the amount at issue did not render Turkey an inadequate forum).
Plaintiff has not cited any cases where a forum non conveniens motion was denied because of filing fees or related expenses imposed by an alternative forum.[4] (See R. 65, Pl.'s Mem. in Opp'n at 17-18.) Instead, Plaintiff tries to distinguish this case from the aforementioned Mercier decision, where the court held that a Turkish bond requirement of fifteen percent of the recovery sought could not be considered excessive. (Id. at 18.) Plaintiff suggests that the present case differs from Mercier because here the filing fee is in essence a "tax" rather than a fee designed to cover court costs. (Id.) The Court can see no meaningful difference, however, given that Plaintiff can recover the filing fee if it ultimately prevails in the litigation. (See R. 58, BAEF's Mot., Ex. 4 at 135.)
For these reasons, the Court concludes that Bulgaria's filing fee requirements do not render their courts inadequate to resolve this dispute.
b. Administrative & Substantive Capacity
Plaintiff next argues that Bulgarian courts are not adequate because of their administrative and substantive limitations. (R. 65, Pl.'s Mem. in Opp'n at 19.) In support of this assertion, Plaintiff offers as evidence the fact that when it attempted to file a complaint similar to the one filed in the present case with the District Court in Bulgaria (while this case was pending), the court deemed the complaint to be inadequate. (Id. at 7-8, 19.) Upon review, however, the Bulgarian court found that the complaint (as presented was unacceptable because it was prepared in accordance with and alleged violations of American, rather than Bulgarian, law. (R. 65, Pl.'s Mem. in Opp'n, Ex. 7B.) Plaintiff was given the opportunity to correct these flaws, and to re-file according to Bulgarian laws, but offers no evidence that it ever attempted to do so. (Id.)
Plaintiff nevertheless asserts that the Bulgarian courts are inadequate for other reasons, including the lack of a Bulgarian equivalent to our federal RICO statute, the young age of Bulgarian judges, the size of the courtrooms, and the inability to litigate all of the alleged claims in a single proceeding. (R. 65, Pl.'s Mem. in Opp'n at 8-12, 19.) However, even with *885 these limitations, there exist Bulgarian laws which would allow the recovery of damages on at least some of the claims presented here. Indeed, one of Plaintiff's claims alleges a violation of Bulgarian law, and certainly this claim could be raised in a Bulgarian court. (See R. 22, Pl.'s First Am. Compl. ¶¶ 103-09.) Additionally, Defendants' Bulgarian legal expert points to several claims under which Plaintiff could seek recovery in Bulgaria, including a tort claim against BAEF, several claims under contract law, and criminal claims which could result in an award of damages to Plaintiff. (R. 58, BAEF's Mot., Ex. 2 ¶¶ 20-22 & Ex. 4 at 57-136.) Although Plaintiff points out that no RICO claim could be brought in the Bulgarian courts, the non-existence of a RICO equivalent does not, by itself, render an alternative forum inadequate, particularly where the plaintiff will be able to pursue related claims for fraud, breach of fiduciary duty, or the like. See, e.g., PT United Can Co., Ltd. v. Crown Cork & Seal Co., 138 F.3d 65, 74 (2d Cir.1998); Kempe v. Ocean Drilling & Exploration Co., 876 F.2d 1138, 1144-45 (5th Cir.1989); Lexington Ins. Co. v. Forrest, 263 F. Supp. 2d 986, 1000 (E.D.Pa.2003). Defendants' expert opines that even though there is no RICO statute in Bulgaria, Plaintiff could nonetheless seek redress for the RICO-related claims under Bulgarian contractual law. (R. 58, BAEF's Mot., Ex. 2 ¶¶ 20-22 & Ex. 4 at 73-74.) In short, the Court concludes that Plaintiff has "some potential avenue for redress" in the Bulgarian courts. See Kamel, 108 F.3d at 803.
c. Corruption
Plaintiff next argues that the Bulgarian courts are too corrupt to resolve the present dispute in a fair manner. (R. 65, Pl.'s Mem. in Opp'n at 20.) A litigant asserting inadequacy of a foreign court based on corruption must make a "powerful" showing. Tuazon v. R.J. Reynolds Tobacco Co., 433 F.3d 1163, 1179 (9th Cir. 2006). Courts are wary of "conclusory attacks" on the integrity of foreign courts, given "the concerns that censures of this kind raise if endorsed by our courts, especially when based on bare aspersions or expansive generalizations." Turedi v. Coca Cola Co., 460 F. Supp. 2d 507, 525 (S.D.N.Y.2006); see also Leon v. Millon Air, Inc., 251 F.3d 1305, 1312 (11th Cir. 2001) (general accusations of corruption held insufficient). Thus, concrete evidence is necessary to support a claim of corruption, such as testimony of an expert witness, including attorneys who have practiced law in the forum at issue, who can cite specific examples of court corruption of which they have personal knowledge, or other such reliable evidence. In re Factor VIII or IX Concentrate Blood Products Litig., 531 F. Supp. 2d 957, 981 (N.D.Ill. 2008). Editorials, law review articles, opinion surveys, and general reports "are no substitute for evidence of judicial corruption." Id.
Here, in support of its corruption claim, Plaintiff points to the testimony of the legal experts. (R. 65, Pl.'s Mem. Opp'n at 20-21.) However, Plaintiff's expert witness Vladimir Skochev, an attorney who specializes in civil and commercial litigation in Bulgaria, was asked during his deposition whether his opinion that the Bulgarian legal system is incapable of providing a fair hearing applied generally or to the specific case at hand. (R. 65, Pl.'s Mem. in Opp'n, Ex. 3A at 29.) He replied that his opinion applied "in general." (Id.) Plaintiffs other legal expert, Bulgarian lawyer Maria Slavova, acknowledged that it is possible to get a fair trial in Bulgaria. (Id., Ex. 4A at 16-17.) Although there is evidence before the Court that corruption has been a problem in Bulgaria, it falls short of showing that Bulgaria is so rife with corruption that it cannot adequately *886 resolve this dispute. Compare Eastman Kodak Co. v. Kavlin, 978 F. Supp. 1078, 1084 (S.D.Fla.1997) (Bolivian courts found inadequate where there was evidence that criminal charges had been filed against plaintiff's employees in Bolivia to extort a commercial settlement of the parties' dispute) with Mercier, 981 F.2d at 1351 (finding Turkish courts adequate despite general reports of bias against women); Banco Mercantil, S.A. v. Hernandez Arencibia, 927 F. Supp. 565, 567-68 (D.P.R.1996) (finding judicial system of Dominican Republic adequate despite general evidence of corruption).
The articles Plaintiff has provided are also somewhat vague, with one study indicating that although the perception that Bulgarian courts are subject to some "informal" outcome-seeking by litigants is higher than in other formerly Communist countries, actual exposure to such behavior is quite rare, and is not significantly greater than the other countries included in the survey. (R. 65, Pl.'s Mem. in Opp'n, Ex. 6A.) This data may be more indicative of a general attitude of skepticism that Bulgarians have toward the judiciary rather than to actual incidents of corruption. As another article provided by the Plaintiff states, "Bulgarians are among the most pessimistic respondents in Transparency International's latest corruption barometer survey...." (Id., Ex. 6B.) This pessimism may, however, be somewhat unfounded; the article goes on to explain that "only 7% of Bulgarian respondents have paid a bribe to receive services, compared to [the] 5% average in the EU grouping of countries and 13% across the entire sample." (Id.) If the Court were to conclude that such an article supported the contention that Bulgaria is too corrupt to be considered an adequate forum, it would seem to follow that many other countries throughout the world would be found inadequate as well. Indeed, as the Seventh Circuit has noted, corruption within the judicial sector is a problem "that plagues scores of countries around the globe," includingas the Operation Greylord investigation in Chicago during the 1980s revealedthe United States. See Manez v. Bridgestone/Firestone N. Am. Tire, LLC, 533 F.3d 578, 588 (7th Cir.2008).
Moreover, whatever its past history, Bulgaria was admitted to the European Union ("EU") in January 2007. (R. 58, BAEF's Mot., Ex. 5 at 20.) In order to gain admission to the EU, Bulgaria was required to satisfy the Copenhagen Criteria, which requires, among other things, that a country have stable institutions that guarantee the rule of law. (Id.) In admitting Bulgaria, the EU found that the Bulgarian judicial system meets this standard. (Id., Ex. 4 at 114-15.) Bulgaria is also a signatory to the European Convention on Human Rights, which states, "In determination of his civil rights and obligations... everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law." E.C.H.R., Article 6 § 1. As with all newly admitted countries, Bulgaria's compliance with EU standards will be monitored throughout the first three years of admission. (R. 58, BAEF's Mot., Ex. 4 at 124.) Without convincing evidence that these monitoring systems are inadequate, the Court declines to conclude that the Bulgarian courts are so corrupt as to be inadequate for resolving this dispute. See PT United Can Co. v. Crown Cork & Seal Co., 138 F.3d 65, 73 (2d Cir.1998) ("Considerations of comity preclude a court from adversely judging the quality of a foreign justice system absent a showing of inadequate procedural safeguards."). Accordingly, the Court rejects Plaintiff's argument.
For the aforementioned reasons, the Court concludes that Bulgaria is an available and adequate alternative forum, and *887 turns next to an analysis of the public and private interest factors relevant to this case.
B. Private Interest Factors
The factors pertaining to the private interests of the litigants include "the relative ease of access to sources of proof; availability of compulsory process for attendance of unwilling, and the cost of obtaining attendance of willing, witnesses;... and all other practical problems that make trial of a case easy, expeditious, and inexpensive." Clerides, 534 F.3d at 628. The Court is afforded "great latitude" in weighing these factors. Id.
Defendants maintain that the private interest factors weigh in favor of dismissal in this case, given that: (1) "essentially all" of the sources of proof in this case are in Bulgaria, including documents relating to the matter, and witnesses to the alleged events underlying Plaintiffs Amended Complaint; (2) unwilling Bulgarian witnesses would not be subject to compulsory process in the Northern District of Illinois, and it would be costly to transport the willing witnesses from Bulgaria; and (3) practical problems such as the potential for duplicative litigation and the need for translation would create great expense and inefficiency if the case were litigated here. (R. 58, BAEF's Mot. at 9-12.)
Plaintiff responds that BAEF documents and witnesses are located in the Northern District of Illinois, and that "modern technology" makes the transfer of documents from Bulgaria to the United States relatively easy. (R. 65, Pl.'s Mem. in Opp'n at 21.) Although some evidence pertaining to BAEF may be located here, there is no denying that the crux of this dispute is between Plaintiff and the Bank, two Bulgarian entities who executed a contract in Bulgaria to fund a Bulgarian construction project. The witnesses and documents pertaining to these events, and the subsequent Bulgarian court proceedings which Plaintiff contends constituted "extortion," are located in Bulgaria.
Even assuming Plaintiff is correct that some witnesses might choose to voluntarily appear in the United States, there is still the expense and effort involved in transporting them to be considered, as well as the cost and effort involved in translating testimony and documents. See Mizuho Holding Co., 547 F.3d at 751 ("Dragging all those witnesses and documents from Japan to Chicago, supplying interpreters for the witnesses and translators for the documents, and conducting a trial largely on the basis of testimony given through interpreters and of documents translated from their original language, would impose unreasonable burdens not only on the defendants but also on the district court."). Defendants paint a compelling picture of just how costly it would be to litigate this case in the United States; they explain that in just two days of limited jurisdictional discovery, which included deposing three experts in Bulgaria, travel expenses for one attorney totaled approximately $9,000. (R. 58, BAEF's Mot. at 11 n. 7.) This figure does not include other expenses, such as the cost of an interpreter, which Defendants estimate to be around $1,900 per day. (Id.) These numbers give context to how significant the litigation expenses would be if this dispute were litigated in the United States over the course of a year or more.
After considering both Plaintiff's and Defendants' arguments, the Court finds that the private interest factors, especially the location of the sources of proof and the expense of transporting witnesses, weigh heavily in favor of dismissal.
C. Public Interest Factors
The public interest factors to be considered include "the administrative difficulties *888 stemming from court congestion; the local interest in having localized disputes decided at home; ... the avoidance of unnecessary problems in conflicts of laws or in the application of foreign law; and the unfairness of burdening citizens in an unrelated forum with jury duty." Clerides, 534 F.3d at 628.
As to court congestion, the average time to trial in the Northern District of Illinois is 30 months, which is not significantly different from the amount of time Plaintiff estimates the case would take to resolve in Bulgaria, which is two to three years. (R. 69, BAEF's Reply at 7 (citing http://www.uscourts.gov/fcmstat/index. html); R. 22, Pl.'s First Am. Compl. ¶ 32.) Given the need to translate the relevant Bulgarian documents and testimony of Bulgarian witnesses into English, however, this dispute could actually take more time to resolve in the United States than in Bulgaria. See McDonald's Corp. v. Bukele, 960 F. Supp. 1311, 1320 n. 11 (N.D.Ill. 1997) ("[T]he need for extensive translation of documents, testimony, and the laws of El Salvador would slow the progress of this case considerably."). Plaintiff argues that the court congestion factor weighs against dismissal, but seems to point back to questions of adequacy in making this assertion. (See R. 65, Pl.'s Mem. in Opp'n at 22-23.) Plaintiff states that due to the Bulgarian judges' heavy caseloads and the small size of their courtrooms, it "cannot... get a fair litigation of this particular case." (Id.) While Bulgarian judges may have heavy caseloads, courts in this District do as well. Likewise, the Court fails to see how the size of a courtroom contributes to the problem of court congestion, at least as it is meant in the context of the forum non conveniens analysis. Upon consideration, the Court finds that this factor weighs slightly in favor of dismissal.
Next, the Court considers the interest in having localized disputes decided at home. Defendants assert that this is a Bulgarian controversy that belongs in Bulgaria. (R. 58, BAEF's Mot. at 12-13.) In support of this contention, they state that "Bulgarian courts have an interest in policing this dispute since the Loan Agreement was entered into in Bulgaria between Bulgarian parties for purposes of financing a Bulgarian residential construction project that would result in sales of residential units to Bulgarians, [and that] obligations under the Loan Agreement were to be performed in Bulgaria, any breaches of the Loan Agreement occurred there, and plaintiff and the Bank entered into a settlement agreement in Bulgaria." (R. 69, BAEF's Reply at 10.) Plaintiff, on the other hand, contends that the local interest factor weighs in favor of keeping the case here, citing this Court's interest in regulating the behavior of one of its businesses, and the lack of interest that Bulgarian courts would have in regulating an American company's compliance with an American statute. (R. 65, Pl.'s Mem. in Opp'n at 23.)
In situations such as this, where a foreign plaintiff is claiming injury in a foreign country and is as a result filing suit against an American defendant with extensive foreign dealings, it is reasonable to assume that an American court has only "a passing interest in the case." Kamel, 108 F.3d at 804-05. Although this Court may have an interest in holding BAEF accountable for any alleged statutory violations, Bulgaria has the same interest in regulating the activities of the Bank, and also has an interest in protecting the rights of one of its own corporations. Furthermore, BAEFthe only link to this Districtis only tangentially involved in the dispute; the crux of the dispute is over actions taken by the Bank, a Bulgarian company that does business exclusively in Bulgaria. Along these same lines, the Court agrees *889 with Defendants that because the vast majority of the issues involved in this case pertain to Bulgaria, it would be unfair to burden the citizens of this District by calling on them to resolve this dispute. See Mizuho Holding Co., 547 F.3d at 755 ("[T]o burden Americans with jury duty to resolve an intramural Japanese dispute would be gratuitous"); Pyrenee, Ltd. v. Wocom Commodoties, Ltd., 984 F. Supp. 1148, 1167 (N.D.Ill.1997) ("[I]t would be grossly unfair to impose jury duty on American citizens in this case, considering that all of the relevant actors and most of the relevant conduct took place in Hong Kong, and that the American interest is at best indirect.").
Finally, the Court must consider potential difficulties that might arise as a result of conflicts of law or the application of foreign law. Here, the Loan Agreement provides that it is to be governed by and construed in accordance with Bulgarian law, and at least one of Plaintiff's claims is premised on Bulgarian law. (R. 22, First Am. Compl. ¶¶ 103-09 & Ex. A ¶ 17.07.) A district court's "desire to avoid the burden of mastering a new legal subject" is not by itself "an adequate reason to send litigants packing." ISI In'l, Inc. v. Borden Ladner Gervais LLP, 316 F.3d 731, 732 (7th Cir.2003). However, the Court's legitimate concern with having to "delve into the tenets of an unfamiliar legal system" may tip the scales in favor of dismissal. Kamel, 108 F.3d at 805; see also Mizuho Holding Co., 547 F.3d at 751 (affirming dismissal on forum non conveniens grounds based in part on need to apply Japanese law to the dispute).
Plaintiff does not offer anything to dispute the presumption that Bulgarian law would apply to much of the present case, and instead reasons that American laws would likely apply to their claims against BAEF, and that, Bulgarian legal experts and translators could be enlisted to assist this Court in understanding claims arising under Bulgarian law. (R. 65, Pl.'s Mem. in Opp'n at 23-24.) This argument is unconvincing. When a court would have to expend "considerable resources" to understand and apply foreign law, dismissal is appropriate. Hull 753 Corp. v. Elbe Flugzeugwerke GmbH, 58 F. Supp. 2d 925, 930 (N.D.Ill.1999) (granting defendant's forum non conveniens motion based in part on the difficulty and expense involved in applying German law to the dispute). For the above reasons, the Court finds that the balance of public interest factors weighs strongly in favor of dismissal.
CONCLUSION
For the reasons stated above, resolution of the parties' dispute in Bulgaria, rather than in this Court, is far more likely to serve the convenience of the parties and the ends of justice. Bulgaria is both an available and adequate alternative forum, and the balance of private and public interest factors, when considered against the reduced level of deference afforded to Plaintiff's choice of forum, weighs strongly in favor of dismissal. Accordingly, Defendants' motion to dismiss on forum non conveniens grounds (R. 58) is granted. Because the case has been dismissed, the Court does not reach Defendants' remaining arguments in support of dismissal, and accordingly, the other motions to dismiss (R. 59, 60) are denied as moot.
NOTES
[1] The SEED Act was enacted in 1989 to provide "cost-effective assistance to those countries of Eastern Europe that have taken substantive steps toward institutionalizing political democracy and economic pluralism." 22 U.S.C. § 5401(a).
[2] The Bank adopts the forum non conveniens arguments advanced by BAEF. (R. 60, Defs.' Mot. to Dismiss at 13.)
[3] Defendants also argue that by agreeing to a forum selection clause in the Loan Agreement that requires disputes to be litigated in Bulgaria, Plaintiff waived any objection to the cost of litigating in Bulgaria. (R. 69, BAEF's Reply at 3.) Defendants contend that Plaintiff's agreement to the forum selection clause "should end any inquiry on adequacy." (Id. at 2.) Plaintiff, in turn, challenges the enforceability of the forum selection clause. (R. 64, Pl.'s Mem. Opp'n at 9.) Although the Court could not resolve this dispute without first resolving the myriad of issues pertaining to service and personal jurisdiction, it is safe to assume that even if the Court did reach this issue, the forum selection clause itself would not end the Court's inquiry. The Supreme Court has held that a forum selection clause will not be enforced if it would be "unreasonable and unjust" to do so. M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15, 92 S. Ct. 1907, 32 L. Ed. 2d 513 (1972); see also AAR Int'l, Inc. v. Nimelias Enter., SA, 250 F.3d 510, 525 (7th Cir.2001) (holding that a forum selection clause is unenforceable when "the selected forum is so gravely difficult and inconvenient that [the complaining party] will for all practical purposes be deprived of its day in court"). Thus, the Court would be required in any event to consider whether the Bulgarian courts provide an adequate forum for this dispute. The Court notes additionally that BAEF is not a party to the Loan Agreement and so it is questionable whether it can rely on the forum selection clause in any event. The District Court in the District of Columbia determined as much when ruling on Defendants' motion to transfer. (R. 38, Order at 2 n. 3.)
[4] The Court notes additionally that the $1.2 million filing fee is driven in part by Plaintiff's request for treble damages under RICO. (See R. 22, First Am. Compl. at 20.) Because there is no Bulgarian equivalent of RICO (discussed in more detail in Section 2(b) below), it is not clear that the damages sought in a Bulgarian suit would be as high as they are here, so that the filing fee may be significantly less than $1.2 million. The Court notes additionally that Bulgarian law provides a process for fee waiver, although it is not clear whether the provision applies to corporations like Plaintiff, or whether Plaintiff would be financially eligible. Bulgarian Code Civ. P., art. 83. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2576863/ | 283 F.Supp.2d 1018 (2003)
PIONEER HI-BRED INTERNATIONAL, INC., Plaintiff,
v.
OTTAWA PLANT FOOD, INC., Defendant.
No. C 98-4016-MWB.
United States District Court, N.D. Iowa, Western Division.
September 29, 2003.
*1019 *1020 *1021 Christine Lebron-Dykeman, Edmund J. Sease, Heidi Sease Nebel, Jeffrey D. Harty, R. Scott Johnson, McKee, Voorhees & Sease, PLC, Daniel J. Cosgrove, Pioneer Hi-Bred International, Des Moines, IA, for Plaintiff/counter-defendant.
James W. Redmond, John C. Gray, Heidman, Redmond, Fredregill, Patterson, Plaza, Dykstra & Prahl, Sioux City, IA, Keith D. Parr, Lord, Bissell & Brook, Mark R. Sargis, Bellande, Cheely, O'Flaherty, Sargis & Ayres, Chicago, IL, for Defendants.
MEMORANDUM OPINION AND ORDER REGARDING THE PARTIES' CROSS-MOTIONS FOR SUMMARY JUDGMENT OR PARTIAL SUMMARY JUDGMENT AND THE DEFENDANT'S MOTION TO STRIKE AFFIDAVIT
BENNETT, Chief Judge.
TABLE OF CONTENTS
I. INTRODUCTION ............................................................. 1022
A. Procedural Background ................................................. 1022
B. Factual Background .................................................... 1023
II. OTTAWA'S MOTION TO STRIKE AFFIDAVIT ..................................... 1026
III. STANDARDS FOR SUMMARY JUDGMENT ......................................... 1029
IV. LEGAL ANALYSIS OF SUMMARY JUDGMENT MOTIONS .............................. 1031
A. Issues Presented .................................................. 1031
B. Liability Issues .................................................. 1031
1. "First sale" or "patent exhaustion" ........................... 1031
a. Arguments of the parties .................................. 1031
b. Applicable law ............................................ 1032
c. Analysis .................................................. 1033
2. Restrictions in the "limited label license" ................... 1035
a. Arguments of the parties .................................. 1035
b. Applicable law ............................................ 1036
c. Analysis .................................................. 1038
i. Interpretation of the restrictive language ............ 1038
ii. Presence of the restriction on bags purchased by Ottawa .. 1040
iii. Ottawa's notice ....................................... 1040
3. Enforceability of the label restrictions ...................... 1042
a. Arguments of the parties .................................. 1042
b. Applicable law and analysis ............................... 1043
i. Permissible restrictions .............................. 1043
ii. Scope of the patent rights and anticompetitive effects ... 1044
iii. Contract principles ................................... 1046
C. Damages Issues ..................................................... 1049
*1022
1. Marking or notice of patent rights ....................... 1049
a. Arguments of the parties ............................. 1049
b. Applicable law ....................................... 1050
c. Analysis ............................................. 1051
i. Notice by "marking." ......................... 1051
ii. Actual notice ............................... 1051
2. Damages for infringement ................................. 1052
a. Arguments of the parties ............................. 1052
b. Applicable law ....................................... 1052
c. Analysis ............................................. 1053
3. Full compensation from prior sale ......................... 1053
a. Arguments of the parties .............................. 1053
b. Applicable law ........................................ 1054
c. Analysis .............................................. 1054
4. Increased damages for "willful" infringement .............. 1054
a. Arguments of the parties .............................. 1055
b. Applicable law ........................................ 1056
c. Analysis .............................................. 1056
V. CONCLUSION ........................................................... 1057
This action, which involves a claim of alleged infringement of patents for hybrid and inbred seed corn by an unlicensed reseller, comes before the court pursuant to the parties' cross-motions for summary judgment or partial summary judgment (docket nos. 174 & 175). Also before the court is the defendant's motion to strike certain paragraphs of an affidavit offered by the plaintiff as part of the summary judgment record (docket no. 187). The court heard oral arguments on the motions on September 18, 2003. At those oral arguments, plaintiff Pioneer Hi-Bred International was represented by Edmund J. Sease, Christine Lebrón-Dykeman, and R. Scott Johnson of McKee, Voorhees & Sease, P.L.C., in Des Moines, Iowa, and Daniel J. Cosgrove of Pioneer, also in Des Moines, Iowa. Defendant Ottawa Plant Food, Inc., was represented by Keith D. Parr of Lord, Bissell & Brook in Chicago, Illinois, Mark R. Sargis of Bellande, Cheely, O'Flaherty, Sargis & Ayres in Chicago, Illinois, and James W. Redmond of Heidman, Redmond, Fredregill, Patterson, Plaza, Dykstra & Prahl in Sioux City, Iowa. The motions are now fully submitted and some expedition in the disposition of the motions is required, as this matter is set for trial to begin on November 3, 2003.
I. INTRODUCTION
A. Procedural Background
Plaintiff Pioneer Hi-Bred International, Inc., commenced this patent infringement action[1] on February 20, 1998, against eight defendants not including the present defendant, Ottawa Plant Food, Inc., alleging that each of the defendants, none of whom were authorized Pioneer Sales Representatives, had illegally sold or offered for sale Pioneer® brand seed corn. See Complaint. Ottawa was added as a defendant when Pioneer filed an Amended Complaint on September 11, 1998 (docket no. 80), apparently after Pioneer learned, through discovery, that Ottawa had acquired Pioneer® brand seed corn from one *1023 of the original defendants, Farm Advantage, Inc. The claims against all other defendants have since been settled, so that this litigation is continuing only between Pioneer and Ottawa. Pioneer's specific claim against Ottawa, pursuant to 35 U.S.C. § 271, is that Ottawa is not an authorized Pioneer Sales Representative, but that it has nevertheless, for some time past, and still is, infringing one or more of numerous patents-in-suit for Pioneer® brand hybrid and inbred seed corn by making, using, selling, or offering for sale Pioneer® brand seed corn, and will continue to do so unless enjoined by the court. See Amended Complaint, ¶16. Pioneer seeks injunctive relief, an accounting for damages, including damages for willful infringement, and assessments for interest and costs. Id. at Prayer. Ottawa answered the Amended Complaint on November 3, 1998 (docket no. 104), denying Pioneer's claim and asserting affirmative defenses of patent exhaustion, laches, waiver, and estoppel.[2]
Presently before the court are the parties' cross-motions for summary judgment or partial summary judgment filed July 22, 2003. More specifically, on July 22, 2003, Ottawa filed its Motions For Summary Judgment Of Noninfringement And No Damages (docket no. 174) on seven specific issues relating to liability and damages, which would be fully dispositive of this case if granted.[3] Also on July 22, 2003, Pioneer filed its Motion For Partial Summary Judgment Re: Infringement And Enforceability Of Pioneer's Limited Label License And Re: Ottawa's Affirmative Defense Under The Doctrine Of Patent Exhaustion (docket no. 175), which would be dispositive of liability issues, if granted, but leave damages issues for trial. Pioneer resisted Ottawa's motion for summary judgment on August 15, 2003 (docket no. 192), and Ottawa filed a reply on August 27, 2003 (docket no. 204). Ottawa resisted Pioneer's motion for partial summary judgment on August 12, 2003 (docket no. 190), and Pioneer filed a reply in further support of its motion on August 26, 2003 (docket no. 201). In addition to these dispositive motions, the matters now before the court include Ottawa's August 12, 2003, Motion To Strike Certain Paragraphs Of Bruce Hall's Affidavit, which is offered by Pioneer as part of the summary judgment record (docket no. 187). Pioneer resisted the motion to strike on August 29, 2003 (docket no. 205), and Ottawa filed a reply on September 8, 2003 (docket no. 207).
B. Factual Background
Whether or not a party is entitled to summary judgment ordinarily turns on whether or not there are genuine issues of material fact for trial. See, e.g., Quick v. Donaldson Co., 90 F.3d 1372, 1376-77 (8th Cir.1996). Nevertheless, the court will not attempt here a comprehensive review of the undisputed and disputed facts in the record. Rather, the court will present here only sufficient factual background to put in context the parties' arguments for and against the motions for summary judgment on Pioneer's patent infringement claim. More attention will be given to specific factual disputes, where necessary, in the court's legal analysis, below.
Plaintiff Pioneer, an Iowa corporation with its principal place of business in Des Moines, Iowa, is the world's largest producer of seed corn. Pioneer has developed *1024 and sells a wide range of hybrid and inbred seed corn varieties subject to one or more of the numerous patents-in-suit. Pioneer sells its seed through a "dual" distribution system, using licensed sales representativeswho never take title to the seed, and are licensed to sell it only to actual end users, i.e., farmers, who plant the seedand licensed dealerswho do take title to the seed, and are licensed to resell it only to other authorized dealers or end users. Defendant Ottawa, an Illinois corporation with its principal place of business in Ottawa, Illinois, is a seller and wholesaler of agricultural products, including seed corn. However, Ottawa is not now, and has never been, a licensed dealer or sales representative for Pioneer.
The parties agree that, from 1992 until 1998, Ottawa purchased and resold a number of bags of different varieties of Pioneer® brand seed corn. Pioneer alleges that, during the time period in question, Ottawa sold 4,061 bags of Pioneer® brand seed corn for a total of $315,110. The parties agree that Ottawa bought Pioneer® brand seed corn from several different Pioneer Sales Representatives and licensed dealers and that Ottawa only bought Pioneer® brand seed corn in its original packaging, as sold by Pioneer. Ottawa never altered the Pioneer seed bags or their contents, removed any bag tags, or repackaged the seed. Rather, Ottawa resold the seed to farmers and other dealers, including some Pioneer dealers or representatives who were having trouble obtaining a supply of certain Pioneer® brand seed corn varieties. What the parties dispute is whether or not Ottawa's "resale" of Pioneer® brand seed corn infringed Pioneer's patent rights in that seed corn.
Pioneer contends that, from at least 1986 onward, all of its seed corn was sold subject to a "limited label license," which appeared on each bag and/or bag tag of Pioneer® brand seed corn. That "limited label license" prohibited any purchaser from using the seed corn for any purpose other than production of forage or grain for feeding or processing. Thus, Pioneer contends that no purchaser was licensed to resell the seed corn unless granted a separate license to do so by Pioneer. The parties agree that, before or during the period of Ottawa's alleged wrongdoing, Pioneer had turned down Ottawa's request for a license to resell Pioneer® brand seed corn as a dealer or sales representative.
Although Pioneer admits that the language on the bag labels and bag tags changed somewhat over time, it contends that the essence of the limited license granted to buyers did not. Somewhat more specifically, Pioneer contends that, beginning in sales year 1986 and continuing through sales year 1995, the language on the label on the seed bags read, in pertinent part, as follows:
THE FOLLOWING PROVISIONS ARE PART OF THE TERMS OF SALE OF THIS PRODUCT
One or more of the parental lines used in producing this hybrid are the exclusive property of Pioneer Hi-Bred International, Inc. Buyer intends to purchase and seller intends to sell only hybrid seed. Buyer agrees that purchase of this bag of seed does not give any rights to use any such parental line seed which may be found herein, or any plant, pollen or seed produced from such parental line seed, for breeding, research or seed production purposes or for any purpose other than production of forage or grain for feeding or processing.
* * * * * *
By acceptance of the seed or other products the Buyer acknowledges that the foregoing terms are conditions of the sale and constitute the entire agreement *1025 between the parties regarding warranty or other liabilities and the remedy therefor.
Hall Affidavit, ¶ 16, Plaintiff's Appendix In Support Of Its Motion For Partial Summary Judgment at 3 (emphasis added). In 1995, a new version of the terms of the label license was developed and that language was used for sales years 1996 through 1998. The new version, in pertinent part, stated the following:
THE FOLLOWING PROVISIONS ARE PART OF THE TERMS OF SALE OF THIS PRODUCT
One or more of the parental lines used in producing this product are proprietary to Pioneer Hi-Bred International, Inc. ("Pioneer"). Parental lines are U.S. Protected Varieties and may be protected under the laws of other countries; export or transfer of possession is prohibited. Pioneer intends to supply only hybrid seed. Customer agrees that it is not acquiring the rights to use any parental line for any purpose other than production of forage or grain for feeding or processing. If the tag indicated this product is produced under one or more U.S. patents, customer is licensed thereunder only to produce forage or grain for feeding or processing. All uses outside the U.S. are prohibited to the extent they result in infringement of U.S. patents. For availability of other licenses, contact Pioneer.
* * * * * *
By acceptance of the seed or other products the Buyer acknowledges that the foregoing terms are conditions of the sale and constitute the entire agreement between the parties regarding warranty or other liabilities and the remedy therefor.
Hall Affidavit, ¶17, Plaintiff's Appendix In Support Of Its Motion For Partial Summary Judgment at 3-4 (emphasis added). For the 1999 sales season, the bag language for the first time included a specific prohibition on "resale" of the seed, but the parties agree that Ottawa ceased selling Pioneer® brand seed corn in 1998 after the initiation of this lawsuit against Ottawa by Pioneer.
Pioneer also contends that, beginning in the 1996 sales season, it also included the U.S. patent numbers applicable to the seed in each bag on the corresponding bag tags of the hybrid seed corn sold commercially in order to comply with the patent marking statute, 35 U.S.C. § 287 (2003). Also in 1996, Pioneer contends that it amended the bag tag to include limited license language, as follows: "This product is for license only. PIONEER® brand products are sold subject to the terms and conditions of sale which are part of the labeling and sale documents." Hall Affidavit, ¶ 21, Plaintiff's Appendix In Support Of Its Motion For Partial Summary Judgment at 5. After identifying the patent numbers, the bag tag continued, as follows: "License is granted solely to produce grain and/or forage. For other licenses, contact Pioneer Hi-Bred International, Inc. ... PIONEER® brand products are sold subject to the terms and conditions of sale which are part of the labeling and sale documents." Id. at ¶ 22, Plaintiff's Appendix In Support Of Its Motion For Partial Summary Judgment at 5.
Ottawa contends that the "limited label licenses" used before the 1999 sales season restricted the "use" of the products, but did not restrict the "resale" of the products, which is a legal question, which will be addressed below. As to factual contentions, however, Ottawa also contends that Pioneer has failed to produce any evidence of what "limited label license" or bag tag appeared on any Pioneer® brand seed corn sold by Ottawa. Ottawa asserts that *1026 no such language appeared on some of the bag tags that it has retained. Ottawa also contends that, even if the "limited label license" language appeared on bags of Pioneer® brand seed corn that Ottawa acquired and resold, Ottawa's employees did not read and had no reason to read the labels, beyond verification of the type, size, and maturity of the seed. The parties do agree that Ottawa does not produce grain or forage, but instead resold all of the Pioneer® brand seed corn that it acquired, either to other dealers or to corn producers.
In May 1994, Pioneer sent Ottawa a letter notifying Ottawa that it had come to Pioneer's attention that Ottawa was reselling Pioneer® brand seed corn; asserting that Ottawa could only have obtained that seed corn from Pioneer Sales Representatives; advising Ottawa that sales of Pioneer® brand seed corn by Pioneer's Sales Representatives to anyone other than farmers were prohibited by the Sales Representatives' contracts; and advising Ottawa that Ottawa's purchase of seed corn from Pioneer Sales Representatives might have caused the Sales Representatives to breach their contracts with Pioneer, opening Ottawa up to liability for tortious interference with the contractual relations between Pioneer and its Sales Representatives. Pioneer contends that this letter placed Ottawa on notice that its acquisition and resale of Pioneer® brand seed corn was in derogation of Pioneer's patent rights. Ottawa contends that this letter provided no such notice, but instead appeared to be a complaint about the conduct of Pioneer's own sales force. Upon receiving the May 1994 letter, however, Ottawa contends that it contacted the Federal Trade Commission and the Illinois Attorney General's Office, and was advised by both bodies that Ottawa was not violating any laws by reselling Pioneer seed. However, Ottawa did not receive a written opinion from either body on the matter. Ottawa contends that it received no notice that Pioneer was asserting "patent infringement" until this lawsuit was filed against it, at which time Ottawa ceased acquiring or reselling Pioneer® brand seed corn. However, Pioneer points to testimony of Ottawa's former controller, Lester Borden, to the effect that Ottawa's managers and sales representatives simply did not care whether or not Pioneer objected to Ottawa's acquisition or resale of Pioneer® brand seed corn.
II. OTTAWA'S MOTION TO STRIKE AFFIDAVIT
In addition to the dispositive motions now before the court, the court must also consider Ottawa's motion to strike certain paragraphs of the affidavit of Bruce Hall, which Pioneer has offered as part of the summary judgment record. Specifically, Ottawa challenges paragraphs 9, 10, 12, 16, 17, 18, 19, 20, 21, and 22 of Mr. Hall's affidavit on the grounds that these paragraphs are not based on Mr. Hall's personal knowledge and/or are different from or contradictory to his sworn deposition testimony.[4] Pioneer's general response is that each of the challenged paragraphs is, indeed, supported by Mr. Hall's testimony, together with documentary evidence, and at most, his affidavit clarifies his prior deposition testimony.
As this court recently explained,
*1027 Rule 56(e) of the Federal Rules of Civil Procedure provides that an affidavit in support of a motion for summary judgment "shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein." FED. R. CIV. P. 56(e). Because affidavits proffered in support of a motion for summary judgment must be based upon personal knowledge, an affidavit based upon "information and belief" is insufficient as a matter of law. Automatic Radio Mfg. Co. v. Hazeltine Research, 339 U.S. 827, 831, 70 S.Ct. 894, 94 L.Ed. 1312 (1950) (affidavit in support of motion for summary judgment made on information and belief does not comport with Rule 56(e)); accord Sellers v. M.C. Floor Crafters, Inc., 842 F.2d 639 (2d Cir.1988); Tavery v. United States, 32 F.3d 1423, 1426 n. 4 (10th Cir.1994). Furthermore, the court may consider only that evidence that would be admissible at trial. Samuels v. Doctors Hosp., Inc., 588 F.2d 485, 486 n. 2 (5th Cir.1979). Hearsay statements which cannot be categorized as a hearsay exception, conclusory allegations, legal arguments, and statements not based upon personal knowledge, may be stricken. See Sellers v. M.C. Floor Crafters, Inc., 842 F.2d 639, 643 (2d Cir.1988) (lack of personal knowledge); Kamen v. American Tel. & Tel. Co., 791 F.2d 1006, 1011 (2d Cir.1986) (conclusory allegations and legal arguments).
With respect to [the requirements of Rule 56(e),] [c]ourts have recognized that "conclusory allegations and self-serving affidavits, without support in the record, do not create a triable issue of fact." Hall v. Bodine Elec. Co., 276 F.3d 345, 354 (7th Cir.2002) (citing Patterson v. Chicago Ass'n for Retarded Citizens, 150 F.3d 719, 724 (7th Cir. 1998)); accord Albiero v. City of Kankakee, 246 F.3d 927, 933 (7th Cir.2001); see Drake v. Minnesota Mining & Mfg. Co., 134 F.3d 878, 887 (7th Cir.1998); Murray v. City of Sapulpa, 45 F.3d 1417, 1422 (10th Cir.1995); Slowiak v. Land O'Lakes, Inc., 987 F.2d 1293, 1295 (7th Cir.1993).
Wells Dairy, Inc. v. Travelers Indemnity Co. of Illinois, 241 F.Supp.2d 945, 956-57 (N.D.Iowa 2003); see also Helm Fin. Corp. v. Iowa Northern Ry. Co., 214 F.Supp.2d 934, 952-54 (N.D.Iowa 2002) (stating similar standards).
This court has also considered the standards applicable to alleged contradiction of prior deposition testimony by an affidavit offered in resistance to summary judgment:
As to contradiction of prior testimony, the Eighth Circuit Court of Appeals recently reiterated the following principles:
It is well-settled that "[p]arties to a motion for summary judgment cannot create sham issues of fact in an effort to defeat summary judgment." American Airlines, Inc. v. KLM Royal Dutch Airlines, Inc., 114 F.3d 108, 111 (8th Cir.1997). Consequently,
a party should not be allowed to create issues of credibility by contradicting his own earlier testimony. Ambiguities and even conflicts in a deponent's testimony are generally matters for the jury to sort out, but a district court may grant summary judgment where a party's sudden and unexplained revision of testimony creates an issue of fact where none existed before. Otherwise, any party could head off a summary judgment motion by supplanting previous depositions ad hoc with a new affidavit, and no case would *1028 ever be appropriate for summary judgment.
Wilson v. Westinghouse Elec. Corp., 838 F.2d 286, 289 (8th Cir.1988) (internal citations and quotation marks omitted).
Bass v. City of Sioux Falls, 232 F.3d 615, 619 (8th Cir.1999); accord Dotson v. Delta Consolidated Indus., Inc., 251 F.3d 780, 781 (8th Cir.2001) ("We have held many times that a party may not create a question of material fact, and thus forestall summary judgment, by submitting an affidavit contradicting his own sworn statements in a deposition. See, e.g., American Airlines, Inc. v. KLM Royal Dutch Airlines, Inc., 114 F.3d 108, 111 (8th Cir.1997), and Camfield Tires, Inc. v. Michelin Tire Corp., 719 F.2d 1361, 1364-65 (8th Cir.1983)."); Plymouth Foam Prods., Inc. v. City of Becker, 120 F.3d 153, 155 n. 3 (8th Cir. 1997) (to the extent that the affiant's affidavit conflicts with his earlier deposition testimony, his affidavit testimony should be disregarded); RSBI Aerospace, Inc. v. Affiliated FM Ins. Co., 49 F.3d 399, 402 (8th Cir.1995) (same). The Eighth Circuit Court of Appeals has explained that the rule that a party cannot create a "sham" issue of fact in an effort to defeat summary judgment by filing an affidavit directly contradicting prior deposition testimony "is a sound one," because "if testimony under oath could be `abandoned many months later by the filing of an affidavit, probably no cases would be appropriate for summary judgment.'" Herring v. Canada Life Assur. Co., 207 F.3d 1026, 1030 (8th Cir.2000) (quoting Camfield Tires, Inc. v. Michelin Tire Corp., 719 F.2d 1361, 1366 (8th Cir.1983)).
However, the Eighth Circuit Court of Appeals has also explained that, where the affidavit testimony seems consistent with the affiant's prior deposition testimony, or simply adds more detailed information, the court may properly consider the affidavit on summary judgment. Bass, 232 F.3d at 619. Similarly, the court has recognized "that there are `narrow circumstances' in which a subsequent affidavit is appropriate, such as to explain certain aspects of the deposition testimony or where the prior testimony reflects confusion on the part of the witness." Herring, 207 F.3d at 1030-31 (citing Camfield Tires, Inc., 719 F.2d at 1364-65). In such circumstances, "it would be for the jury to resolve the discrepancy in the deposition testimony and the affidavit." Id. at 1031.
Helm Fin. Corp., 214 F.Supp.2d at 954-55.
The court could, perhaps, engage in a paragraph-by-paragraph analysis of whether each of the challenged paragraphs of Mr. Hall's affidavit meets or fails to meet the standards of Rule 56(e) or is contradictory to his deposition testimony. However, as a general matter, the court finds that any differences between Mr. Hall's deposition testimony and his affidavit appear to be primarily clarifications and amplifications in his affidavit of issues addressed in his deposition or matters on which he professed lack of knowledge or memory at the time of his deposition. Thus, the subsequent affidavit does not offend the standards cited above. See Helm Fin. Corp., 214 F.Supp.2d at 955. Moreover, the court finds that this is a situation where any ambiguities or even conflicts between Mr. Hall's deposition testimony and the challenged paragraphs of his affidavit should be left to the jury to sort out, if indeed a jury question is otherwise presented. Id.
More importantly, the court finds it unnecessary to consider separately whether each of the challenged paragraphs of Mr. *1029 Hall's affidavit satisfies the applicable standards until and unless it is clear that whether or not there is a genuine issue of material fact on a pertinent issue hangs on his affidavit. The court's disposition of the parties' cross-motions for summary judgment or partial summary judgment will necessarily moot Ottawa's motion to strike. This is so, because either (1) the court's analysis of the motion for summary judgment will necessarily determine whether any portions of Mr. Hall's affidavit generate genuine issues of material fact on issues pertinent to the summary judgment motions, based on the requirements of Rule 56(e) and applicable case law, or (2) the summary judgment motions will be resolved without consideration of challenged portions of Mr. Hall's affidavit, such that portions of the motion to strike will be mooted sub silentio. Therefore, the court will deny Ottawa's motion to strike in its entirety as mooted by the court's disposition of the cross-motions for summary judgment, below.
III. STANDARDS FOR SUMMARY JUDGMENT
The Federal Circuit Court of Appeals has explained its exclusive jurisdiction over certain appeals, as follows:
Our relevant jurisdictional authority is contained in 28 U.S.C. § 1295(a)(1) (1994), which states that this court enjoys exclusive appellate jurisdiction over appeals "based, in whole or in part, on section 1338 [of Title 28]." Section 1338(a), in turn, provides that district courts have jurisdiction over suits "arising under any Act of Congress relating to patents." 28 U.S.C. § 1338(a) (1994). Thus, our jurisdiction turns upon whether the claims here arise (at least in part) under the patent laws.
* * * * * *
... "In order to demonstrate that a case is one `arising under' federal patent law, `the plaintiff must set up some right, title or interest under the patent laws, or at least make it appear that some right or privilege will be defeated by one construction, or sustained by the opposite construction of these laws.'" Christianson [v. Colt Industries Operating Corp.], 486 U.S. [800,] 807-08, 108 S.Ct. 2166, [100 L.Ed.2d 811 (1988)] (quoting Pratt v. Paris Gaslight & Coke Co., 168 U.S. 255, 259, 18 S.Ct. 62, 42 L.Ed. 458 (1897)). In other words, the scope of section 1338 extends to (1) claims where federal patent law creates the cause of action, or (2) claims where the plaintiff's right to relief necessarily depends upon resolution of a "substantial question of federal patent law." Christianson, 486 U.S. at 809, 108 S.Ct. 2166, 100 L.Ed.2d 811.
Helfgott & Karas, P.C. v. Dickenson, 209 F.3d 1328, 1333-34 (Fed.Cir.2000). This lawsuit involves claims of patent infringement that involve causes of action created by federal patent law. Moreover, the present cross-motions for summary judgment necessarily involve "substantial question[s] of federal patent law," such as Ottawa's defense of "patent exhaustion," and the availability of damages for patent infringement under certain provisions of the Patent Act. See id. Thus, this action and the present cross-motions for summary judgment fall within the exclusive jurisdiction of the Federal Circuit Court of Appeals. Therefore, the court will consider here the standards for summary judgment in patent cases, as articulated by the Federal Circuit Court of Appeals.
Rule 56 of the Federal Rules of Civil Procedure, which governs motions for summary judgment, states, in pertinent part, the following:
*1030 Rule 56. Summary Judgment
(a) For Claimant. A party seeking to recover upon a claim, counterclaim, or cross-claim or to obtain a declaratory judgment may, at any time after the expiration of 20 days from the commencement of the action or after service of a motion for summary judgment by the adverse party, move with or without supporting affidavits for a summary judgment in the party's favor upon all or any part thereof.
(b) For Defending Party. A party against whom a claim ... is asserted ... may, at any time, move for summary judgment in the party's favor as to all or any part thereof.
(c) Motions and Proceedings Thereon .... The judgment sought shall be rendered forthwith 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(b)-(c) (emphasis added). As the plain language of the rule indicates, the appropriateness of summary judgment ordinarily turns on whether or not there are genuine issues of material fact that must be resolved by the trier of fact. On the other hand, questions of law are particularly amenable to summary judgment precisely because they do not turn on factual disputes. See, e.g., Varilease Technology Group, Inc. v. U.S., 289 F.3d 795, 798 (Fed.Cir.2002) (contract interpretation, as a question of law, is amenable to summary judgment); Gentex Corp. v. Donnelly Corp., 69 F.3d 527, 530 (Fed.Cir.1995) (patent claim interpretation, as a question of law, is amenable to summary judgment). The Federal Circuit Court of Appeals has recognized the general proposition that "[s]ummary judgment is appropriate in a patent case, as in other cases." Nike, Inc. v. Wolverine World Wide, Inc., 43 F.3d 644, 646 (Fed.Cir.1994); Conroy v. Reebok Int'l, Ltd., 14 F.3d 1570, 1575 (Fed.Cir. 1994) ("The grant of summary judgment [in a patent case] is appropriate where the standards set forth in Rule 56(c) are satisfied.").
Taking a closer look at the meaning of the standards for summary judgment pursuant to Rule 56, "[a] genuine issue exists if the evidence is such that a reasonable jury could find for the nonmoving party." Eli Lilly & Co. v. Barr Labs., Inc., 251 F.3d 955, 962 (Fed.Cir.2001) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)), cert. denied, 534 U.S. 1109, 122 S.Ct. 913, 151 L.Ed.2d 879 (2002). "A disputed fact is material if it might affect the outcome of the suit such that a finding of that fact is necessary and relevant to the proceedings." Id. (again citing Anderson, 477 U.S. at 248, 106 S.Ct. 2505). "While the burden rests on the party moving for summary judgment to show `that there is an absence of evidence to support the non-moving party's case,' the nonmoving party must affirmatively demonstrate by specific factual allegations that a genuine issue of material fact exists for trial." Id. at 971 (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). In reviewing the record, the court must view all the facts in the light most favorable to the nonmoving party and give that party the benefit of all reasonable inferences that can be drawn from the facts. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
The court will apply these standards to the parties' cross-motions for summary judgment or partial summary judgment in this patent infringement action.
*1031 IV. LEGAL ANALYSIS OF SUMMARY JUDGMENT MOTIONS
A. Issues Presented
Ottawa's motion for summary judgment involves seven issues pertaining to liability and damages, while Pioneer's motion for partial summary judgment is essentially the "mirror image" of Ottawa's as to the first three issues. The cross-motions, therefore, present the following issues: (1) whether Ottawa's purchase and resale of Pioneer® brand seed corn is immunized from liability for patent infringement under the "first sale" or "patent exhaustion" doctrine; (2) whether Ottawa had notice of and was bound by Pioneer's restrictions in its "limited label license"; (3) whether Pioneer's "limited label license" restrictions are enforceable or are instead unenforceable as against public policy owing to their anticompetitive effect or unenforceable under applicable contract principles; (4) whether Pioneer has any evidence of notice to Ottawa of the patents-in-suit and alleged infringement supporting Pioneer's claim for compensatory damages under 35 U.S.C. § 287; (5) whether Pioneer has any evidence that any of the seed tags or seed bags purchased and resold by Ottawa contained any language prohibiting resale supporting Pioneer's claim for damages under 35 U.S.C. § 284; (6) whether Pioneer has already recovered its full profits in connection with the first sale of any seed, so that it is not entitled to any compensatory damages; and (7) whether Pioneer has any evidence supporting its claim for increased damages based on "willful" infringement. Issues (1) through (3)the issues on which there are cross-motions for summary judgmentthus go to "liability," while issues (4) through (7) which are the subject only of Ottawa's motion for summary judgmentgo to "damages" or the prerequisites for any damages. The court will consider these issues in turn, subdividing its discussion into "liability" issues, on which, coincidentally, there are cross-motions for summary judgment, and "damages" issues, which are raised only in Ottawa's motion for summary judgment.
B. Liability Issues
1. "First sale" or "patent exhaustion"
In its motion for summary judgment, Ottawa contends, first, that Pioneer's patent infringement claims are barred by the "first sale" or "patent exhaustion" doctrine. However, in its motion for summary judgment, Pioneer contends that it, not Ottawa, is entitled to summary judgment on Ottawa's "patent exhaustion" defense.
a. Arguments of the parties
In its own motion for summary judgment, Ottawa argues that, while the patent laws grant a patent holder the exclusive right to make, use, and sell a patented invention, once the patentee sells the patented item, he effectively surrenders or "exhausts" this monopoly and forfeits the ability to control use of the invention by the buyer. In this case, Ottawa contends that Pioneer's patent rights were "exhausted" by a "first sale" when Pioneer or a Pioneer dealer first sold the seed corn that Ottawa bought. Ottawa contends, further, that it is presumed that, in pricing for the "first sale," Pioneer was fully compensated for the value of its invention and can no longer assert any control over the patented product or obtain any "damages" for its resale. More importantly, Ottawa argues that the "first sale" immunizes Ottawa's subsequent resale from any claim of patent infringement.
In response to Ottawa's motion for summary judgment and in support of its own *1032 motion for summary judgment on Ottawa's "patent exhaustion" defense, Pioneer contends that Ottawa cannot establish the prerequisite for application of the "first sale" or "patent exhaustion" rule, which is an unconditional sale of the patented product. Here, Pioneer contends that any prior sale of the seed corn at issue before Ottawa's resale was specifically conditioned by the terms of the "limited label license," which grants only a right to use the seed corn to produce grain or forage. Pioneer also contends that distribution of Pioneer® brand seed corn to Pioneer authorized Sales Representatives or dealers does not constitute an unconditional "first sale." Rather, Pioneer argues that such sales were conditioned by the terms of the representatives' or dealers' limited licenses to resell the patented products, which prohibited sales representatives from selling to individuals or groups for resale, and permitted dealers to resell only to other licensed dealers or persons who would use the seed to produce grain or forage. Pioneer argues, further, that any price it received for transfers of the seed corn prior to the resale by Ottawa reflected only the value of the limited license to use the seed corn to produce grain or forage, not the full value of the patented invention or the retained patent rights. Pioneer points out that Ottawa admits that it was never granted a license to resell Pioneer® brand seed corn, so that Ottawa never acquired that "stick" from Pioneer's "bundle" of patent rights.
In its reply in further support of its own motion for summary judgment, Ottawa contends that Pioneer's "limited label license" simply does not restrict or prohibit Ottawa's right to "resell" Pioneer® brand seed corn. Ottawa argues that the "limited label license" restricts only certain "uses," but is silent as to "resale," so that the "first sale" exhausted any patent rights with regard to "resale." Ottawa did not, however, directly address that part of Pioneer's motion for partial summary judgment seeking summary judgment on Ottawa's "patent exhaustion" defense in its resistance to Pioneer's motion for partial summary judgment.
b. Applicable law
As the Federal Circuit Court of Appeals recently reiterated, "when a patented product has been sold the purchaser acquires `the right to use and sell it, and ... the authorized sale of an article which is capable of use only in practicing the patent is a relinquishment of the patent monopoly with respect to the article sold.'" Monsanto Co. v. McFarling, 302 F.3d 1291, 1298 (Fed.Cir.2002) (quoting United States v. Univis Lens Co., 316 U.S. 241, 249, 62 S.Ct. 1088, 86 L.Ed. 1408 (1942)). It is not any sale that invokes this "first sale" or "patent exhaustion" rule, however. Rather,
The unrestricted sale of a patented article, by or with the authority of the patentee, "exhausts" the patentee's right to control further sale and use of that article by enforcing the patent under which it was first sold. In United States v. Masonite Corp., 316 U.S. 265, 278, 62 S.Ct. 1070, 86 L.Ed. 1461 (1942), the Court explained that exhaustion of the patent right depends on "whether or not there has been such a disposition of the article that it may fairly be said that the patentee has received his reward for the use of the article." See, e.g., Intel Corp. v. ULSI Sys. Tech., Inc., 995 F.2d 1566, 1568, 27 USPQ2d 1136, 1138 (Fed. Cir.1993) ("The law is well settled that an authorized sale of a patented product places that product beyond the reach of the patent.") Thus when a patented device has been lawfully sold in the United States, subsequent purchasers *1033 inherit the same immunity under the doctrine of patent exhaustion.
Jazz Photo Corp. v. International Trade Comm'n, 264 F.3d 1094, 1105 (Fed.Cir. 2001) (emphasis added), cert. denied, 536 U.S. 950, 122 S.Ct. 2644, 153 L.Ed.2d 823 (2002); accord Anton/Bauer, Inc. v. PAG, Ltd., 329 F.3d 1343, 1349 (Fed.Cir.2003) ("The exhaustion doctrine is based upon the proposition that `[t]he unrestricted sale of a patented article, by or with the authority of the patentee, "exhausts" the patentee's right to control further sale and use of that article by enforcing the patent under which it was first sold.' Jazz Photo Corp. v. Int'l Trade Comm'n, 264 F.3d 1094, 1105, 59 USPQ2d 1907, 1914 (Fed. Cir.2001)."). In Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed.Cir. 1992), the Federal Circuit Court of Appeals noted that the Supreme Court had "considered and affirmed the basic principles that unconditional sale of a patented device exhausts the patentee's right to control the purchaser's use of the device," but that "the sale of patented goods, like other goods, can be conditioned." Mallinckrodt, Inc., 976 F.2d at 706 (emphasis added). Furthermore, the court explained that "[t]he principle of exhaustion of the patent right d[oes] not turn a conditional sale into an unconditional one." Id.; accord B. Braun Med., Inc. v. Abbott Labs., 124 F.3d 1419, 1426 (Fed.Cir.1997) (noting that, in Mallinckrodt, the court "canvassed precedent concerning the legality of restrictions placed upon the post-sale use of patented goods" and concluded that, as a general matter, "an unconditional sale of a patented device exhausts the patentee's right to control the purchaser's use of the device thereafter"). Thus, where something less than all of the rights in the patent have been "sold" to a buyer, "[t]he price paid by the purchaser `reflects only the value of the "use" rights conferred by the patentee.'" Monsanto Co., 302 F.3d at 1299 (quoting B. Braun Medical, Inc. v. Abbott Labs., 124 F.3d 1419, 1426 (Fed.Cir. 1997)), and the "first sale" or "patent exhaustion" rule does not apply. Id.; B. Braun Med., Inc., 124 F.3d at 1426 ("This exhaustion doctrine, however, does not apply to an expressly conditional sale or license.").
c. Analysis
The court concludes that it is Pioneer, not Ottawa, that is entitled to summary judgment on Ottawa's "patent exhaustion" defense. Ottawa has failed to generate a genuine issue of material fact that the sale of Pioneer® brand seed corn was not always conditional, so that, in the face of undisputed evidence that the sales were conditional, the "patent exhaustion" defense is simply inapplicable as a matter of law. See Anton/Bauer, Inc., 329 F.3d at 1349 (the "exhaustion" doctrine is based upon the proposition that there was an "unrestricted" sale); Monsanto Co., 302 F.3d at 1299 (where something less than all of the patent rights have been conveyed, the "first sale" rule is inapplicable); Jazz Photo Corp., 264 F.3d at 1105 (the "first sale" or "patent exhaustion" doctrine only applies where the first sale was "unrestricted"); B. Braun Med., Inc., 124 F.3d at 1426 ("This exhaustion doctrine, however, does not apply to an expressly conditional sale or license."); Mallinckrodt, Inc., 976 F.2d at 706 ("[U]nconditional sale of a patented device exhausts the patentee's right to control the purchaser's use of the device.") (emphasis added). Treating the winning party on this issue as the movant and the losing party as the party charged with adequately resisting the motion, the court finds that Pioneer has met its initial burden, see Eli Lilly & Co., 251 F.3d at 971 (the party moving for summary judgment bears the burden "to show `that there is an absence of evidence *1034 to support the non-moving party's case"'), by pointing to evidence that, from 1986 on, its bag label restricted the uses for which the seed corn was sold to production of grain or forage. Even giving Ottawa the benefit of all reasonable inferences, id., Ottawa's attempts to generate a genuine issue of material fact on its "patent exhaustion" defense are unavailing.
Ottawa attempts to generate a genuine issue of material fact by asserting that certain bag tags from bags it resold did not include any restrictions on use of the seed corn. However, the bag tags to which Ottawa points are dated 1992 and 1993, see Defendant's Appendix In Support Of Its Motion For Summary Judgment at 70, 76 & 79, which means that they antedate the sales season in which Pioneer represents that it first included the restrictions on the bag tags, which was 1996. Ottawa has pointed to nothing suggesting that the bag labels did not always carry restrictions on use. Ottawa also points to evidence that the purchase orders and invoices for the Pioneer® brand seed corn that it bought from Pioneer Sales Representatives or dealers did not contain any limitations on the sale of the seed corn, but the bag labels and bag tags on the seed corn itself expressly stated that the terms thereon are terms and conditions of the sale. Although Ottawa argues that it is Pioneer's burden to show that the sale was conditional, the burdens at summary judgment require Ottawa to point to evidence that it bought bags of seed with no limitations, see Eli Lilly & Co., 251 F.3d at 971 (the party moving for summary judgment bears the burden "to show `that there is an absence of evidence to support the nonmoving party's case"'), and Ottawa has not done so, nor has Ottawa denied that the bags it sold carried the label license. Because "[t]he principle of exhaustion of the patent right did not turn a conditional sale into an unconditional one," Mallinckrodt, Inc., 976 F.2d at 706, there was no unconditional sale in this case upon which "patent exhaustion" could be founded.
Finally, the court is unpersuaded by Ottawa's arguments, in its reply in further support of its own motion for summary judgment, that Pioneer's "limited label license" simply does not restrict or prohibit Ottawa's right to "resell" Pioneer® brand seed corn, even if it restricts other "uses." While this argument is relevant to the nature of the conditions on the first sale of the patented seed corn by Pioneera matter that the court must address belowit is not responsive to the pertinent issue at this point in the analysis, which is whether or not there ever was an unconditional sale of the seed corn. See Anton/Bauer, Inc., 329 F.3d at 1349 (the "exhaustion" doctrine is based upon the proposition that there was an "unrestricted" sale); Monsanto Co., 302 F.3d at 1299 (where something less than all of the patent rights have been conveyed, the "first sale" rule is inapplicable); Jazz Photo Corp., 264 F.3d at 1105 (the "first sale" or "patent exhaustion" doctrine only applies where the first sale was "unrestricted"); B. Braun Med., Inc., 124 F.3d at 1426 ("This exhaustion doctrine, however, does not apply to an expressly conditional sale or license."); Mallinckrodt, Inc., 976 F.2d at 706 ("[U]nconditional sale of a patented device exhausts the patentee's right to control the purchaser's use of the device.") (emphasis added); see also Eli Lilly & Co., 251 F.3d at 962 ("A disputed fact is material if it might affect the outcome of the suit such that a finding of that fact is necessary and relevant to the proceedings."). Thus, Ottawa has failed to generate a genuine issue of material fact as to the applicability of the "first sale" or "patent exhaustion" defense in this case. See Eli Lilly & Co., 251 F.3d at 971 ("[T]he nonmoving party must affirmatively demonstrate by specific factual *1035 allegations that a genuine issue of material fact exists for trial.").
Therefore, unless the court determines that the conditions Pioneer placed on its initial sale of the seed corn are unenforceable, Ottawa's "patent exhaustion" defense must fail as a matter of law, because there was no "first" unconditional sale.
2. Restrictions in the "limited label license"
Ottawa next contends that it is entitled to summary judgment on Pioneer's patent infringement claim on the grounds that (1) Pioneer has failed to produce any evidence sufficient to prove that there was a contractual provision prohibiting resale appearing on any seed bags or bag tags purchased and resold by Ottawa, and (2) Pioneer has failed to produce any evidence sufficient to prove that Ottawa had actual notice of any such restrictions on resale. Pioneer contends, in resistance to Ottawa's motion and in support of its own motion for partial summary judgment, that there is no genuine issue of material fact that the "limited label license" prohibits resale of the seed corn and that Ottawa was adequately notified of that fact.
a. Arguments of the parties
Although Ottawa acknowledges that private parties are free to place express conditions on the sale of patented products, Ottawa contends that such express conditions are subject to basic contract principles. Therefore, Ottawa contends that Pioneer must establish not only that it intended to convey only restricted rights, not including a right to resell, but that Ottawa had notice that the limited rights that it obtained did not include the right to resell the seed corn. Ottawa contends that Pioneer has offered no evidence that the so-called "limited label license" even appeared on any of the bags of seed corn purchased and resold by Ottawa or that Ottawa had actual knowledge of such restrictions before purchasing the corn.
In response to Ottawa's motion for summary judgment, and in support of its own motion for summary judgment, Pioneer contends that Ottawa cannot dispute the existence of the bag label or bag tag licenses or that Ottawa's employees were aware of and looked at the bag labels and bag tags. Pioneer contends that Ottawa's argument that its employees never read the limitations on the bag labels and bag tags simply is not credible. On the other hand, Pioneer contends that attachment of a label to a product is an acceptable means of communicating license terms to a purchaser, and that, at all times since 1986, it has used language on all or substantially all of its bag labels prohibiting the use of the seed for any purpose other than to produce forage or grain, and since 1996, it has used bag tags using comparable restrictive language or pointing out that restrictions on the conditions of sale were to be found on the bag label. Pioneer contends that, under the circumstances, Ottawa must be deemed to have had notice of the conditions of sale for the seed corn.
In its reply in further support of its own motion for summary judgment, and in resistance to Pioneer's motion for partial summary judgment on this issue, Ottawa argues that Pioneer's "use" restriction does not prohibit "resale," because the rights to use and sell a patented product are separate rights. Although Ottawa agrees that Pioneer has shown that it restricted purchasers' "use" of the seed corn, Pioneer has not shown that it restricted purchasers' rights to "sell" or "resell" the seed corn. Ottawa contends that, at best, Pioneer's language restricting certain "uses" of the seed corn is ambiguous as to its impact on "selling" or "reselling." Ottawa *1036 also argues that Pioneer has not established that Ottawa had notice of any resale prohibition or that such a restriction was, in fact, placed on any of the bags of seed corn purchased and resold by Ottawa. Ottawa points out that Pioneer has not produced a single bag from a sale to Ottawa. Ottawa also asserts that Pioneer is required to show that Ottawa had actual notice of the restrictions, not simply that the restrictions appeared somewhere on the bag or bag tag. In its resistance to Pioneer's motion for partial summary judgment, Ottawa argues that Pioneer failed to take reasonable steps to ensure that buyers had notice of the restrictions that Pioneer was attempting to impose, because there are no express restrictions on resale on any labels or sales documents from the time period during which Ottawa was reselling Pioneer® brand seed corn, nor did Pioneer require all buyers to execute a written license agreement.
b. Applicable law
Section 154 of Title 35, a key provision of the Patent Act, provides that "every patent shall contain ... a grant to the patentee ... of the right to exclude others from making, using, offering for sale, or selling the invention throughout the United States." 35 U.S.C. § 154(a)(1). Similarly, 35 U.S.C. § 271(a) provides that, "[e]xcept as otherwise provided in this title, whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent." 35 U.S.C. § 271(a). In Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed.Cir.1992), the Federal Circuit Court of Appeals noted that "the sale of patented goods, like other goods, can be conditioned." Mallinckrodt, Inc., 976 F.2d at 706. In other words, some or all of the rights granted by § 154 can be reserved to the patent holder or those rights can be waived in whole or in part. See id. at 703 ("The enforceability of restrictions on use of patented goods derives from the patent grant, which is in classical terms of property: the right to exclude [and][t]his right to exclude may be waived in whole or in part.").
At least in the first instance, the conditions of a waiver of patent rights i.e., the terms of a grant of a license to make, use, or sell the patented item are subject to contract considerations. Id. The court reviews the interpretation of contractual language, including license agreements, as a question of law. See Ethicon, Inc. v. U.S. Surgical Corp., 135 F.3d 1456, 1466 (Fed.Cir.1998), cert. denied, 525 U.S. 923, 119 S.Ct. 278, 142 L.Ed.2d 229 (1998). "State law controls in matters of contract interpretation." Id.
This court recently summarized the Iowa rules of contract interpretation and construction as follows:
This court has recognized that Iowa law distinguishes between "interpretation" and "construction" of a contract. See Kaydon Acquisition Corp. v. America Central Indus., Inc., 179 F.Supp.2d 1022, 1037 (N.D.Iowa 2001). When the dispute concerns the meaning of certain contract terms, the court must engage in the process of interpretation, rather than construction. See id. (citing Walsh v. Nelson, 622 N.W.2d 499, 503 (Iowa 2001); Fausel v. JRJ Enters., Inc., 603 N.W.2d 612, 618 (Iowa 1999), which notes that interpretation is "a process for determining the meaning of words in a contract" while construction is "a process of determining the legal effect of such words"; and Fashion Fabrics of Iowa v. Retail Investors Corp., 266 N.W.2d 22, 25 (Iowa 1978), which states, "Interpretation involves ascertaining the *1037 meaning of contractual words; construction refers to deciding their legal effect."). As this court has noted,
The Iowa Supreme Court has explained that:
The primary goal of contract interpretation is to determine the parties' intentions at the time they executed the contract. See Hartig Drug Co. [v. Hartig], 602 N.W.2d [794,] 797 [ (Iowa 1999) ]. Interpretation involves a two-step process. First, from the words chosen, a court must determine "what meanings are reasonably possible." Restatement (Second) of Contracts § 202 cmt. a, at 87 (1981). In so doing, the court determines whether a disputed term is ambiguous. A term is not ambiguous merely because the parties disagree about its meaning. Hartig Drug Co., 602 N.W.2d at 797. A term is ambiguous if, "after all pertinent rules of interpretation have been considered," "a genuine uncertainty exists concerning which of two reasonable interpretations is proper." Id.
Once an ambiguity is identified, the court must then "choos[e] among possible meanings." Restatement (Second) of Contracts § 202 cmt. a, at 87. If the resolution of ambiguous language involves extrinsic evidence, a question of interpretation arises which is reserved for the trier of fact. Fausel, 603 N.W.2d at 618.
Walsh, 622 N.W.2d at 503.
Kaydon Acquisition Corp., 179 F.Supp.2d at 1037-38. As to "pertinent rules of interpretation," the Iowa Supreme Court has explained that "We ... do not interpret [any] contractual term apart from the context of the agreement as a whole.... The parties' intent as evidenced by all of the terms of the contract controls our conclusion." Koenigs v. Mitchell County Bd. of Supervisors, 659 N.W.2d 589, 594 (Iowa 2003). "Interpretation" is "a question of law for the court unless the meaning of disputed terms turns on extrinsic facts or choices among reasonable inferences." Grinnell Select Ins. Co. v. Continental Western Ins. Co., 639 N.W.2d 31, 33 (Iowa 2002).
On the other hand, where the dispute centers on determining the legal effect of contractual terms, the court engages in the process of construction, rather than interpretation. See Fausel, 603 N.W.2d at 618; Fashion Fabrics of Iowa, 266 N.W.2d at 25. "In the construction of written contracts, the cardinal principle is that the intent of the parties must control; and except in cases of ambiguity, this is determined by what the contract itself says." IOWA R. APP. P. 6.14(6)(n). The Iowa Supreme Court has explained that "construction" is "always a question of law." See Grinnell Select Ins. Co., 639 N.W.2d at 33.
Central States Indus. Supply, Inc. v. McCullough, 279 F.Supp.2d 1005, 1031-33, 2003 WL 22048226, *20-*21 (N.D.Iowa Sept.3, 2003).
Illinois rules of interpretation and construction are similar. As the Illinois Court of Appeals recently explained, under Illinois law,
When the language of a contract is clear and unambiguous, construction of the contract is a matter of law that is subject to de novo review. A court must construe the meaning of a contract by examining the language and may not interpret the contract in a way contrary to the plain and obvious meaning of its terms. Unless the contract clearly defines its terms, the court must give the contractual language its common and generally accepted meaning. Furthermore, the court must place the meanings of words within the context of the contract *1038 as a whole. A contract term is ambiguous when it may reasonably be interpreted in more than one way. The mere fact that the parties disagree on some term, however, does not render the term ambiguous. J.M. Beals Enterprises, Inc. v. Industrial Hard Chrome, Ltd., 194 Ill.App.3d 744, 748, 141 Ill.Dec. 347, 551 N.E.2d 340 (1990). "A court will neither add language or matters to a contract about which the instrument itself is silent, nor add words or terms to an agreement to change the plain meaning of the parties as expressed in the agreement." Sheehy v. Sheehy, 299 Ill. App.3d 996, 1001, 234 Ill.Dec. 34, 702 N.E.2d 200 (1998).
If the language of the contract is facially unambiguous, then the "four corners" rule requires the trial court to interpret the contract as a matter of law without the use of parol evidence. If, however, the language of the contract is susceptible to more than one meaning, then an ambiguity is present and parol evidence may be admitted to aid the trier of fact in resolving the ambiguity. Air Safety, Inc. v. Teachers Realty Corp., 185 Ill.2d 457, 462-63, 236 Ill.Dec. 8, 706 N.E.2d 882 (1999).
Dean Mgmt., Inc. v. TBS Constr., Inc., 339 Ill.App.3d 263, 274 Ill.Dec. 161, 790 N.E.2d 934, 939-40 (Ill.Ct.App.2003). Because Iowa and Illinois rules of interpretation are similar, the court finds it unnecessary to decide which state's law applies to interpretation of the license language here.
c. Analysis
i. Interpretation of the restrictive language. Although each of the "exclusive" rights identified in § 154 may be in some sense "distinct," the court is not convinced that each category of right must be separately and expressly reserved, as Ottawa appears to contend by arguing that Pioneer's "limited label license" prior to 1999 failed to include any express restriction on "resale" of the patented seed corn. Ottawa's strained readings of various cases involving restrictions on "use" as showing that restrictions on "resale" are distinct and separate, and thus must be separately and expressly stated, are simply unavailing, at least in the face of language in a license unambiguously granting a buyer only very limited rights.[5] To put it another way, where, as here, the "limited label license" expressly grants only some of the rights identified in § 154, it follows that the only reasonably possible meaning of the language is that all other rights are reserved. See Central States Indus. Supply, Inc., 279 F.Supp.2d at 1032-33, 2003 WL 22048226 at *21 (under Iowa law, interpretation requires the court to determine what meanings are reasonably possible); Dean Mgmt., Inc., 274 Ill.Dec. 161, 790 N.E.2d at 939 (under Illinois law, a contract is not ambiguous unless there is more than one reasonable interpretation). This might be described as an application of the contract principle of expressio unius est exclusio alterius, that is, expression of one thing is the exclusion of another. It is also the plain meaning of what the "limited label license" says in this case. See id. at 1031-33, 2003 WL 22048226 at *20-*21 (under Iowa law, construction and interpretation are controlled by what the contract says, in the absence of ambiguity); Dean Mgmt., Inc., 274 Ill.Dec. 161, 790 *1039 N.E.2d at 939-40 (under Illinois law, "[u]nless the contract clearly defines its terms, the court must give the contractual language its common and generally accepted meaning," and, in the absence of ambiguity, the meaning of contract language is determined by examining the language and such language must not be interpreted in a way contrary to the plain and obvious meaning of the terms); see also Mallinckrodt, 976 F.2d at 703 (the rights granted to the patentee can be waived in whole or in part). Ottawa's disagreement with this interpretation does not create an ambiguity. See id.; Dean Mgmt., Inc., 274 Ill.Dec. 161, 790 N.E.2d at 939. Moreover, Ottawa's contention that patent rights must be expressly reserved or they are waived stands on its head the principle that the patentee's right under the patent is the right to exclude.
Looking once again at the language upon which Pioneer relies, from 1986 to 1995, Pioneer's bag labels contained the following limited grant of rights to use the patented seed: "Buyer agrees that purchase of this bag of seed does not give any rights to use any such parental line seed which may be found herein, or any plant, pollen or seed produced from such parental line seed, for breeding, research or seed production purposes or for any purpose other than production of forage or grain for feeding or processing." Hall Affidavit, ¶ 16, Plaintiff's Appendix In Support Of Its Motion For Partial Summary Judgment at 3 (emphasis added). Similarly, for sales years 1996 through 1998, the label license read, in pertinent part, "Customer agrees that it is not acquiring the rights to use any parental line for any purpose other than production of forage or grain for feeding or processing. If the tag indicated this product is produced under one or more U.S. patents, customer is licensed thereunder only to produce forage or grain for feeding or processing." Hall Affidavit, ¶ 17, Plaintiff's Appendix In Support Of Its Motion For Partial Summary Judgment at 3-4. The court finds that the meaning of the clear, unambiguous language of the bag labels at issue in this case is that the only right granted to a buyer was the right to use the seed to produce forage or grain, thereby reserving all other rights to the patentee, including the right to sell or resell.
The intent to grant only the rights identified in the label licenses is also confirmed by the language of the bag tags. Beginning in 1996, the bag tag including the following statement: "This product is for license only. PIONEER® brand products are sold subject to the terms and conditions of sale which are part of the labeling and sale documents." Hall Affidavit, ¶ 21, Plaintiff's Appendix In Support Of Its Motion For Partial Summary Judgment at 5 (emphasis added). After identifying the patent numbers for seed corn in each bag, the bag tag continued, as follows: "License is granted solely to produce grain and/or forage. For other licenses, contact Pioneer Hi-Bred International, Inc.... PIONEER® brand products are sold subject to the terms and conditions of sale which are part of the labeling and sale documents." Id. at ¶ 22, Plaintiff's Appendix In Support Of Its Motion For Partial Summary Judgment at 5 (emphasis added). The bag label and bag tag unambiguously grant only a right to use the seed corn to produce grain or forage; the label and tag unambiguously do not grant a buyer the right to resell Pioneer® brand seed corn unless the buyer is separately licensed to resell the product, for example, under a dealer license from Pioneer.[6]
*1040 ii. Presence of the restriction on bags purchased by Ottawa. The court turns, next, to the question of whether or not Pioneer has shown beyond dispute, or has generated a genuine issue of material fact, that the limited license upon which Pioneer relies appeared on any of the bags of Pioneer® brand seed corn that Ottawa acquired, then resold. The court's analysis on this issue is similar to its analysis of the question of whether Pioneer's sale of its seed corn was "conditional," for purposes of the applicability of Ottawa's "patent exhaustion" defense. The court concludes that Ottawa has failed to generate any genuine issue of material fact that the "limited label license" was missing from the bag labels and bag tags of Pioneer® brand seed corn that Ottawa purchased and resold. Again, the bag tags that Ottawa asserts did not contain the limitations language are from years prior to the date that Pioneer represents that it began including such language on bag tags. Moreover, Ottawa has pointed to nothing suggesting that, throughout the applicable time period, the bag labels did not always carry the restrictions on which Pioneer relies. Although Ottawa contends that purchase orders and invoices memorializing its purchase of Pioneer® brand seed corn from Pioneer do not contain limitations language, the bag labels at all times pertinent here, and the bag tags from 1996 onward, all expressly stated that the terms thereon were terms and conditions of the sale. Ottawa has failed to point to any evidence that it bought bags of seed with no limitations on the label or tag, and has not denied that the bags it sold carried the label license. Thus, Ottawa has failed to generate any genuine issue of material fact that it purchased seed corn that was not labeled with the pertinent limitations.
iii. Ottawa's notice. Nevertheless, Ottawa also contends that it is entitled to summary judgment on Pioneer's patent infringement claim on the ground that it had no actual notice of the limitations on the resale of Pioneer® brand seed corn, because its representatives did not read and had no reason to read the limitations on the bag labels, no such limitations appeared in other sales documents, and thus, Pioneer did not take reasonable steps, such as a signed licensing agreement, to communicate its purported limitations on the license for the seed corn to buyers before the sale. Pioneer contends that, as a matter of law, it took adequate steps to communicate the limitations to buyers, by placing the limitations on the labels and bag tags of the actual product, so that Ottawa had notice of the limitations; Pioneer contends that Ottawa's protestations to the contrary, on the ground that its employees never read and had no reason to read the label limitations, simply are not credible. The court concludes that this issue really comes down to whether or not Pioneer's bag labels and bag tags were an adequate means of notifying buyers of the limited rights that they acquired in the patented seed corn.
Pioneer relies on Chemagro Corp. v. Universal Chemical Company, 244 F.Supp. 486 (D.C.Tex.1965), as supporting the adequacy of notice in this case. In Chemagro, the plaintiff placed "a limited *1041 patent license" on certain uses and sale of its patented products on a written label notice attached to the patented product. See Chemagro Corp., 244 F.Supp. at 490. The court in Chemagro held that "Defendants, having actual notice of a limited patent license in the form of a written label notice attached to [the product] prohibiting the reformulation and sale thereof for use by the home gardener, have infringed the patent in suit when the reformulated and sold said [product] in the home garden field." Id. (emphasis added). Ottawa contends that this case stands for the proposition that the buyer must have actual notice of the label limitations, but Pioneer contends that it stands for the proposition that the label limitations provide actual notice. The key finding in Chemagro, for present purposes, this court concludes, was the following: "Prior to the date that the defendants first sold [their product incorporating a reformulation of the plaintiff's insecticide] in the home garden field, they, through their President, H. Dean Smith, had actual notice of the aforesaid limited patent license [on the product label] prohibiting the reformulation and sale of [the plaintiff's patented product] for use by the home gardener, and the jury so found." Id. Although the decision does not reveal what evidence the jury relied on for their finding that the defendant had "actual notice" of the label license, it appears that the jury found "actual notice" of the label license, not "actual notice" from the label license. Thus, Chemagro does not stand for the broad rule Pioneer attempts to draw from it.
The decision in Chemagro relied on General Talking Pictures Corp. v. Western Electric Co., 304 U.S. 175, 58 S.Ct. 849, 82 L.Ed. 1273 (1938), for the "actual notice" requirement. Among other questions, the petition for certiorari in General Talking Pictures presented this question:
2. Can a patent owner, merely by a "license notice" attached to a device made under the patent, and sold in the ordinary channels of trade, place an enforceable restriction on the purchaser thereof as to the use to which the purchaser may put the device?
General Talking Pictures, 304 U.S. at 177, 58 S.Ct. 849. However, the Court found that this question "need not be considered," where the alleged infringer knew that the party from which it purchased the patented device was not authorized to sell it to such entities as the alleged infringer. See id. at 181-82, 58 S.Ct. 849. Thus, General Talking Pictures neither requires "actual notice," nor suggests what other form of notice might suffice, although it makes clear that "actual notice" plainly suffices. Similarly, although the issue of whether a "label license" provides adequate notice of the terms of the license might have arisen in the circumstances presented in Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed.Cir.1992), the court noted that "[t]he movant Medipart did not dispute actual notice of the restriction. Thus we do not decide whether the form of the restriction met the legal requirements of notice or sufficed as a `label license', as Mallinckrodt calls it, for those questions were not presented on this motion for summary judgment." Mallinckrodt, Inc., 976 F.2d at 701. Thus, the court must, once again, look elsewhere for more specific guidance.
Although the parties have not relied on them, the court finds some guidance from other authorities. First, the so-called patent "marking" statute, 35 U.S.C. § 287, provides that "marking" a product with patent numbers suffices to provide notice to another of the patentee's rights; in the absence of such "marking," the alleged infringer must be given actual notice of alleged infringement for the patentee to recover damages. See 35 U.S.C. § 287(a); *1042 see also Gart v. Logitech, Inc., 254 F.3d 1334, 1345 (Fed.Cir.2001) ("The statute permits either constructive notice, which is accomplished by marking the article with the patent number, or actual notice."), cert. denied, 534 U.S. 1114, 122 S.Ct. 921, 151 L.Ed.2d 886 (2002). If "marking" of a product with patent numbers suffices to provide notice of a patentee's whole bundle of patent rights, it would seem to follow that "marking" of a product with a clear, unambiguous license of only some of the patentee's rights should also suffice, as a matter of law, to put a buyer on notice of the limitations in the license. The court finds that, as a matter of law, the "limited label license," which the court has held clearly and unambiguously conveyed only a limited right to produce grain or forage, provided constructive notice to Ottawa of the limited rights obtained by a purchaser.
Second, even if "actual notice" is required, it cannot be disputed that Ottawa's employees and representatives were aware of the bag labels and bag tags, because they admitted reading them, at least for information concerning seed size, maturity, etc. Also, the limited license provision on the bag labels appeared below a notice, in capital letters, that "THE FOLLOWING PROVISIONS ARE PART OF THE TERMS OF SALE OF THIS PRODUCT." Under these circumstances, the court cannot find that a party's selective reading of label language, or failure to read certain terms, can stand as a defense to the sufficiency of notice provided by unambiguous limitations on the label, at least where there is no genuine issue of material fact that the label was designed to come to the attention of any reasonable purchaser. This view is in accord with contract principles, under which certain provisions that, like a limitation on a license, limit a buyer's rightssuch as disclaimers or waivers of warrantiesmay be ineffective if they are "hidden" from the purchaser by location in an obscure or unexpected location in the contract documents or in fine-print "boilerplate" provisions, but are generally effective if prominent or conspicuous. See, e.g., Dailey v. Holiday Distributing Corp., 260 Iowa 859, 151 N.W.2d 477, 485 (Iowa 1967); Basselen v. General Motors Corp., 341 Ill.App.3d 278, 275 Ill.Dec. 267, 792 N.E.2d 498, 508 (2003) (although certain disclaimers of warranties were in smaller print, and could be disregarded, "as is" disclaimer was in "conspicuous print" and in a "prominent" place in the middle of the form, and was therefore effective).
The court finds that, as a matter of law, Ottawa had sufficient notice of the limitations in the "limited label license" for those limitations to be enforceable against Ottawa, and it is, therefore, Pioneer, not Ottawa, that is entitled to summary judgment on this issue.
3. Enforceability of the label restrictions
As the next issue in its motion for summary judgment, Ottawa contends that Pioneer's restrictions on resale are unenforceable, as against public policy, because they are anticompetitive in effect, or violate contract principles, so that Pioneer's infringement claim premised on its restrictions on resale must fail. In resistance to Ottawa's motion, and in support of its own motion for summary judgment on this issue, Pioneer contends that, as a matter of law, its label restrictions are enforceable.
a. Arguments of the parties
Ottawa acknowledges that a patentee may put conditions on the sale of a patented product, if such restrictions or conditions are reasonably within the patent grant. Because Ottawa contends that Pioneer has already received the value of its *1043 patent once, in a "first sale," Ottawa contends that Pioneer's attempt to prohibit resale is an anticompetitive extension of Pioneer's patent rights unreasonably beyond the scope of the patent grant. Ottawa contends that Pioneer's restrictions could stifle the resale market on websites like E-Bay, by preventing individuals from selling common items, such as used cars or furniture, if any of the essential components of the items are patented and purportedly "labeled" with a restriction on resale.
In response to Ottawa's motion for summary judgment, Pioneer argues that the cases on which Ottawa relies for the supposed anticompetitive effect of restrictions on resale all are distinguishable, because each involved a restriction beyond the prohibition on resale, including resale price fixing or "tying" of the resale of the patented item to other products, which were outside the scope of the original patent monopoly, and ran afoul of antitrust laws. In contrast, Pioneer contends that the Federal Circuit Court of Appeals has recognized that not all restrictions on resale of patented items are illegal. Here, Pioneer contends that its restriction on resale is well within the scope of its original patent rights. In support of its own motion for partial summary judgment, Pioneer also contends that restrictive or limited licensing of patented products is a longstanding, legal practice; that such limited licenses have been upheld in the context of biotechnology patents; that the label limitations here are similar to software shrinkwrap licenses, which have been upheld by the courts; and that there is no anticompetitive effect exceeding the scope of the original patent rights. Thus, Pioneer contends that its limitations on resale are enforceable.
In its reply in further support of its own motion for summary judgment, Ottawa contends that Pioneer's restriction on resale is designed primarily for the anticompetitive purposes of disciplining its sales force, limiting its dealers' ability to set their own prices, and controlling the price of Pioneer's products in the resale market. In its resistance to Pioneer's motion for summary judgment, Ottawa argues that contract principles are applicable to the enforceability of licensing restrictions on patented items and that the licensing restrictions purportedly imposed by Pioneer's limited label licenses violate such contract principles, because they were undisclosed and materially altered the terms of the contract for Ottawa's purchase of the seed corn.
In reply to Ottawa's arguments concerning contract principles, Pioneer argues that its "limited label license" restrictions on resale are still enforceable, because Ottawa failed to object to the restrictions and return the seed corn within a reasonable time. Also, because the terms of the restrictions were on the product itself, Pioneer contends that they were integral terms of the agreement to sell and purchase the seed corn, not terms that materially altered any agreement for the sale and purchase of the seed corn, or that, in the alternative, Ottawa had notice of such limitations after buying its first bags of seed corn, and therefore cannot argue that the limitations surprised Ottawa or materially altered the terms of any subsequent purchases.
b. Applicable law and analysis
i. Permissible restrictions. In Mallinckrodt, Inc., the Federal Circuit Court of Appeals rejected the proposition that no restriction upon a purchaser of a sold article is enforceable under patent law, holding instead that "not all restrictions on the use of patented goods are unenforceable." Mallinckrodt, Inc., 976 *1044 F.2d at 703. Indeed, the Federal Circuit Court of Appeals subsequently noted that "express conditions accompanying the sale or license of a patented product are generally upheld." B. Braun Med., Inc., 124 F.3d at 1426 (citing Mallinckrodt, 976 F.2d at 708). However, "[s]uch express conditions ... are contractual in nature and are subject to antitrust, patent, contract, and any other applicable law, as well as equitable considerations such as patent misuse." Id.
Accordingly, conditions that violate some law or equitable consideration are unenforceable. On the other hand, violation of valid conditions entitles the patentee to a remedy for either patent infringement or breach of contract. See Mallinckrodt, 976 F.2d at 707 n. 6, 24 USPQ2d at 1178-79 n. 6. This, then, is the general framework.
B. Braun Med., Inc., 124 F.3d at 1426. Although restrictions in a patent license may be generally enforceable, Ottawa contends that Pioneer's "limited label license" is unenforceable, because of its anticompetitive effects and because it violates contract principles.
ii. Scope of the patent rights and anticompetitive effects. Ottawa contends, first, that the "limited label license" is unenforceable, because it exceeds the scope of Pioneer's patent rights and has anticompetitive effects, which Pioneer disputes. In Mallinckrodt, Inc., the Federal Circuit Court of Appeals surveyed Supreme Court precedent regarding the enforceability of restricted licenses and concluded "that price-fixing and tying restrictions accompanying the sale of patented goods were per se illegal." Mallinckrodt, Inc., 976 F.2d at 704. However, the court also explained that other restrictions may be legal:
These cases did not hold, and it did not follow, that all restrictions accompanying the sale of patented goods were deemed illegal. In General Talking Pictures the Court, discussing restrictions on use, summarized the state of the law as follows:
That a restrictive license is legal seems clear. Mitchell v. Hawley [83 U.S.] (16 Wall.) 544 [21 L.Ed. 322 (1873)]. As was said in United States v. General Electric Co., 272 U.S. 476, 489 [47 S.Ct. 192, 196, 71 L.Ed. 362 (1926)], the patentee may grant a license "upon any condition the performance of which is reasonably within the reward which the patentee by the grant of the patent is entitled to secure" ....
The practice of granting licenses for restricted use is an old one, see Rubber Company v. Goodyear [76 U.S.] (9 Wall.) 788, 799, 800 [19 L.Ed. 566 (1870)]; Gamewell Fire-Alarm Telegraph Co. v. Brooklyn, 14 F. 255 (C.C.N.Y.1882)]. So far as it appears, its legality has never been questioned.
305 U.S. at 127, 59 S.Ct. at 117, 83 L.Ed. 81, 39 USPQ at 330.
Mallinckrodt, Inc., 976 F.2d at 704-5.
The court in Mallinckrodt, Inc., also set out the framework for analysis of whether or not a license is enforceable. First, "[r]estrictions on use are judged in terms of their relation to the patentee's right to exclude from all or part of the patent grant." Id. at 706; see also B. Braun Medical, Inc., 124 F.3d at 1426 ("The key inquiry under this fact-intensive doctrine is whether, by imposing the condition, the patentee has `impermissibly broadened the "physical or temporal" scope of the patent grant with anticompetitive effect.'") (quoting Windsurfing Int'l, Inc. v. AMF, Inc., 782 F.2d 995, 1001-02 (Fed.Cir.), cert. denied, cert. denied, 477 U.S. 905, 106 S.Ct. 3275, 91 L.Ed.2d 565 (1986)). "Should the restriction be found *1045 to be reasonably within the patent grant, i.e., that it relates to subject matter within the scope of the patent claims, that ends the inquiry." Id. at 708. On the other hand, "should such inquiry lead to the conclusion that there are anticompetitive effects extending beyond the patentee's statutory right to exclude, these effects do not automatically impeach the restriction," because, unless the restrictions are per se illegal, the rule of reason applies to determine whether or not the license is enforceable. Mallinckrodt, Inc., 976 F.2d at 708. Under the rule of reason, "`[t]o sustain a misuse defense involving a licensing arrangement not held to have been per se anticompetitive by the Supreme Court, a factual determination must reveal that the overall effect of the license tends to restrain competition unlawfully in an appropriately defined relevant market.'" Id. at 706 (quoting Windsurfing International, Inc., 782 F.2d at 1001-02).
In B. Braun Med., Inc. v. Abbott Labs., 124 F.3d 1419 (Fed.Cir.1997), the Federal Circuit Court of Appeals gave examples of "impermissible broadening" as (1) "using a patent which enjoys market power in the relevant market to restrain competition in an unpatented product, and (2) employing the patent beyond its 17-year term." B. Braun Medical, Inc., 124 F.3d at 1426 (internal citations omitted). However, the court added that "field of use restrictions ... are generally upheld." Id. Similarly, in Mallinckrodt, Inc., the court noted that, in General Talking Pictures, the Supreme Court "observed that a restrictive license to a particular use was permissible, and treated the purchaser's unauthorized use as infringement of the patent." Mallinckrodt, Inc., 976 F.2d at 705.
Turning to the key inquiry of whether the challenged restrictions in the license in this case are reasonably within the patent grant, Mallinckrodt, Inc., 976 F.2d at 708; accord B. Braun Medical, Inc., 124 F.3d at 1426, this court notes that the Patent Act provides that "every patent shall contain ... a grant to the patentee ... of the right to exclude others from making, using, offering for sale, or selling the invention throughout the United States." 35 U.S.C. § 154(a)(1). Thus, Pioneer's express limitation on any use other than production of grain or forage, which reserves to Pioneer the right to sell the invention, as stated, falls squarely within the patent grant. To put it another way, the restrictions in the Pioneer "limited label license" are "field of use restrictions," and such restrictions "are generally upheld." B. Braun Medical, Inc., 124 F.3d at 1426; Mallinckrodt, Inc., 976 F.2d at 705 ("[A] restrictive license to a particular use [i]s permissible."). Certainly, Ottawa has not asserted that the "limited label license" improperly attempts to employ the patent beyond its statutory term. B. Braun Medical, Inc., 124 F.3d at 1426.
Nor, the court concludes, has Ottawa pointed to any evidence of price-fixing and tying restrictions accompanying the sale of the patented goods, which would be per se illegal. See Mallinckrodt, Inc., 976 F.2d at 704. The "limited label license" does not profess to require that any resale be at a certain price; rather, the right to resell is simply not granted at all. Similarly, the "limited label license" does not expressly or even impliedly tie purchase or sale of Pioneer® brand seed corn to the purchase or sale of any other product. Thus, if there is any anticompetitive effect at all, it is not an anticompetitive effect that is per se illegal, and thus, the effect must be considered under the rule of reason. Id. at 708. Therefore, to overthrow the "limited label license" as a matter of law, or keep the issue in play for trial, Ottawa must demonstrate, or at least generate a genuine issue of material fact, that Pioneer's *1046 "limited label license" tends to restrain competition unlawfully in an appropriately defined relevant market. Id. at 706.
The court concludes that Ottawa has neither shown as a matter of law, nor generated a genuine issue of material fact, that the "limited label license" has the effect required for it to fail under the rule of reason, even granting that the pertinent inquiry is a "fact-intensive" one. The court finds no evidence in the record identifying restraints on competition within any appropriately defined relevant market. See id. At most, Ottawa asserts that Pioneer has imposed a prohibition on resale to discipline its licensed Sales Representatives and licensed dealers and to maintain prices, but Ottawa has pointed to no evidence demonstrating either such an intention or such an effect of the limited label license.
The "limited label license" at issue here is not, as a matter of law, unenforceable owing to any supposed anticompetitive effects.
iii. Contract principles. Ottawa also contends that Pioneer's "limited label license" is unenforceable under "contract principles," which Pioneer disputes. This part of the parties' dispute centers on their disagreement about which subparagraph of § 2-207(2) of the Uniform Commercial Code (UCC) is applicable. The provision in question provides as follows:
2. The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:
a. the offer expressly limits acceptance to the terms of the offer;
b. they materially alter it; or
c. notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
Uniform Commercial Code (UCC) § 2-207(2). Ottawa contends that subparagraph (b) makes the "limited label license" terms inapplicable here, because those terms materially altered the parties' contract, where none of the other sales documents indicated any limitation on the rights acquired by Ottawa. However, Pioneer contends that subparagraph (c) makes the "limited label license" enforceable, because Ottawa did not object to the terms of the "limited label license" within a reasonable time, indeed, never objected to those terms or returned the Pioneer® brand seed corn that Ottawa had purchased after learning of the limited rights that Ottawa had acquired.
The Federal Circuit Court of Appeals does not appear to have addressed the impact of UCC § 2-207(2)(b) on the enforceability of a limited license for a patented product or, indeed, in any other context. However, the Official Comment to UCC § 2-207 clarifies the meaning of the term "materially alter" in subparagraph (b), as follows:
3. Whether or not additional or different terms will become part of the agreement depends upon the provisions of subsection (2). If they are such as materially to alter the original bargain, they will not be included unless expressly agreed to by the other party. If, however, they are terms which would not so change the bargain they will be incorporated unless notice of objection to them has already been given or is given within a reasonable time.
4. Examples of typical clauses which would normally "materially alter" the contract and so result in surprise or hardship if incorporated without express awareness by the other party are: a clause negating such standard warranties *1047 as that of merchantability or fitness for a particular purpose in circumstances in which either warranty normally attaches; a clause requiring a guaranty of 90% or 100% deliveries in a case such as a contract by cannery, where the usage of the trade allows greater quantity leeways; a clause reserving to the seller the power to cancel upon the buyer's failure to meet any invoice when due; a clause requiring that complaints be made in a time materially shorter than customary or reasonable.
5. Examples of clauses which involve no element of unreasonable surprise and which therefore are to be incorporated in the contract unless notice of objection is seasonably given are: a clause setting forth and perhaps enlarging slightly upon the seller's exemption due to supervening causes beyond his control, similar to those covered by the provision of this Article on merchant's excuse by failure of presupposed conditions or a clause fixing in advance any reasonable formula of proration under such circumstances; a clause fixing a reasonable time for complaints within customary limits, or in the case of a purchase for sub-sale, providing for inspection by the sub-purchaser; a clause providing for interest on overdue invoices or fixing the seller's standard credit terms where they are within the range of trade practice and do not limit any credit bargained for; a clause limiting the right of rejection for defects which fall within the customary trade tolerances for acceptance "with adjustment" or otherwise limiting remedy in a reasonable manner (see Sections 2-718 and 2-719).
UCC § 2-207, Official Comment (1989) (emphasis added).
In Mallinckrodt, Inc., relying on UCC § 2-207(2)(c), the Federal Circuit Court of Appeals observed, "In accordance with the Uniform Commercial Code a license notice may become a term of sale, even if not part of the original transaction, if not objected to within a reasonable time." Mallinckrodt, Inc., 976 F.2d at 708 n. 7. It is not clear that this observation is anything more than dicta, nor does it appear that the court in Mallinckrodt, Inc., ever considered the effect of subparagraph (b) of UCC § 2-207(2). However, Official Comment 3 to UCC § 2-207 suggests that additional terms that materially alter the parties' agreement must be expressly accepted; only additional terms that do not materially alter the parties' agreement require objection to be excluded from the agreement pursuant to § 2-207(2)(c). Thus, this court does not believe that Mallinckrodt stands for the proposition that a party must always object to the terms of a limited license, pursuant to UCC § 2-207(2)(c), or the terms of the license are enforceable. Rather, terms that materially alter the parties agreement may be unenforceable, even in the absence of an objection.
Nevertheless, in Monsanto Co. v. Scruggs, 249 F.Supp.2d 746 (N.D.Miss. 2001), upon which Pioneer relies, the district court relied on the quoted language from Mallinckrodt to reject the argument of purchasers of seed that they had purchased the seed without executing a license agreement, even though restrictions appeared on the label of the seed. Scruggs, 249 F.Supp.2d at 754. The court held that, because the defendants had known about the restrictions on the use of the seed, from various sources, including the labels and trade journals, their failure to contest the terms of the license within a reasonable time after the sale suggested that Monsanto's licensing conditions became enforceable terms of the sale. Id. Thus, Scruggs stands for the proposition that knowledge of the limitations plus failure *1048 to object makes the terms of a "limited label license" enforceable, which is, in this court's view, a reasonable resolution of any tension between § 2-207(2)(b) (rejecting terms that materially alter the agreement) and § 2-207(2)(c) (accepting terms to which no objection has been made within a reasonable time), and in accord with Official Comment 3 to UCC § 2-207(2).[7]
Plainly, there is no evidence that Ottawa ever objected to the terms of the "limited label license," or ever returned any of the Pioneer® brand seed corn that it had acquired to Pioneer after learning of the terms of the "limited label license." Thus, the terms of the "limited label license" became terms of the parties' agreement regarding the sale and purchase of Pioneer® brand seed corn, even though the "limited label license" was not part of the original transaction, see Mallinckrodt, Inc., 976 F.2d at 708 (citing UCC § 2-207(2)(c)), unless, as explained above, the terms of the "limited label license" materially altered the terms of the parties' agreement, and thus did not become part of the parties' agreement pursuant to UCC § 2-207(2)(b). See UCC § 2-207(2)(b) & Official Comment 3.
Again, whether or not an additional term "materially alters" the terms of the parties' agreement depends, in essence, on whether the additional term "result[s] in surprise or hardship if incorporated without express awareness by the other party." UCC § 2-207, Official Comment 4. Here, a limitation on the use of the Pioneer® brand seed corn to produce grain or forage, which prohibits resale, would neither "surprise" nor cause "hardship" to the vast majority of purchasers of such seed corn, who are farmers who intend nothing other than using the seed corn to produce grain or forage. Nor would the restrictions imposed by the "limited label license" cause "surprise" or "hardship" to the only other usual "purchasers" of Pioneer® brand seed corn, Pioneer licensed dealers, who were separately licensed to sell or resell only to persons who would use the seed corn to produce grain or forage or to other licensed dealers. The only persons who could profess to be "surprised" or subjected to "hardship" by the restriction on resale in the "limited label license" are persons or entities, like Ottawa, who purchased the seed corn for the purpose of reselling it, but who were never supposed to be allowed to purchase the seed corn in the first place, under the undisputed facts concerning Pioneer's dual distribution system.
Nor can Ottawa generate a genuine issue of material fact that it was, itself, actually "surprised" by the restriction on resale in the "limited label license." The court concluded, above, that, as a matter of law, the "limited label license" appeared on all of the bag labels of Pioneer® brand seed corn that Ottawa purchased, and that, as a matter of law, such a "limited label license" provided Ottawa with adequate notice of the terms of the license. Thus, at least after its initial purchase of Pioneer® brand seed corn, Ottawa could no longer profess to be surprised that the sale was subject to the terms of a "limited label license," and so, the "limited label license" *1049 did not materially alter the terms of Ottawa's purchase of the seed corn within the meaning of UCC § 2-207(2)(b). See UCC § 2-207(2)(b) & Official Comment 4; cf. Scruggs, 249 F.Supp.2d at 754 (knowledge of the limitations in a license plus failure to object to those limitations makes the terms of a limited label license enforceable).
This case is, thus, controlled by UCC § 2-207(2)(c), not § 2-207(2)(b), and the absence of any objection to the terms of the "limited label license" by Ottawa means that the terms of the license became a part of the parties' agreement as a matter of law. See UCC § 2-207(2)(c) & Official Comment 3 (unless an additional term materially alters the parties' agreement, it becomes part of the agreement unless objected to within a reasonable time); Mallinckrodt, Inc., 976 F.2d at 708 n. 7 ("In accordance with [UCC § 2-207(2)(c)] a license notice may become a term of sale, even if not part of the original transaction, if not objected to within a reasonable time."). Pioneer is thus entitled to summary judgment on this last "liability" issue.
C. Damages Issues
The remaining four issues, all of which relate to damages or the prerequisites for damages, are raised only in Ottawa's motion for summary judgment. Thus, Pioneer bears the burden of generating a genuine issue of material fact to defeat summary judgment on each of these issues. See Eli Lilly & Co., 251 F.3d at 971 ("[T]he nonmoving party must affirmatively demonstrate by specific factual allegations that a genuine issue of material fact exists for trial.").
1. Marking or notice of patent rights
As the first of its challenges to Pioneer's ability to obtain damages in this case, Ottawa argues that Pioneer cannot satisfy the prerequisite for damages under 35 U.S.C. § 287(a), which states that, in the absence of adequate marking of a patented item with the pertinent patent number or numbers, "no damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter...." Pioneer contends that there are at least genuine issues of material fact as to whether or not it adequately "marked" its seed corn, making any other form of notice unnecessary.
a. Arguments of the parties
Ottawa contends that Pioneer simply failed to notify Ottawa of the existence of any of Pioneer's patents or that Pioneer was accusing Ottawa of infringing those patents until Pioneer filed the present lawsuit, at which time Ottawa ceased selling Pioneer® brand seed corn. Ottawa also contends that Pioneer provided no evidence that it ever marked its products with the patent numbers of the patents-in-suit, which might have excused Pioneer from giving other notice to Ottawa.
In response, Pioneer contends that compliance with § 287 requires only that the patentee consistently mark substantially all of its patented products with the pertinent patent numbers. Pioneer contends that such marking provides in rem notice and permits an award of damages against the infringer. Here, Pioneer contends that, beginning in 1996, it consistently marked substantially all of its seed corn products with bag tags stating the pertinent patent numbers in full compliance with § 287. Because it satisfied the "marking" requirement of § 287, Pioneer contends that it was not required to give any further "actual" notice to Ottawa before it is entitled to recover damages. However, Pioneer also contends that, both before and after 1996, its bag label provided *1050 "actual notice" as required by § 287 as an alternative to "marking."
In reply, Ottawa contends that there is no evidence that Pioneer marked its bags in compliance with § 287(a). Ottawa contends that this is so, because Pioneer has offered no evidence showing precisely when and during what period Pioneer's bags were marked with any particular patent numbers. Ottawa points out that the bag tags it has offered into the record do not include any patent numbers.
b. Applicable law
The so-called "marking" statute, 35 U.S.C. § 287(a), provides as follows:
(a) Patentees, and persons making, offering for sale, or selling within the United States any patented article for or under them, or importing any patented article into the United States, may give notice to the public that the same is patented, either by fixing thereon the word "patent" or the abbreviation "pat.", together with the number of the patent, or when, from the character of the article, this can not be done, by fixing to it, or to the package wherein one or more of them is contained, a label containing a like notice. In the event of failure so to mark, no damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice. Filing of an action for infringement shall constitute such notice.
35 U.S.C. § 287(a) (emphasis added). As the Federal Circuit Court of Appeals recently explained,
The statute does not specify when or under what circumstances damages may be recovered. Rather, it describes circumstances that effect a forfeiture of damages.... 35 U.S.C. § 287(a) (2000). Thus, section 287 "penalizes the use of unauthorized marks upon manufactured articles" and limits the extent to which damages may be recovered where products covered by a U.S. patent are sold without the notice defined in the statute. Wine Railway [Appliance Co. v. Enterprise Railway Equipment Co.], 297 U.S. [387,] 393, 56 S.Ct. [528,] 528, 80 L.Ed. 736 [ (1936) ]. The recovery of damages is not limited where there is no failure to mark, i.e., where the proper patent notice appears on products or where there are no products to mark. Id. As the Supreme Court so aptly stated:
The idea of a tangible article proclaiming its own character runs through this and related provisions. Two kinds of notice are specifiedone to the public by a visible mark, another by actual advice to the infringer. The second becomes necessary only when the first has not been given; and the first can only be given in connection with some fabricated article. Penalty for failure implies opportunity to perform.
Id. at 395, 56 S.Ct. 528.
Texas Digital Systems, Inc. v. Telegenix, Inc., 308 F.3d 1193, 1219-20 (Fed.Cir. 2002), cert. denied, ___ U.S. ___, 123 S.Ct. 2230, 155 L.Ed.2d 1108 (2003). Thus, "[t]he statute permits either constructive notice, which is accomplished by marking the article with the patent number, or actual notice." Gart v. Logitech, Inc., 254 F.3d 1334, 1345 (Fed.Cir.2001), cert. denied, 534 U.S. 1114, 122 S.Ct. 921, 151 L.Ed.2d 886 (2002).
In a case requiring "actual notice," that is, one in which the parties agreed that the patented device was not "marked," the Federal Circuit Court of Appeals explained that, although "compliance with the marking statute ... is a question of *1051 fact, ... this issue is properly decided upon summary judgment when no reasonable jury could find that the patentee either has or has not provided actual notice to the particular defendants by informing them of his patent and of their infringement of it." Gart, 254 F.3d at 1339 (internal citations and quotation marks omitted). Similarly, where, as here, the parties dispute whether or not the patented item was adequately "marked," summary judgment in Ottawa's favor would be appropriate only if no reasonable jury could find that the patentee, Pioneer, marked the patented product and, failing such "marking," no reasonable jury could find that Pioneer provided actual notice. Cf. id.; see also Texas Digital Systems, Inc., 308 F.3d at 1219-20 (actual notice is required if the patentee has not "marked" the patented article).
c. Analysis
i. Notice by "marking." The court concludes that this is not one of the situations in which no reasonable jury could find that Pioneer has complied with the "marking" statute. Cf. Gart, 254 F.3d at 1339. At a minimum, Pioneer has generated genuine issues of material fact on the question by pointing to evidence that, from 1996 on, it marked all or substantially all of its bag tags with the pertinent patent numbers for each variety of its patented seed corn. See Eli Lilly & Co., 251 F.3d at 971 ("[T]he nonmoving party must affirmatively demonstrate by specific factual allegations that a genuine issue of material fact exists for trial."). Ottawa's evidence that certain tags were not marked is not dispositive, because the tags on which Ottawa relies are dated 1992 and 1993, prior to the date that Pioneer contends that it first started marking its bag tags with pertinent patent numbers, which was in the 1996 sales season. Moreover, the "marking" statute provides that, "when, from the character of the article, [marking on the patented article] can not be done," the patentee can comply with the statute "by fixing to it, or to the package wherein one or more of them is contained, a label containing a like notice." 35 U.S.C. § 287(a). Thus, the "marking" statute itself authorizes "marking" via a "bag tag," as Pioneer contends that it has done in this case. Consequently, the court concludes that there are at least genuine issues of material fact as to whether or not Pioneer complied with the "constructive notice" portion of § 287(a), by "marking" the seed bags, beginning with the 1996 sales season.
ii. Actual notice. However, to recover damages for any sales by Ottawa prior to the 1996 sales season, because there was no "marking" via bag tags, Pioneer must demonstrate (or at this point, generate a genuine issue of material fact) that it provided Ottawa with "actual notice." 35 U.S.C. § 287(a); Texas Digital Systems, Inc., 308 F.3d at 1219-20; Gart, 254 F.3d at 1345. Pioneer contends that, even prior to the 1996 sales season, Ottawa had "actual notice" of Pioneer's patents and that Pioneer was accusing Ottawa of infringement. Such "actual notice," Pioneer contends, came from the "limited label license."
As the Federal Circuit Court of Appeals has explained, for purposes of the "actual notice" requirement of § 287(a), "mere `notice of the patent's existence or ownership' is not `notice of infringement,' and as such would be insufficient to comply with section 287(a)." Gart, 254 F.3d at 1345 (citing Amsted Indus., Inc. v. Buckeye Steel Castings Co., 24 F.3d 178, 187 (Fed.Cir.1994)). Instead, "`affirmative communication [to the alleged infringer] of a specific charge of infringement by a specific accused product or device' is required *1052 to comply with section 287(a)." Id. (quoting Amsted Indus., Inc., 24 F.3d at 187). Although a threat of suit for infringement is not required, "`[informing the alleged infringer] of the identity of the patent and the activity that is believed to be an infringement, accompanied by a proposal to abate the infringement, whether by license or otherwise' complies with the actual notice requirement of the marking statute." Id. at 1345 (quoting SRI Int'l, Inc. v. Advanced Tech. Labs., Inc., 127 F.3d 1462, 1470 (Fed.Cir.1997)).
The "limited label license" on bags of Pioneer ® brand seed corn prior to the 1996 sales season, as quoted above, at page 7, see Hall Affidavit, ¶ 16, Plaintiff's Appendix In Support Of Its Motion For Partial Summary Judgment at 3, does not reference any patent, activity of the specific defendant believed by Pioneer to be infringement, threaten suit, or otherwise propose means of abatement. Gart, 254 F.3d at 1345. Therefore, the court concludes that, as a matter of law, the "limited label license" itself does not provide the "actual notice" required by the "marking" statute, even if it unambiguously notifies the buyer that the buyer is licensed only to produce grain or forage, not to resell the seed corn. Where a patentee fails to provide either the constructive notice, by marking, or the actual notice required by § 287(a), no damages can be recovered. See 35 U.S.C. § 287(a); Texas Digital Systems, Inc., 308 F.3d at 1219-20.
Consequently, Ottawa's motion for summary judgment on the issue of damages will be granted as to any claim for damages prior to the 1996 sales season, but will be denied as to Pioneer's claim for damages for the 1996, 1997, and 1998 sales seasons.
2. Damages for infringement
Next, Ottawa contends that it is entitled to summary judgment on Pioneer's prayer for compensatory damages, because Pioneer has no evidence that any of the seed tags or seed bags purchased and resold by Ottawa contained any language prohibiting resale to support Pioneer's claim for damages under 35 U.S.C. § 284. In other words, Ottawa contends that, where there was no infringement, there can be no damages. Pioneer also disputes that summary judgment is appropriate on this issue.
a. Arguments of the parties
Ottawa argues that § 284 allows an award of damages for infringement, but if there has been no infringement, there can be no award of damages. There is no evidence of infringement here, and hence, no possibility of damages, Ottawa contends, because Pioneer has not shown that it restricted the resale of any seed corn. Essentially, this "damages" argument is a repackaging of Ottawa's "liability" argument that Pioneer has presented no evidence demonstrating that a use or resale restriction was part of the contract between Pioneer and Ottawa or that Ottawa even had notice of any restrictions on resale when it made its sales. Thus, Ottawa argues that Pioneer is not entitled to damages for infringement.
Pioneer counters that, as explained in its own motion for partial summary judgment on "liability" issues, there is ample evidence that the restrictive label license appeared on every bag of its seed corn, that the label license is enforceable, and that Ottawa resold the seed corn notwithstanding the restrictions on doing so. Therefore, Pioneer contends that it is entitled to damages in some amount on its infringement claim.
b. Applicable law
Section 284 of Title 35 provides, in pertinent part, as follows:
*1053 Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.
35 U.S.C. § 284. The Federal Circuit Court of Appeals has held that "[t]he statute is unequivocal that the district court must award damages in an amount not less than a reasonable royalty" upon a finding of infringement. See Dow Chem. Co. v. Mee Indus., Inc., 341 F.3d 1370, 1381 (Fed.Cir.2003) (citing § 284 and Lindemann Maschinenfabrik GmbH v. Am. Hoist & Derrick Co., 895 F.2d 1403, 1406 (Fed.Cir.1990), which states, "In patent law, the fact of infringement establishes the fact of damage because the patentee's right to exclude has been violated."). It is clear, therefore, that a finding of infringement is a prerequisite to damages under § 284.
c. Analysis
The court's rulings, in Section IV. B., on "liability" issues, demonstrate that all of the bars to finding Ottawa liable for patent infringement have been removed. What remains, however, is a finding of infringement. Ottawa concedes that it resold bags of Pioneer ® brand seed corn between 1992 and 1998, and that it was without any license to do so. This court has also found that, as a matter of law, the "limited label license" prohibited reselling by Ottawa and that the "limited label license" is enforceable. Therefore, as a matter of law, Ottawa infringed Pioneer's patent rights by reselling Pioneer ® brand seed corn in violation of the terms of the "limited label license." Consequently, there are at least genuine issues of material fact as to whether or not Pioneer is entitled to damages for Ottawa's infringement under § 284. This portion of Ottawa's motion for summary judgment will be denied.
3. Full compensation from prior sale
As its penultimate "damages" issue, Ottawa contends that, as a matter of law, Pioneer has already recovered its full profits in connection with the first sale of any seed, so that it is not entitled to any compensatory damages for Ottawa's allegedly wrongful conduct. Pioneer, however, disputes this contention, arguing that there are genuine issues of material fact as to whether or not it has been fully compensated for the value of its patent rights.
a. Arguments of the parties
Ottawa contends that Pioneer cannot show that it suffered any loss for which it is entitled to compensatory damages. Ottawa contends that Pioneer's calculation of damages based on an average profit of $30 per bag, or a total in lost profits of $121,830 for 4,061 bags sold by Ottawa, is flawed, because the bags did yield the actual profit that Pioneer found acceptable when it sold them to Ottawa or sold them to a dealer who sold them to Ottawa. Ottawa also argues that Pioneer's contention that Ottawa's sales took profits away from Pioneer is flawed, because it is based on the faulty assumption that Pioneer would have sold the seed to Ottawa as well as to Ottawa's customers, when there are in fact a finite number of end users, so that Ottawa's sales did not in fact deprive Pioneer of any customers. Therefore, Ottawa contends that Pioneer cannot show that it realized any less profit because of Ottawa's activities.
Pioneer, however, contends that it is Ottawa that is mistaken about the basis for damages in this case. First, Pioneer points out that 35 U.S.C. § 284 states, in mandatory terms, that upon a finding of infringement, the court shall award the *1054 claimant damages adequate to compensate for the infringement, but in no event less than a "reasonable royalty." Pioneer also contends that Ottawa's "no lost profits" argument is again based on the faulty premise that the "first sale" rule applies in this case. However, Pioneer points out that what it made on sales to Ottawa was a profit on a conditional sale, that is, a sale to an end user to produce forage or grain, but Ottawa paid nothing for other patent rights, such as the right to resell the seed. In other words, Pioneer contends that any prior sale compensated it only for the value of the rights conveyed, the rights to use the seed corn to produce grain or forage, not the rights to resell the seed corn or any of the other patent rights that Pioneer "reserved" with its "limited label license." Thus, Pioneer argues, it is entitled to damages for unauthorized reselling under 35 U.S.C. § 284.
b. Applicable law
Again, § 284 makes the award of damages mandatory upon a finding of infringement, and further states that the damages shall "in no event [be] less than a reasonable royalty for the use made of the invention by the infringer." 35 U.S.C. § 284; Dow Chem. Co., 341 F.3d at 1381 ("The statute is unequivocal that the district court must award damages in an amount no less than a reasonable royalty" upon a finding of infringement). The Federal Circuit Court of Appeals has also noted that further terms of § 284 make it "clear that expert testimony is not necessary to the award of damages, but rather `may [be] receive[d] ... as an aid.'" Dow Chem. Co., 341 F.3d at 1382 (quoting 35 U.S.C. § 284, with emphasis added by the Dow court). A "reasonable royalty" is determined according to the so-called "Georgia-Pacific factors." Id. (citing Georgia-Pacific Corp. v. United States Plywood Corp., 318 F.Supp. 1116, 1120 (S.D.N.Y. 1970)). Similarly, the Federal Circuit Court of Appeals has explained that, where something less than all of the rights in the patent have been "sold" to a buyer, "[t]he price paid by the purchaser `reflects only the value of the "use" rights conferred by the patentee.'" Monsanto Co., 302 F.3d at 1299 (quoting B. Braun Medical, Inc., 124 F.3d at 1426), and the "first sale" or "patent exhaustion" rule does not apply. Id.; B. Braun Med., Inc., 124 F.3d at 1426 ("This exhaustion doctrine, however, does not apply to an expressly conditional sale or license.").
c. Analysis
To the extent that this "no damages" argument by Ottawa is a "repackaging" of its "first sale" or "patent exhaustion" argument, that argument fails as a matter of law. Prior sales to Ottawa do not fully compensate Pioneer, because those conditional sales "reflect[ed] only the value of the `use' rights conferred by the patentee," here, the rights to use the seed corn to produce grain or forage. Monsanto Co., 302 F.3d at 1299) (quoting B. Braun Medical, Inc., 124 F.3d at 1426). Pursuant to § 284, Pioneer is now entitled to recover at least a reasonable royalty for the infringement of the rights that it did not convey to Ottawa. 35 U.S.C. § 284; Dow Chem. Co., 341 F.3d at 1382. Therefore, this portion of Ottawa's motion for summary judgment on "no damages" will be denied. Because Ottawa put at issue in its motion for summary judgment only whether Pioneer was entitled to damages under § 284, in light of Ottawa's "full compensation" argument, the parties have not yet litigated the amount of any "reasonable royalty."
4. Increased damages for "willful" infringement
Finally, Ottawa contends that it is entitled to summary judgment on any prayer *1055 Pioneer may make for increased damages for "willful" infringement pursuant to 35 U.S.C. § 284. Pioneer contends that there are at least genuine issues of material fact to be resolved by a jury on whether or not Ottawa's conduct constituted "willful" infringement.
a. Arguments of the parties
Even assuming that Pioneer can prove infringement, which Ottawa disputes, Ottawa contends that Pioneer cannot generate a genuine issue of material fact that Ottawa's conduct constituted "willful" infringement. This is so, Ottawa contends, because Pioneer cannot satisfy the applicable burden to show by clear and convincing evidence either that Ottawa was aware of Pioneer's patents or that Ottawa lacked a reasonable basis for a good faith belief that its conduct in reselling Pioneer ® brand seed corn did not infringe Pioneer's patent rights. First, Ottawa reiterates its contention that there is no evidence that it ever resold bags marked with patent numbers, or that Pioneer asserted that it sold the bags of seed corn subject to a restriction on resale, so that Ottawa had no idea Pioneer was asserting patent infringement until this suit was filed against it. Ottawa also contends that its remedial action in desisting from further sales once Pioneer filed suit cuts against any finding that its conduct was "willful."
Pioneer, however, contends that there is ample evidence of Ottawa's "willfulness" to generate a jury question on the issue. First, Pioneer points to its May 1994 letter advising Ottawa that it was improper for Pioneer's Sales Representatives or dealers to sell Pioneer ® brand seed corn to resellers such as Ottawa, which, at a minimum, suggested to Ottawa that its conduct was improper. Ottawa's characterization of that letter as a complaint about the conduct of Pioneer's own sales force is undercut, Pioneer contends, by Ottawa's representations that it contacted the FTC and the Illinois Attorney General's Office after receiving the letter purportedly to attempt to verify that reselling the seed corn was legal. However, Pioneer contends that those contacts with the FTC and the Illinois Attorney General's Office do not establish Ottawa's "good faith," because Ottawa made no attempt to determine the qualifications of the persons contacted at each body to offer an opinion, received no written opinion from either body, and Ottawa's inquiries failed to include the key information that the seed corn bag labels and bag tags included restrictions on use and resale. Moreover, Pioneer contends that there is evidence that Ottawa continued to resell Pioneer ® brand seed corn for about two years after the bags of corn were "marked" with patent numbers. Pioneer also points to the deposition testimony of Lester Borden, Ottawa's former controller, that Ottawa's president and primary seed sales personnel simply didn't care that Pioneer objected to Ottawa's reselling activity. Pioneer also points to evidence that Ottawa engaged in various kinds of trickery, chicanery, and subterfuge to obtain Pioneer ® brand seed corn, such as covering up the markings on its trucks when it picked up Pioneer ® brand seed corn as well as other conduct designed to hide its identity as the buyer of the seed, so that it would not be recognized as a reseller of seed rather than a corn producer. Pioneer points out that Ottawa did not even attempt to obtain an opinion of counsel about the propriety of its conduct until after Pioneer instituted this litigation against Ottawa.
In its reply, Ottawa contends that, because there was no proper notice of potential patent infringement until this lawsuit was commenced, nothing that happened prior to the filing of the lawsuit is relevant to the "willfulness" inquiry. Ottawa points *1056 out that it ceased purchasing or reselling Pioneer ® brand seed corn once this lawsuit was filed against it.
b. Applicable law
Section 284 also provides that, in the event either the jury or the court finds damages, "the court may increase the damages up to three times the amount found or assessed." 35 U.S.C. § 284. The Federal Circuit Court of Appeals has explained that determination of whether or not the court should award "increased" damages pursuant to this portion of § 284 involves a two-step process:
Enhancement of damages under 35 U.S.C. § 284 involves the fact-finder determining that the infringer engaged in culpable conduct and the court exercising its discretion to determine whether and to what extent to enhance the damages. Jurgens v. CBK, Ltd., 80 F.3d 1566, 1570, 38 USPQ2d 1397, 1399 (Fed. Cir.1996). The jury's finding of willfulness satisfies the first step, see id., and is also one of the factors the court assesses in performing the second step, see Read [Corp. v. Portec, Inc.], 970 F.2d [816,] 827, 23 USPQ2d [1426,] 1435 [(Fed.Cir.1992)]. However, there are other factors relevant to the second step. See id. (listing as factors: (1) deliberate copying; (2) infringer's investigation and good-faith belief of invalidity or non-infringement; (3) litigation conduct; (4) infringer's size and financial condition; (5) closeness of the case; (6) duration of the misconduct; (7) remedial action by the infringer; (8) infringer's motivation for harm; and (9) concealment). A finding of willful infringement "authorizes but does not mandate an award or increased damages." Modine Mfg. Co. v. Allen Group, Inc., 917 F.2d 538, 543, 16 USPQ2d 1622, 1625 (Fed. Cir.1990).
Transclean Corp. v. Bridgewood Servs., Inc., 290 F.3d 1364, 1377-78 (Fed.Cir. 2002); accord Riles v. Shell Exploration & Production Co., 298 F.3d 1302, 1314 (Fed. Cir.2002) ("A finding of willfulness does not mandate enhanced damages. Rather, [t]he paramount determination [for enhanced damages] ... is the egregiousness of the defendant's conduct based on all the facts and circumstances.") (internal citations and quotation marks omitted). "When it is found that the infringer acted without a reasonable belief that its actions would avoid infringement, the patentee has established willful infringement, which may be accompanied by enhanced damages." Vulcan Eng'g Co., Inc. v. Fata Aluminium, Inc., 278 F.3d 1366, 1378 (Fed.Cir.2002) (citing Crystal Semiconductor Corp. v. TriTech Microelectronics Int'l, Inc., 246 F.3d 1336, 1346, 57 USPQ2d 1953, 1957 (Fed.Cir.2001)). "Willfulness" is a question of fact that must be proved by clear and convincing evidence. Johns Hopkins Univ. v. CellPro, Inc., 152 F.3d 1342, 1363 (Fed.Cir.1998). The language of the statute providing for an increase in damages "up to three times the amount found or assessed," see 35 U.S.C. § 284, the Federal Circuit Court of Appeals has explained, "simply recognize[s] the upper range of the possible enhancement," but does not limit the court to a "trebling" of the basic damage award. Transclean Corp., 290 F.3d at 1378. The district court's determination of whether or not to award "increased" damages is reviewed for abuse of discretion. Id.
c. Analysis
To keep the issue of "increased" damages in play, Pioneer must "demonstrate by specific factual allegations that a genuine issue of material fact exists for trial." Eli Lilly & Co., 251 F.3d at 971. The court is satisfied that Pioneer has met this burden.
*1057 As to the first step in the "increased damages" analysis under § 284, the fact-finder's determination of whether or not the infringer engaged in culpable conduct, see Transclean Corp., 290 F.3d at 1377, Pioneer has generated genuine issues of material fact that Ottawa's infringement was "willful" by pointing to evidence that its May 1994 letter advising Ottawa that it was improper for Pioneer's Sales Representatives or dealers to sell Pioneer ® brand seed corn to resellers such as Ottawa, at a minimum, suggested to Ottawa that its conduct was improper; evidence that Ottawa continued to resell Pioneer ® brand seed corn for about two years after the bags of corn were "marked" with patent numbers; deposition testimony of Lester Borden, Ottawa's former controller, that Ottawa's president and primary seed sales personnel simply didn't care that Pioneer objected to Ottawa's reselling activity; and evidence that Ottawa engaged in various kinds of trickery, chicanery, and subterfuge to obtain Pioneer ® brand seed corn, such as covering up the markings on its trucks when it picked up Pioneer ® brand seed corn and other conduct designed to hide its identity as the buyer of the seed, so that it would not be recognized as a reseller of seed rather than a corn producer. Moreover, Pioneer has pointed to evidence that Ottawa acted without a reasonable belief that its actions would avoid infringement, see Vulcan Eng'g Co., 278 F.3d at 1378, notwithstanding Ottawa's supposed reliance on opinions from the FTC and the Illinois Attorney General's Office that Ottawa could properly sell Pioneer ® brand seed corn. As Pioneer contends, Ottawa made no attempt to determine the qualifications of the persons contacted at each body to offer an opinion, received no written opinion from either body, and Ottawa's inquiries failed to divulge the key information that the seed corn bag labels and bag tags included restrictions on use and resale.
Similarly, as to the second step in the analysis, whether the court, exercising its discretion, should increase damages and to what extent, Pioneer's evidence implicates several of the nine pertinent factors. See Transclean Corp., 290 F.3d at 1377-78. At a minimum, Pioneer has produced evidence that Ottawa's "investigation and good-faith belief of non-infringement" were seriously flawed; that Ottawa continued to resell Pioneer ® brand seed corn for years after it had adequate knowledge, from the unambiguous terms of the bag labels and bag tags, and the May 1994 letter, that such conduct was forbidden by Pioneer (duration of misconduct); that Ottawa took no "remedial action" until 1998, when it was sued for infringement; and that Ottawa "concealed" its identity as the buyer of Pioneer ® brand seed corn. Id. at 1378 (identifying nine factors pertinent to the court's determination of whether or not to enhance damages). Moreover, the genuine issues of material fact on Ottawa's "willfulness" also generate genuine issues of material fact on the second step of the inquiry. See id. at 1377 ("The jury's finding of willfulness ... is also one of the factors the court assesses in performing the second step.").
Thus, Ottawa is not entitled to summary judgment on Pioneer's prayer for "increased" damages pursuant to § 284.
V. CONCLUSION
For the reasons explained more fully above, Ottawa's July 22, 2003, Motions For Summary Judgment Of Noninfringement And No Damages (docket no. 174) and Pioneer's July 22, 2003, Motion For Partial Summary Judgment Re: Infringement And Enforceability Of Pioneer's Limited Label License And Re: Ottawa's Affirmative Defense Under The Doctrine Of Patent *1058 Exhaustion (docket no. 175) are granted or denied, as follows:
1. Ottawa's motion for summary judgment is denied and Pioneer's motion for partial summary judgment is granted as to whether Ottawa's purchase and resale of Pioneer ® brand seed corn is immunized from liability for patent infringement under the "first sale" or "patent exhaustion" doctrine. The "first sale" or "patent exhaustion" doctrine is inapplicable as a matter of law.
2. Ottawa's motion for summary judgment is denied and Pioneer's motion for partial summary judgment is granted as to whether Ottawa had notice of and was bound by Pioneer's restrictions in its "limited label license." As a matter of law, Ottawa had notice of and was bound by Pioneer's restrictions in its "limited label license."
3. Ottawa's motion for summary judgment is denied and Pioneer's motion for partial summary judgment is granted as to whether Pioneer's "limited label license" restrictions are enforceable or are instead unenforceable as against public policy owing to their anticompetitive effect or unenforceable under applicable contract principles. The restrictions are enforceable as a matter of law.
4. Ottawa's motion for summary judgment is denied in part and granted in part as to whether Ottawa had notice of the patents-in-suit and alleged infringement supporting Pioneer's claim for compensatory damages under 35 U.S.C. § 287. The motion is denied as to a prayer for damages for the 1996, 1997, and 1998 sales seasons, but granted as to sales seasons prior to 1996.
5. Ottawa's motion for summary judgment is denied as to whether any of the seed tags or seed bags purchased and resold by Ottawa contained any language prohibiting resale supporting Pioneer's claim for damages under 35 U.S.C. § 284.
6. Ottawa's motion for summary judgment is denied as to whether Pioneer has already recovered its full profits in connection with the first sale of any seed, so that Pioneer is not entitled to any compensatory damages.
7. Ottawa's motion for summary judgment is denied as to Pioneer's prayer for "increased" damages pursuant to 35 U.S.C. § 284.
Further, Ottawa's August 12, 2003, Motion To Strike Certain Paragraphs Of Bruce Hall's Affidavit (docket no. 187) is denied as moot in light of the court's disposition of the cross-motions for summary judgment.
IT IS SO ORDERED.
NOTES
[1] In this action, the United States Supreme Court has determined, inter alia, that the plaintiff's newly developed plants are patentable subject matter. See J.E.M. AG Supply, Inc. d/b/a Farm Advantage, Inc. v. Pioneer Hi-Bred International, Inc., 534 U.S. 124, 122 S.Ct. 593, 151 L.Ed.2d 508 (2001), reh'g denied, 535 U.S. 1013, 122 S.Ct. 1600, 152 L.Ed.2d 515 (2002).
[2] With the exception of patent exhaustion, Ottawa's affirmative defenses are not at issue in either party's cross-motion for summary judgment or partial summary judgment.
[3] Ottawa's motion for summary judgment does not involve any challenge to the validity of the patents-in-suit.
[4] Ottawa appears to complain that Pioneer has not responded fully to Ottawa's request for documents upon which Mr. Hall relied, either in his deposition or affidavit. However, the court does not read Ottawa's motion to strike as requesting sanctions for failure to make discovery pursuant to Rule 37(c)(1). See generally Cooperative Fin. Ass'n, Inc. v. Garst, 917 F.Supp. 1356, 1373-74 (N.D.Iowa 1996).
[5] Indeed, in General Talking Pictures Corp. v. Western Electric Co., 304 U.S. 175, 58 S.Ct. 849, 82 L.Ed. 1273 (1938), the Supreme Court, in its consideration of a license "to manufacture ... and to sell," noted that "[p]atent owners may grant licenses extending to all uses or limited to use in a defined field," see General Talking Pictures, 304 U.S. at 181, 58 S.Ct. 849, thereby suggesting that "use" is the generic term encompassing all of a patent holder's rights, including manufacture and sale.
[6] The court recognizes that it is here relying on several of the paragraphs of Mr. Hall's affidavit that Ottawa has challenged. These paragraphs, however, are specific examples of the court's general observation that any differences between Mr. Hall's deposition testimony and his affidavit appear to be primarily clarifications and amplifications in his affidavit of issues addressed in his deposition or matters on which he professed lack of knowledge or memory at the time of his deposition. Thus, these paragraphs do not offend the standards for consideration of a subsequent affidavit. See Helm Fin. Corp., 214 F.Supp.2d at 955.
[7] The court notes that both parties have devoted a good share of their briefs to arguing the applicability or inapplicability, and indeed, the persuasiveness and authority, of various decisions involving the application of UCC § 2-207(2) to so-called "shrinkwrap licenses" for computer software or other products. The court has not engaged in a similar extended discussion of those precedents, because the court finds that the principles involved in UCC § 2-207(2), as explained in the text above, and the facts of this case suffice to reach the appropriate resolution of the cross-motions for summary judgment or partial summary judgment. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2468833/ | 740 F.Supp.2d 293 (2010)
Hernan ACEVEDO-PADILLA et al., Plaintiffs,
v.
NOVARTIS EX LAX, INC., Defendant.
Civil No. 08-1185 (SEC).
United States District Court, D. Puerto Rico.
September 30, 2010.
*296 Vilma M. Dapena-Rodriguez, Vilma Maria Dapena Law Office, Bayamon, PR, for Plaintiffs.
Jaime Luis Sanabria-Montanez, Enrique R. Padro, Fiddler Gonzalez & Rodriguez, P.S.C., San Juan, PR, for Defendant.
OPINION and ORDER
SALVADOR E. CASELLAS, Senior District Judge.
Pending before this Court is Defendant Ex Lax, Inc.'s ("Defendant" or "Ex Lax") motion for summary judgment. Docket # 29. Plaintiffs Hernan Acevedo-Padilla ("Acevedo"), Nitza I. Medina-Martinez, and their conjugal partnership (collectively "Plaintiffs") opposed (Docket # 64), Defendant replied (Docket # 89), and Plaintiffs sur-replied (Docket # 101). After reviewing the filings, and the applicable law, Defendant's motion is GRANTED.
Procedural Background
On February 12, 2008, Plaintiffs filed suit against Defendant under the Age Discrimination in Employment Act ("ADEA"), 29 U.S.C. § 621 et seq., Puerto Rico Law No. 80, P.R. Laws Ann. tit. 29, § 185(a), Law No. 100, P.R. Laws Ann. tit. 29, § 146 et seq., and Articles 1802 and 1803 of the Puerto Rico Civil Code, P.R. Laws Ann. tit. 31, § 5141 & 5142. According to Plaintiffs, Acevedo was subjected to harassment, and eventually dismissed because of his age, and replaced by a younger employee with similar job qualifications. Defendant filed its answer (Docket # 3), and discovery then ensued.
On March 25, 2009, Defendant moved for summary judgment, arguing that Plaintiffs failed to establish a prima facie case of age based discrimination. Docket # 29. Specifically, Ex-Lax argues that Acevedo was dismissed because he did not meet the legitimate work expectations, and not because of his age. Defendant further contends that Acevedo has not shown that the proffered reason for his dismissal is a mere pretext for discrimination. Defendant also argues that Plaintiffs fail to set forth a harassment claim under the ADEA. As such, Ex-Lax contends that summary judgment is warranted.
In opposition, Plaintiffs aver that Acevedo met his employer's legitimate work expectations. They further contend that Ex-Lax's proffered reasons for Acevedo's dismissal is a pretext. Specifically, they point to Carlos Ceinos ("Ceinos"), ExLax's *297 Site Leader's, alleged derogatory comments about employees in Acevedo's age range. Moreover, they argue that Acevedo received satisfactory reviews, performance bonuses and salary increases. According to Plaintiffs, Ceinos' remarks and conduct show that Acevedo's subsequent dismissal was motivated by discriminatory animus.
Standard of Review
FED. R. CIV. P. 56(b) provides that: "A party against whom a claim ... is asserted... may, at any time, move with or without supporting affidavits for a summary judgment in the party's favor as to all or any part [of the claims asserted against him/her]." The Court may grant the movant's motion for summary judgment when "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 also, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Ramírez Rodríguez v. Boehringer Ingelheim, 425 F.3d 67, 77 (1st Cir.2005). At this stage, the court examines the record in the "light most favorable to the nonmovant," and indulges all "reasonable inferences in that party's favor." Maldonado-Denis v. Castillo-Rodríguez, 23 F.3d 576, 581 (1st Cir.1994).
Once the movant has averred that there is an absence of evidence to support the nonmoving party's case, the burden shifts to the nonmovant to establish the existence of at least one fact in issue that is both genuine and material. Garside v. Osco Drug, Inc., 895 F.2d 46, 48 (1st Cir. 1990) (citations omitted). "A factual issue is `genuine' if `it may reasonably be resolved in favor of either party' and, therefore, requires the finder of fact to make `a choice between the parties' differing versions of the truth at trial.'" DePoutot v. Raffaelly, 424 F.3d 112, 116 (1st Cir.2005) (quoting, Garside, 895 F.2d at 48 (1st Cir. 1990)). By like token, `material' "means that a contested fact has the potential to change the outcome of the suit under the governing law if the dispute over it is resolved favorably to the nonmovant." Rojas-Ithier v. Sociedad Espanola de Auxilio Mutuo, 394 F.3d 40, 42-43 (1st Cir.2005) (citations omitted). Therefore, there is a trial-worthy issue when the "evidence is such that there is a factual controversy pertaining to an issue that may affect the outcome of the litigation under the governing law, and the evidence is sufficiently open-ended to permit a rational fact-finder to resolve the issue in favor of either side." Id. (citations omitted).
In order to defeat summary judgment, the opposing party may not rest on conclusory allegations, improbable inferences, and unsupported speculation. See, Hadfield v. McDonough, 407 F.3d 11, 15 (1st Cir.2005) (citing, Medina-Munoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5, 8 (1st Cir.1990)). Nor will "effusive rhetoric" and "optimistic surmise" suffice to establish a genuine issue of material fact. Cadle Co. v. Hayes, 116 F.3d 957, 960 (1st Cir. 1997). Once the party moving for summary judgment has established an absence of material facts in dispute, and that he or she is entitled to judgement as a matter of law, the `party opposing summary judgement must present definite, competent evidence to rebut the motion.' Méndez-Laboy v. Abbott Lab., 424 F.3d 35, 37 (1st Cir.2005) (quoting, Maldonado-Denis v. Castillo Rodriguez, 23 F.3d 576, 581 (1st Cir.1994)). "The nonmovant must produce specific facts, in suitable evidentiary form sufficient to limn a trialworthy issue.... Failure to do so allows the summary judgment engine to operate at full *298 throttle." Id.; see also Kelly v. United States, 924 F.2d 355, 358 (1st Cir.1991) (warning that "the decision to sit idly by and allow the summary judgment proponent to configure the record is likely to prove fraught with consequence."); Medina-Munoz, 896 F.2d at 8, (quoting Mack v. Great Atl. & Pac. Tea Co., 871 F.2d 179, 181 (1st Cir.1989)) (holding that "[t]he evidence illustrating the factual controversy cannot be conjectural or problematic; it must have substance in the sense that it limns differing versions of the truth which a factfinder must resolve").
Applicable Law and Analysis
Before setting forth the facts found by this Court to be undisputed and relevant to the matter at hand, we must first address several compliance issues presented to the Court when reviewing Defendant's and Plaintiffs' statements of facts.
Because the instant motions are for summary judgment, the parties must comply with the requirements of Local Rule 56, and file a separate, short and concise statement of facts, set forth in numbered paragraphs, and supported by record citations as required in Local Rule 56(e). See Local Rule 56(b). In turn, when confronted with a motion for summary judgment, the opposing party must:
[s]ubmit with its opposition a separate, short, and concise statement of material facts. The opposing statement shall admit, deny or qualify the facts supporting the motion for summary judgment by reference to each numbered paragraph of the moving party's statement of material facts. Unless a fact is admitted, the opposing statement shall support each denial or qualification by a record citation as required by this rule.
Local Rule 56(c). If the opposing party fails to do so, "summary judgment should, if appropriate, be entered." Rule 56(e)(2).
Local Rule 56(e) provides that "[t]he court may disregard any statement of fact not supported by a specific citation to record material properly considered on summary judgment." Moreover, "the court shall have no independent duty to search or consider any part of the record not specifically referenced in the parties' separate statements of facts." Id. These rules "are meant to ease the district court's operose task and to prevent parties from unfairly shifting the burdens of litigation to the court." Cabán Hernández v. Philip Morris USA, Inc., 486 F.3d 1, 8 (1st Cir. 2007). The First Circuit has repeatedly held that when the parties ignore the Local Rules, they do so at their peril. See Ruiz Rivera v. Riley, 209 F.3d 24, 28 (1st Cir.2000). Local Rule 56(c) also requires that, if the nonmoving party includes any additional facts, such facts must be in a separate section, set forth in separate numbered paragraphs, and supported by a specific record citation.
When denying or qualifying Ex-Lax's Statement of Uncontested Facts ("Ex-Lax's SUF"), Plaintiffs included additional facts that did not specifically correlate to Ex-Lax's proposed facts. More specifically, Plaintiffs failed to note that a party's denial or qualification of a proposed fact must be strictly limited to the issue therein raised. Any additional information shall be included in a separate section in order to ease the Court's task. In fact, a substantial part of Plaintiffs' additional facts are later included in a separate section of additional facts. As a result, Plaintiffs have filed hundreds of pages of repetitive arguments, which is precisely what Rule 56 seeks to avoid, forcing the opposing party and the Court to revise numerous pages of sometimes repetitive and irrelevant information. Accordingly, any additional facts provided by Plaintiff when denying or qualifying Ex-Lax's SUF *299 will be disregarded by this Court. Notwithstanding, Plaintiff's additional facts at Docket # 57, pp. 102-120 are deemed admitted when supported by the record, and not properly controverted by Ex-Lax. Ex-Lax also ran afoul of Local Rule 56 when citing numerous pages of their reply when opposing Plaintiffs' facts, instead of providing concise and specific responses. This Court will not cite all the instances in which the parties failed to comply with the applicable rules in their over 500 pages of arguments. Suffice it to say that this has unduly burdened our task far beyond the reasonable boundaries, thus counsel are strongly advised to refrain from similar conduct in the future.
After reviewing the filings, the relevant uncontested facts are as follows.
Ex-Lax is a pharmaceutical corporation that manufactures over-the-counter products, including laxatives. Ex-Lax's SUF ¶ 1. Ex-Lax's operations are highly regulated and monitored by the Food and Drug Administration and are required to fully comply with the Good Manufacturing Practices (hereinafter referred to as "GMP's"). Id.[1]
In April 2003, Ceinos became Ex-Lax's Site Leader. Ex-Lax's SUF ¶ 18. He is a Chemical Engineer; with a bachelor's degree in Chemical Engineering from the University of Puerto Rico, Mayagüez Campus. Id. at 17. Ceinos also earned a master's degree in Chemical Engineering from the same university. Id. As Ex-Lax's Site Leader, Ceinos is responsible for the overall operations of Ex-Lax's site. Id. at 19. He is responsible for establishing the company's goals and objectives for the areas of finance, manufacturing, quality assurance, health, safety and environment, human resources, compliance, materials management, and maintenance functions. Id. He is also the liaison with corporate headquarters to ensure that all objectives are achieved on schedule and within overall corporate philosophies. Id.
As Ex-Lax's Site Leader, Ceinos is also in charge of evaluating the performance of Ex-Lax's departments' managers. Ex-Lax's SUF ¶ 20. Furthermore, as part of his duties, Ceinos scrutinizes the Unplanned Deviation Reports[2] generated by investigation teams at the site. Id.
Acevedo's Background and Employment History
Acevedo was born on May 19, 1951. Plaintiff's Additional Facts ("PAF"), Docket # 57, ¶ 81. He earned a bachelors degree in Mechanical Engineering in 1974 *300 from the University of Puerto Rico; is a licensed professional engineer since 1976; has taken post-graduate courses; is an energy engineer; and was certified as a construction manager which includes management of projects. Ex-Lax's SUF ¶ 4; PAF ¶¶ 1-5. Plaintiff's prior performance evaluations at other companies were excellent. PAF ¶ 6.[3]
In 1996, Acevedo was hired by Ex-Lax as the Maintenance and Engineering Manager. Ex-Lax's SUF ¶ 5. As Ex-Lax's Maintenance and Engineering Manager, Acevedo was in charge of maintaining the plant's facilities in optimum conditions, including the production machinery, the treatment plant, landscaping, and building services. Id. at 6. Acevedo was also in charge of providing engineering support to all of the company's departments, and developing and implementing the company's capital projects. Id.
Specifically, Acevedo's duties and responsibilities included the following: (i) supervise all functions related to the maintenance, building services, and engineering services;[4] (ii) responsible for the computerized maintenance management system for production, machinery and utilities, and management of the computerized maintenance system that issued work orders related to the maintenance of the plant facilities; (iii) responsible for supervising the major contract works, assuring that all elements were carried out in a timely and cost-conscious fashion, ensuring that the entities contracted by the company completed the work in a manner that was cost-effective and timely; (iv) responsible for all functions related to the record-keeping of all preventive maintenance files for the department;[5] (v) responsible for purchasing supplies related to the building's facilities, assuring the best quality and prices from outside vendors; (vi) responsible for the budget accounts related to purchase of materials and machine parts and chemicals used for the cleansing and sanitation of the plant's facilities; (vii) performed employee performance appraisals and salary increase recommendations; (viii) provided engineering support to all departments, including feasibility studies, CAR ("Capital Appropriation Requests") preparation, execution and validation; (ix) responsible for attending professional seminars with the *301 purpose of acquiring technical and professional knowledge in the maintenance, engineering, safety and environmental areas; (x) ensure health, safety and environmental ("HSE") matters were taken into account in all decisions and activities; and (xi) ensure that all associates comply with HSE guidelines and applicable laws. Ex-Lax's SUF ¶ 7(i)-(xi).
On May 17, 2004, Acevedo received an orientation regarding Ex-Lax's "Equal Employment Opportunity and Affirmative Action Policy" (hereinafter referred to as "EEO Policy.") Ex-Lax's SUF ¶ 118. The EEO policy states that any employee who believes that he/she or another employee has been the subject of discrimination based upon a protected characteristic should properly report the alleged charge to his/her immediate supervisor, any member of management, or his or her Human Resources representative. Id. at 119. This enabled the company to investigate and resolve any problem promptly and effectively. Id. Acevedo acknowledged that such policy provides that if an Ex-Lax employee feels discriminated, he/she should file a complaint in the Human Resources Department ("HR Department"). Id. at 120.
Ex-Lax's disciplinary policy
Ex Lax has a progressive disciplinary policy which is implemented before an employee is discharged. PAF ¶ 34 & 85. On July 1, 1998, Elizabeth Rodriguez ("Rodriguez"), Ex-Lax's former HR Manager, prepared the progressive policy of the company, entitled "Disciplinary Action Guide" which requires that before termination, a memorandum with the reasons for the termination must be prepared and approved by the Human Resources Department. Id. at 92. The company's modus operandi as it related to the disciplinary process was to place the employee in a progressive disciplinary process. Id. at 93. Pursuant to Ex Lax's policy, all disciplinary actions had to be approved by the HR Department. Id. at 94. The Site Leader and Managers always consulted with the HR Department before any disciplinary action was taken. Id. at 95. Ex Lax's progressive disciplinary policy has a disciplinary action report, which according to Jose Pabellon ("Pabellon"), Ex-Lax's HR Department's manager when Acevedo was terminated, is still used by the company and applied to all employees. Id. at 87-89. The Site Leader uses the disciplinary process to admonish the Managerial personnel. Id. at 86. Ceinos claims that he respected the company's policy and that everybody must comply with the policy, without exception. Id. at 90.
According to Rodriguez, an employee with a negative evaluation or who partially meets the expectations must be placed in the Performance Improvement Plan ("PIP"). PAF ¶ 36. The PIP is a tool used by managers in Ex-Lax to enhance their ability to assist individual employees improve their performance, correct an unsatisfactory performance review, and provide documentation follow-up and disciplinary action as needed. Ex-Lax's SUF ¶ 67. Rodriguez testified that, to the best of her knowledge, the performance evaluations are not used as an instrument to discipline the employees. PAF ¶ 30. The disciplinary actions are aimed at obtaining an immediate positive result or to correct a mistake immediately, while a performance evaluation is focused on the performance specifically, which is adhered to the objective of the evaluation. Id. at 91. Rodriguez stated that, if an employee succeeds a PIP, the factors that motivated the PIP cannot be used in support of discharging the employee. Id. at 117 & 118. That is, the reason for the discharge has to be different from the cause that originated a PIP that is closed. Id. at 118. Otherwise, *302 it would constitute double penalty for the employee. Id. at 119.
Pabellon admits that the performance evaluations are not disciplinary actions. Id. at 31 & 101. According to him, the disciplinary policy must be complied with and all disciplinary actions must be documented; the policy requires first, an orientation to the employee, second, to verbally advise, third, a written warning; fourth is the suspension and, fifth is the termination. Id. at 99 & 100. However, Pabellon stated that Ex-Lax usually disciplines exempt employees through the use of memorandums or the mid-year and annual performance reviews; thus exempt employees are not usually disciplined through the standard disciplinary forms, and instead the areas to be improved are identified by means of the afore-mentioned memos or reviews. See Docket # 89, pp. 463 & 467-68.
Acevedo's Performance prior to 2004
The results of Acevedo's first performance evaluation at Ex-Lax was superior performance. PAF ¶ 7. Ivan Marti ("Marti"), Ceinos' current supervisor, evaluated Acevedo on two occasions for two years, and rated his performance as a strong performer and exceeding expectations. Id. at 8. Plaintiff's former supervisor, Santos Troche Pabón, rated his overall work performance in 1999 as fully meeting Ex Lax's expectations. Id. at 9. In the Competence section, Troche stated that he "consider[ed] Hernan to be highly competent and possess the skills to have a great impact on our operations." Id. at 10. Troche further concluded that Plaintiff exceeded expectations in the Competent criteria by giving him a rating of 3 points. Id. The evaluation also concluded that the plant was kept in optimal working/production conditions in 1999 with the exceptions of incidents related to sanitary water problems and incoming water as they were out of Acevedo's control. Id. at 11. In the "Customer and Quality Focus section," it was determined that Acevedo "[a]ssigns highest priority to customer satisfaction." Id. at 12. According to Plaintiff's 2002 evaluation, his former supervisor, Jorge Zayas ("Zayas"), rated him as a strong performer. Id. at 13. He was described by Zayas as follows: "Hernan Acevedo is a customer and quality focus manager." Id. at 14. In 2004, Acevedo received an evaluation below his expectations for the first time. Id. at 33.
The HR Department was the custodian of the personnel files. PAF ¶ 17. Pabellon testified that he did not find Acevedo's evaluations from the years 1996 to 1998 and 2000 to 2002 in his personnel file. Id. at 14. He further admitted that Acevedo's evaluations should have been in said file. Id. Pursuant to Ex Lax's "Access to Associate Personnel Filed" policy, effective January, 2005, employees' performance appraisals are kept in the personnel files and may not be removed from the HR Department. Id. at 16. According to Rodriguez, when Ceinos was hired as the company's Site Leader, he requested the managers' personnel files, and thereafter, he kept the files in his desk. Id.
The performance bonuses awarded to the managers are authorized by said manager's supervisor. PAF ¶ 18. Specifically, Ceinos and his supervisor, Marti, must approve the performance bonuses, based upon the employee's evaluations, the performance of Ex-Lax's facility in Puerto Rico and of the Ex-Lax division where the employee works. Id. at 19. On March 13, 2007, Plaintiff received a bonus in the amount of $13,166.00. Id. at 20. Plaintiff also received the following bonuses: $15,870.00 in 2000; $17,136.00 in 2001; $12,014.00 in 2002; $9,921.00 in 2003; $13,969.82 in 2004; and $6,644.00 in 2004. Id. at 21-26. Plaintiff was also awarded a *303 bonus in the year 2005 upon receiving a performance rate of 2.2, which according to Pabellon, means a "strong performance." Id. at 27. Plaintiff received the document of the bonus approval for his performance in 2006 with his evaluation, and he kept a copy of the same. Id. at 29.
Acevedo's Responsibilities at Ex-Lax
One of the contractors under Acevedo's direct supervision was One Source, an entity that offered janitorial services for Ex-Lax. Ex-Lax's SUF ¶ 8. One Source's janitors reported directly to One Source's supervisor, who, in turn, was accountable to Acevedo. Id. Acevedo was responsible for the administration of the contract between Ex-Lax and One Source; no other manager in Ex-Lax had that responsibility. Id. at 9. Another major contractor that was under Acevedo's supervision was Ecolab, an entity that provided pest control services to Ex-Lax. Id. at 10. Acevedo was also responsible for the administration of the contractual relationship between Ex-Lax and Ecolab. Id. at 11. Acevedo ensured that Ecolab complied with its obligations pursuant to the contract subscribed by Ex-Lax and Ecolab, and that Ecolab performed its contractual duties in accordance with Ex-Lax's Standard Operating Procedures ("SOP"). Id.
Ex-Lax's Pest-Control Procedure describes the duties and responsibilities for Ex-Lax's Pest-Control Program. Ex-Lax's SUF ¶ 12. Ex-Lax's Maintenance and Engineering Department was in charge of the supervision of Ex-Lax's pest control. Id. at 13. As Ex-Lax's Maintenance and Engineering Manager, Acevedo was responsible for the following duties related to the Pest-Control Procedure: monitor the Pest-Control Program; ensure compliance with the Pest-Control Procedure; train contractors on the Pest-Control Program and company policies and procedures; document deviations from the Pest-Control Procedure; take appropriate measures to ensure effectiveness of the Pest-Control Program; ensure that monthly plan inspections were conducted; and ensure the use of federal regulated insecticide, fungicide and rodenticide. Id. The pest-control contractor, Ecolab, had the following responsibilities as to Ex-Lax's pest control: execute the approved actions for controlling pests; and communicate immediately with the Maintenance and Engineering Manager, and the Compliance Officer about any deviation that may have occurred. Id. at 14.
Acevedo was also responsible for making sure that Ecolab executed the fogging ("fumigating") process in accordance with Ex-Lax's Pest-Control Procedure and the SOP's, and that the set objectives be complied with. Ex-Lax's SUF ¶ 15. Acevedo ensured that Ecolab executed its contractual obligations in an effective manner; he was the one responsible for maintaining Ex-Lax's plant and facilities free from rodents and insects. Id. Moreover, Acevedo had to guarantee that Ecolab executed its responsibilities in a way that the integrity and the security of Ex-Lax's raw materials and products be secured. Id. at 16. In sum, Acevedo had to make sure that Ecolab did not damage Ex-Lax's equipment, machinery, products and raw materials while executing its contractual obligation related to pest control. Id.
Rodent in Ex-Lax's Plant in 2004
On January 17, 2004, a live rodent was found in the packaging area near the chocolate line. Ex-Lax's SUF ¶ 23. The packaging line was immediately stopped and the production put on hold. Id. An investigation was conducted by the following persons: Johanna García, Compliance Officer; Jerry Martínez, Production Manager; Ángel Lazú, Maintenance Technician; *304 Norma León, Quality Assurance Supervisor; and Acevedo. Id.
The investigation team found that a building renovation had been performed in the plant since December 30, 2003, which involved the men's and women's restrooms, the gowning rooms, and the Gas-X Manufacturing Area. Ex-Lax's SUF ¶ 24. The investigation noted that, during the renovation, in certain instances, the emergency exit door of Ex-Lax's cafeteria hall and the employees' entrance door were opened to allow the contractors access for the movement of construction materials and that, on several occasions, these doors had remained opened for more than the necessary time. Id.
Furthermore, upon the incident, a physical inspection of the premises was performed by Ecolab and Ángel Lazú on January 17, 2004. Ex-Lax's SUF ¶ 25. During the inspection, several glue traps, which were used to prevent the entrance to the facility of crawling insects, were not in place. Id. Moreover, three rat baits located outside the cafeteria hall's emergency exit door were not in place. Id. In addition, during the inspection made by Ecolab and Ángel Lazú, they found that the packaging area and cafeteria hall emergency doors had small gaps between the doors and the floor. Id. Acevedo acknowledged in his deposition that the investigation team found that several glue traps, used to prevent the entrance of crawling insects, were not in place as required by the Pest Control SOP. Id. at 26. Acevedo further admitted that the department that he managed the Maintenance and Engineering Departmentwas responsible for making sure that the glue traps were placed in accordance with the Pest-Control Procedure. Id.
The investigation team concluded that it was very possible that the live rodents found on the packaging area on January 17, 2004 gained access to the plant through the cafeteria hall emergency exit doors during the last days of construction, since said doors remained opened for more than the necessary time. Ex-Lax's SUF ¶ 27. Ceinos became aware of the January 2004 rodent incident and its possible causes through the Investigation Report that Acevedo prepared. Id. at 28.
Microbial incident in 2004
On September 30 and October 18, 2004, laboratory tests confirmed the presence of a bacteria known as Staphylococcus aureus on Ex-Lax's Gas-X Super Extra Strength Soft Gel 30 Lots No. 98225 and 98269. Ex-Lax's SUF ¶ 29. Following the results of the test, Acevedo; Clarissa Pulliza (Pharmaceutical Technologist); Jerry Martinez (Production Manager); and Norma León (Quality Assurance) began an investigation of the microbial incident. Id. The team found that the men's and women's former bathrooms located near the production area were dirty and that the exhaust fan was not working. Id. at 30. Evidence of mold on the bathroom walls and doors, as well as a strong odor, was perceived inside the bathrooms. Id. The investigation team concluded that the presence of Staphylococcus aureus, a highly recognized contaminant from human source, in lots nos. 98225 and 98269 was caused by certain conditions, which included the fact that a source of contamination was coming from the men's and women's bathrooms near the packaging area, and that one of the operators who participated in the inspection process of these lots was confirmed to be sick, increasing the probability of contamination. Id. at 31; Docket # 57, p. 22, ¶ 30.2.
Acevedo acknowledged during his deposition that the restrooms' contamination could have been prevented if there had been an established policy and program of *305 verifying and cleaning the restrooms on a daily basis. Ex-Lax's SUF ¶ 32. However, Acevedo acknowledged that such measures had not been taken before the Staphylococcus aureus incident occurred in 2004. Id. As a result of the positive results for Staphylococcus aureus on the Gas-X Super Extra Strength Soft Gel 30, Lots No. 98225 and 98269, the lots were rejected by Quality Assurance and disposed of; the Gas-X Super Extra Strength Soft Gel 50, Lot No, 98275, which was packaged immediately after Lot No. 98269, was also rejected. Id. at 33. Ceinos became aware of the 2004 microbial incident and its possible causes by means of the Unplanned Deviation Report. Id. at 34.
Packaging Process Deviation
On September 14, 2004, José Colón (Mechanical Engineer) Ángel Lazú (Mechanic), and José Méndez (Mechanic), all from the Maintenance and Engineering Department, were installing and setting up a new brush box for the packaging of Gas-X Maximum Strength Soft Gels 50, Lot No. 98216. Ex-Lax's SUF ¶ 36. During the line's set-up, they became aware that the positioning of the brushes inside the brush box was not correct. Id. at 37. They changed the position of the brushes without the appropriate deviation approval from the Production and Quality Departments. Id. On that same date, during the set-up for the packaging line, the same employees installed a new acrylic box in the brush box and evaluated the effect of the acrylic box on the packaging operation of Gas-X Maximum Strength Soft Gels. Id. at 38. The packaging operation of Gas-X Maximum Strength Soft Gels 50, Lot No. 98216, began after the acrylic box was cleaned and installed. Id. This modification was implemented without the appropriate deviation approval from the Production and Quality Departments. Id. The deviation did not have a negative impact on the quality of the product. Docket # 57, p. 32, ¶ 38.3.
Prior to any changes, the members of the Maintenance and Engineering Department were required to prepare a change control document and submit it to Quality Assurance and Production for their review and approval, certifying that the proposed changes were supported by the supplied justification, and assuring that all affected systems, processes, documents, validations and departments were identified on the change control form. Ex-Lax's SUF ¶ 39. After the brush box incident, the personnel from the Maintenance and Engineering Department were trained on the procedures for change control; all supervisors, managers and all persons covering change control procedures were also trained. Docket # 57, p. 32, ¶ 42.1 & 42.2.
Rodents in the Chocolate Manufacturing Area in June 2004
On June 4, 2004, a contractor from One Source found traces of a ceiling tile on the floor of the chocolate manufacturing area. Ex-Lax's SUF ¶ 44. Acevedo and the Supervisor of Ex-Lax's building services contractor, One Source, were immediately informed of the situation, and an investigation was initiated. Id. The investigation team was composed of Acevedo; Nydia Acevedo (Quality Assurance Associate Director); José Colón (Mechanical Engineer); and Jerry Martínez. Id. On June 5, 2004, an entomologist contracted by Ex-Lax as a consultant, Osvaldo Cotte, and an Ecolab technician, performed an inspection of the chocolate manufacturing area, and the entomologist confirmed that the incident was the result of rodent activity. Id. at 45.
On June 6, 2004, one small live rodent was captured inside the chocolate manufacturing area in one of the glue traps installed the previous day. Ex-Lax's SUF ¶ 46. The glue trap was located on the *306 acoustic ceiling area above the chocolate room. Id. That same day, the entomologist visited the area again, and confirmed that the captured rodent was consistent with the evidence of rodent activity found by him on June 5, 2004. Id.
On June 10, 2004, a maintenance technician performed an inspection and found that there was a hole in one of the exhaust fans, which was not in use, located in the ceiling of the Quality Assurance Laboratory. Ex-Lax's SUF ¶ 47. According to the investigation, there was a high probability that the rodent gained access through that hole. Id. On that same date, the exhaust fan was removed, and the opening was sealed. Id. at 48. Due to the rodent's activity, Ex-Lax's chocolate laxative batch no. 60337 was rejected. Id. at 49. Acevedo acknowledged that a way to prevent the rodents from entering the plant through the holes in the ceiling was to seal such holes with a metal plate. Id. at 50. However, Acevedo acknowledged that the measure was not taken before the rodents' presence in the room, notwithstanding, he implemented the measure after that incident occurred. Id. Acevedo stated in his deposition that, during the investigation conducted with regards to the rats' presence, he found two holes instead of one. Id. at 51. Ceinos became aware of the second rodent incident and its possible causes by means of the Unplanned Deviation Report. Id. at 52.
Acevedo's 2004 Performance Review[6]
The previously identified incidents appear in Acevedo's 2004 performance evaluation, dated March 3, 2005. Ex-Lax's SUF ¶ 57. Pursuant to the 2004 review, Acevedo did not meet the expectations within the following areas of the "Values and Behaviors" section: Result Driven, Customer-Quality Focus, and Leadership. Id. at 60. In the Overall-Manager Appraisal, Ceinos rated Acevedo as "Partially Met Expectations." Id. at 59 & 61. Acevedo rated himself as "Partially Met Expectations" only in the "Customer-Quality Focus" area. Id. at 62. In such value and behavior, Acevedo commented the following: "Mainly, customer (production) complaints increased during Year 2004. Packaging Machinery downtime sometimes looked out of control. There were certain situations where the focus on quality was not attained. Example: Change controls not submitted, Pest control issues and microbiology OOS results due to the failure of an exhaust." Id.
Acevedo rated himself as "Fully Met Expectations" in every area except in "Customer-Quality Focus." Ex-Lax's SUF ¶ 64. However, Ceinos' comments in the areas of "Leadership," "Empowerment-Accountability," and "Open Communication/Collaboration/Compassion," reflected otherwise. As to "Leadership," Acevedo stated that "[d]ue to the organization structure, sometimes I do not spend the required time with each of my employees. All of them including contractors employees and employees of other areas see me as a leader that they can count with." Id. at 64. Regarding this issue, Ceinos noted that "[a] key characteristic of leadership is the ability to establish clear directions and align associates behind common objective. Clear directions were not *307 provided to the associates as shown by the inadequate maintenance of the packaging restrooms and incidents like the [un]authorize [d]interventions on the packaging. Important projects had delays beyond the acceptable limits, examples are: 1) The cutting die replacement for IMA2 2) Installation of a new banding machine on the chocolate packaging lines 3) The brush box for IMA2 4) The gowning rooms refurbishing. It is expected to encourage right behaviors and correct others. An engineering associate has obtained consistently low performance ratings and no action has been taken." Id. at 63.
As to "Empowerment-Accountability," Acevedo stated: "I always feel responsible to what my Department does, good or bad. I am fully accountable of situations that happened on Pest Control, compressed air, Micro OOS and packaging equipment issues." Ex-Lax's SUF ¶ 64. On this issue, Ceinos wrote: "I agree that you are fully accountable for the situations concerning Pest Control, compressed air, Micro OOS and packaging equipment. These are significant issues that negatively impacted the performance of the site by stopping or slowing our ability to produce product." Id. at 63.
As to "Open Communication/Collaboration/Compassion," Acevedo admitted that "[t]he flow of information is not always the best. Communication with the production Department and Q/C must improve during year 2005." Ex-Lax's SUF ¶ 64. Ceinos agreed, stating that "[c]ommunication has not been as clear as expected intra-inter department. Examples of poor communication are: 1) the painting of the GAS-X blending room without the authorization of the production manager, this action caused a manufacturing delay when facing a severe backorder situation. 2) The changing of a motor in the chocolate packaging line without the authorization of the production manager, this action caused a delay in the packaging operations." Id. at 63.
In "Result Driven," Acevedo stated that "[i]n this area sometimes due to the pressure to attain the production schedule, results are not as acceptable as they should be. Examples: Installation of new potable water piping, Brush box, Qualification of Gas-X with Maalox tablets change parts." Id. at 63.
As a result of Acevedo's performance in 2004, Ex-Lax and Acevedo executed a PIP for Acevedo that allowed him the opportunity to demonstrate his willingness to retain his employment by improving his performance. Ex-Lax's SUF ¶ 65. Acevedo acknowledged that, based on his 2004 Annual Performance Review results, a PIP had to be put into place. Id. at 68. The purpose of Acevedo's 2005 PIP was to identify the specific performance problems and the specific improvement plan that he had to successfully complete to meet the basic criteria of his position. Id. at 66. Pursuant to the PIP, Acevedo was given ninety (90) days to successfully complete the program and achieve a "Fully Met Expectations" status to retain his employment. Id. at 69. The PIP period began on March 22, 2005 and ended on June 22, 2005. Id. Acevedo's PIP stated that, even after the successful completion of the plan, Acevedo's improvement had to be continued, consistent and sustained. Id. at 70. If Acevedo failed to maintain continued, consistent, and sustained improvement, Ex-Lax reserved the right to take appropriate action up to and including termination. Id. Acevedo understood that the PIP document stated that his termination was a possible outcome if he did not display a continued, consistent and sustained improvement in his performance. Id. Acevedo complied with the requirements set forth in the 2005 PIP and retained his employment as Maintenance and Engineering *308 Manager. Id. at 71. As a result, Ceinos rated Acevedo as "Fully Met Expectations" in the mid-year and annual 2005 performance reviews. Id.
Total Organic Carbon ("TOC") Parameter Incident in 2006
During the afternoon of June 5, 2006, a Quality Control Analyst informed the Quality Assurance Supervisor that a test on purified water[7] samples revealed that the TOC was above the acceptable limit. Ex-Lax's SUF ¶ 73. As a result, an investigation was initiated; the investigation team was composed of Acevedo; Myriam L. Martínez (QA Compliance Assurance); Jerry Martínez (Production Manager); and Norma León (Quality Assurance Supervisor). Id. at 74. The investigation's findings revealed that personnel from the Maintenance and Engineering Department changed the Continuous Dialization Unit ("CDI") in the equipment that creates the purified water used to manufacture Ex-Lax's products. Id. at 75. The Engineering and Maintenance Department must notify the Production and QC Departments of the intervention with the equipment. Id. at 76.
When the high TOC levels were discovered, the manufactured products had to be discarded. Ex-Lax's SUF ¶ 78. This negligence represented a $39,072.71 loss for Ex-Lax. Id. The investigation team concluded that the Maintenance and Engineering Department personnel failed to notify the Production and Quality Departments of the high TOC levels, and the products were manufactured. Id. at 77. The CDI change, and lack of flushing, caused the TOC levels to elevate to unacceptable levels. Id. The investigation team also concluded that, based on the results of the investigation, the root cause for the high TOC levels was the need of required training for the Maintenance and Engineering Department personnel. Id. at 79. As a general practice, when an intervention is made on the equipment that creates the purified water used to manufacture Ex-Lax's products, the operator must continue to flush the equipment until the TOC levels are stable at acceptable levels. Id. However, this was not done by the Maintenance and Engineering Departments' personnel. Id. The operator started up the system without the flushing. Id. Furthermore, the investigation team concluded that the Quality and Production Departments had to be informed about the change of the CDI. Id. at 80. Acevedo admitted that the personnel that changed the CDI did not have the complete training. Id. at 81. Notwithstanding, Acevedo pointed out that he was on vacation on the date this incident occurred, and that Angel Alsina was in charge of the department at that time. Docket # 57, p. 62, ¶ 75.1.
Ceinos became aware of the TOC incident and its possible causes through the Unplanned Deviation Report. Ex-Lax's SUF ¶ 82.
Fogging Incident in 2006
In the week of June 19, 2006, the Quality Assurance Compliance Area audited the maintenance area. Ex-Lax's SUF ¶ 84. During the evaluation of the pest control documentation, Quality Assurance found that a fogging using BP-100 (pest control technique that uses smoke or vapor) was performed on June 14th, 2006, and that there was no objective evidence to support that the necessary precautions were taken as to avoid potential exposure to the equipment or products in the maintenance area. Id. An investigation immediately ensued; the investigation team was composed of Acevedo; Jerry Martínez (Production Manager); Norma León (QA Supervisor); *309 and Jorge Cabrera (QC Associate Director). Id. at 85.
After the investigation concluded, the team produced the following factual findings. On June 13, 2006, a Production Associate informed Acevedo of the sighting of a dying cockroach next to the west wall of the chocolate manufacturing area. Ex-Lax's SUF ¶ 85(i). The same day, Acevedo informed Ecolab of the cockroach situation. Id. at 85(ii). Ecolab and Acevedo agreed that the inspection visit of the pest control supply would be done the next day, June 14, 2006. Id. at 85(iii). Ecolab was also scheduled to perform the monthly regular service on that day. Id. An Ex-Lax representative (an employee for the janitorial service One Source) received Ecolab's personnel, and after they performed the regular service, they proceeded with the fogging to the knock-out and chocolate manufacturing area. Id. at 85(iv). Following the inspection of the area by Ecolab and an Ex-Lax representative, it was decided to proceed with the fogging to the knock-out and chocolate manufacturing areas. Id. at 85(v). The fogging was done between 11:00 a.m. and 11:30 a.m. with an insecticide called BP-100. Id. at 85(vi). On the day of the fogging, the chocolate manufacturing kettle, batch no. 60404, was being mixed. Id. at 85(vii). After the fogging, the Production Department did not clean the equipment that was used to manufacture the products, that is, before the manufacturing process began. Id.; Docket # 57, p. 72, ¶ 85(vii). Even though there was no clear evidence of exposure to the insecticide during and after the fogging, Ex-Lax's chocolate batch no. 60404 was rejected. Ex-Lax's SUF ¶ 85(vii); Docket # 57, p. 72, ¶ 85(vii). This represented a loss of approximately $91, 098.18. Ex-Lax's SUF ¶ 88.
The "Root Causes Evaluation" of the investigation states that the instructions given by the Maintenance Manager to the employee who accompanied Ecolab's personnel were not clear as to the application of the contact insecticide in the chocolate manufacturing area, and the steps to be followed before and after the application. Ex-Lax's SUF ¶ 86. As a result, the Ecolab employee assumed that because the equipment was covered, the area was prepared for the fogging and everybody had been informed about it. Id. Moreover, the investigators concluded that the Pest-Control Procedure was not specific in the communication steps to be followed when a situation of this nature, like the finding of a cockroach or another pest, occurs. Id. at 87. According to the report, the procedure failed to establish what to do before, during, and after a pest control activity takes place. Id. In the conclusion, the investigation team stated that the fogging without the necessary precautions was associated to inadequate written procedure to address any reported incidence of pest in the production areas. Docket # 57, p. 70-71, ¶ 84.2.
Ceinos became aware of the fogging incident and its causes through the Unplanned Deviation Report. Ex-Lax's SUF ¶ 89.
Spare parts room, Machine shop and USP Water Room
In 2006, Ceinos went on two routine walks on two different occasions and visited the plants' facilities. Ex-Lax's SUF ¶ 90. In three of the areas, namely, the spare parts room, the machine shop and the USP water room, Ceinos found what he deemed lack of cleanliness and disorganization. Id. Ceinos believes that the rooms were in unacceptable conditions and in clear violation of the GMP's. Id. The spare parts room was disorganized because, among other things, there was no control over the inventory, which caused a problem in the operations since the parts *310 that were needed to properly maintain the equipment were not present in the room on occasions. Id. at 91. The GMP's strictly apply to these three rooms since the parts present in the spare parts room and in the machine shop are used in the equipment that is used to manufacture Ex-Lax's products. Id. at 92. Also, the purified water that is produced in the USP water room is used to manufacture Ex-Lax's products. Id.
Carlos Marin was the stock room clerk, under Acevedo's supervision. Docket # 57, p. 80, ¶ 90.11. In 2006, new cabinets were installed to organize the cabinets in the stockroom. Id. at p. 79-80, ¶ 90.3, 90.4 & 90.6-90.8.
Acevedo's 2006 Mid-year Performance Reviews
Ceinos stated in Acevedo's 2006 Mid-year Performance Review "Leadership" category that "[t]he group must be motivated to guarantee execution of activities without mistakes." Ex-Lax's SUF ¶ 95. In said review, regarding the high TOC levels in the purified water and the fogging process, Acevedo specifically stated: "[t]he focus on Quality has been affected by two Unplanned Deviations. Two issues, coating with Purified water with high TOC and fogging in the Choc. Mfg. Room without taking the appropriate measures. Rejection of two lots due to this at a cost of around $90,000.00 dollars." Id. at 96. As to these incidents, Ceinos stated that "[a]s explained by Hernán [Acevedo], both incidents had significant financial implications for the operation." Id. at 98. Ceinos further stated, in the "Customer/Quality Focus" area that "[i]t is expected to improve the organization of housekeeping of areas [sic] under the responsibility of the Engineering department like: Stock Room, Boilers Room, Machine Shop, etc." Id. at 99.
In the "Empowerment-Accountability" area, Acevedo also stated that he was "[r]esponsible for all the matters related to the maintenance and engineering area. I am accountable and accept the calculated risks. I give responsibility to the mechanics and they accept it." Ex-Lax's SUF ¶ 97.
Ex-Lax's Capital Projects
In 2006, a capital appropriation's request was submitted for the reconstruction of a room and the acquisition of additional new equipment. Ex-Lax's SUF ¶ 102. This project was related to Ex-Lax's new product known as "thin strips." Id. However, the project became very costly and was extremely disorganized; it entailed a cost of 4 to 6 million dollars. Id. Acevedo delayed in informing that the project was exceeding the expected costs. Id.
Acevedo's 2006 Annual Performance Review
In most of the criteria in the 2006 annual evaluation, Ceinos rated Acevedo as "Partially Met Expectations." Ex-Lax's SUF ¶ 103. Specifically, the Overall Manager Appraisal with regards to Ex-Lax's "Values and Behaviors," Acevedo was rated as "Partially Met Expectations." Id. at 105. The areas in which Acevedo did not meet the expectations during 2006 were the following: "Customer Quality-Focus," "Innovative and Creative," "Leadership" and "Empowerment-Accountability." Id. at 104. Specifically, in the area of "Leadership," Ceinos stated that: "[a] higher level of leadership is needed, specifically for the capital project that involved multiple departments within OTC. As an example is the TS CAR in which the engineering department is not leading the process. An overrun and a delay on the vendor's agreement was detected by the site leader. The plan to mitigate the consequence of the issues was not lead by engineering." Id. at 106. In the "Customer *311 Quality-Focus" area, Acevedo rated himself as "Partially Met Expectations." Id. at 107. Acevedo's self-rating was consistent with the rating given by Ceinos in said area. Id. As in his 2006 Mid-year Performance Review, Acevedo again stated that "[t]he focus on Quality had been affected by three Unplanned Deviations. Three issues, coating with Purified Water with high TOC, fogging in the Choc. Mfg. Room without taking the appropriate measures and Rodent in Finished Goods Area. Rejection of two lots due to at a cost of around $90,000.00." Id.
Furthermore, Acevedo acknowledged again in his performance review that he was "[r]esponsible for all the matters related to the maintenance and engineering area. I am accountable and accept the calculated risks. I give responsibility to the mechanics and they accept it. Accountable for the delay of informing the over budget of the Thin Film Device." Ex-Lax's SUF ¶ 108. Acevedo also rated himself as "Partially Met Expectations" in the "Empowerment-Accountability" and "Open Communication/Collaboration/Compassion" areas. Id. at 108-109. Acevedo also admitted during his deposition that the fogging and TOC incidents had a negative impact on the quality of Ex-Lax's products and finances. Id. at 110.
In this review, Ceinos once again stated the spare-parts room, the machine shop, and the USP water room were in unacceptable conditions ... disorganized and the lack of cleanliness was evident." Ex-Lax's SUF ¶ 101. During his deposition, Ceinos admitted he had no evidence to show that he notified Plaintiff that the TOC or the fogging incidents could lead to his termination. PAF ¶ 50. When asked specifically what Plaintiff did regarding the TOC, Ceinos alleged that he is responsible for the training of his personnel. Id. at 51. Ceinos claims that the employees of the Engineering Department were not properly trained. Id. at 54. However, the investigations related to the fogging, TOC or rats do not conclude that Ecolab or One Source were negligent in the performance of their duties. Id. at 53.
Acevedo's termination
Ceinos made the decision to terminate Acevedo approximately in October 2006. PAF ¶ 110; Docket # 89, p. 377. Acevedo was terminated from his employment on February 23, 2007. Ex-Lax's SUF ¶ 114. On that same date, Ceinos signed Plaintiff's 2006 evaluation. PAF ¶ 32 & 123.[8] Acevedo was 56 years old at that time. Id. at 81. His termination was effective immediately. PAF ¶ 121. Pabellon did not recommend nor support Plaintiff's termination, nor did he discuss Acevedo's performance with Ceinos. Id. at 97 & 98. Moreover, he does not remember whether Acevedo was placed in a progressive disciplinary procedure before his termination. Id. at 101. Pabellon could not explain why Acevedo was not given prior notice about his termination nor why he was not provided with a termination letter. PAF ¶ 121. Pabellon admitted there is no independent documentation that supports Ceinos' comments in the 2006 evaluation regarding the "Values and Behavior" section. Id. at 122.
Acevedo claims that his termination was discriminatory on account of his age because on two occasions, in August and December, 2006, Ceinos allegedly told him that Ex-Lax's plant's problem was that the persons that had been working for the company for a long time were not executing. Ex-Lax's SUF ¶ 116. Notwithstanding, Acevedo never complained to Ex-Lax's Human Resources Department of *312 the alleged comments made by Ceinos. Ex-Lax's SUF ¶ 121.
Ex-Lax operations after Acevedo's termination
Acevedo was replaced by Mariely Rivera, who was born in May 12, 1973, and began working for Ex Lax in February 2007. PAF ¶ 63 & 82.[9] She was 34 years old when Ceinos hired her. Id.[10] Rivera reported directly to Carlos Ceinos. Id. at 84. Ceinos admitted that Rivera was interviewed before December 2006. Id. at 125. He further admitted that, in 2008, several animals entered the plant, and that no one was disciplined or reprimanded as a result of said incidents. Id. at 42; see also PAF ¶¶ 38, 39.3-39.8, 44-47.[11]
Age-based termination
The ADEA makes it unlawful for an employer "to fail or refuse to hire or to discharge any individual or otherwise discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual's age." 29 U.S.C. § 623(a)(1). The Supreme Court recently clarified that plaintiffs must "establish that age was the `but-for' cause of the employer's adverse action." Gross v. FBL Fin. Servs., Inc., ___ U.S. ___, 129 S.Ct. 2343, 2351, 174 L.Ed.2d 119 (2009); see also Velez v. Thermo King de P.R., Inc., 585 F.3d 441, 446 (1st Cir.2009). However, in contrast with other types of discrimination cases, "ADEA plaintiffs rarely possess `smoking gun' evidence to prove their employers' discriminatory motivations." Id. (citing Arroyo-Audifred v. Verizon Wireless, Inc., 527 F.3d 215, 218-19 (1st Cir. 2008). The First Circuit has held that "ADEA plaintiffs who do not have `smoking gun' evidence may nonetheless prove their cases by using the three stage burden-shifting framework set forth by the Supreme Court in McDonnell Douglas Corp. v. Green, 411 U.S. 792, 93 S.Ct. 1817, 36 L.Ed.2d 668 (1973)." Id. at 447. The McDonnell framework first requires a plaintiff to establish a prima facie case of employment discrimination by showing: "1) he was at least 40 years old at the time he was fired; 2) he was qualified for the position he had held; 3) he was fired, and 4) the employer subsequently filled the position, demonstrating a continuing need for the plaintiff's services." Id. (citing Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 142, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000).
Once the plaintiff sets forth a prima facie case, he is entitled to a presumption of age-based discrimination. Id. Then the burden of proof shifts to the employer, who must "articulate a legitimate, non-discriminatory reason for its decisions." Id. (citing Arroyo-Audifred, 527 F.3d at 219).) "If the employer articulates such a reason, `the McDonnell Douglas frameworkwith its presumptions and burdens *313 is no longer relevant.'" Id. (citing St. Mary's Honor Ctr. v. Hicks, 509 U.S. 502, 510, 113 S.Ct. 2742, 125 L.Ed.2d 407 (1993)). Thereafter, the plaintiff bears the burden of proving 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 447-448 (citing Reeves, 530 U.S. at 143, 120 S.Ct. 2097).) That is, as previously stated, a plaintiff must show that his age was the "but-for" cause of the employer's adverse action. Id. at 448. In this context, pretext "means more than an unusual act; it means something worse than business error; pretext means deceit used to cover one's tracks." Kouvchinov v. Parametric Tech. Corp., 537 F.3d 62, 67 (1st Cir.2008) (citing Ronda-Perez v. Banco Bilbao Vizcaya Argentaria, 404 F.3d 42, 45 (1st Cir.2005)).
In essence, Acevedo's age based discrimination claims hinge on two comments made by Ceinos. Ex Lax concedes, for purposes of the present motion, that on August and December 2006, Ceinos told Acevedo that Ex-Lax's problem was that the persons that had been working for the company for a long time were not executing. Docket # 89, p. 471.[12] Plaintiff took the remark personally. PAF ¶ 107. However, these two isolated comments alone are not direct evidence of discrimination.
The First Circuit has held that "`stray workplace remarks' ... normally are insufficient, standing alone, to establish either pretext or the requisite discriminatory animus." Gonzalez v. El Dia, Inc., 304 F.3d 63, 69 (1st Cir.2002); see also Williams v. Raytheon Co., 220 F.3d 16, 18 (1st Cir.2000) (rejecting age and gender claims where supervisor told colleagues that the company was run by "old, white men," that she intended to change the corporate culture, and would favor the hiring of women and younger people); Shorette v. Rite Aid of Maine, 155 F.3d 8, 13 (1st Cir.1998) (asking the plaintiff "how old he was and when he planned to retire" was "a textbook example of an isolated remark which demonstrates nothing"); Pearson v. City of Manhattan, 33 F.Supp.2d 1306, 1315 (D.Kan.1999) (holding that phrase "old ways" is not evidence of ADEA age-based animus, as such terms "apply more to a person's state of mind than to a person's age"); Martin v. Ryder Distribution Res., Inc., 811 F.Supp. 658, 664 (S.D.Fla.1992) (observing that simple references to the plaintiff-employeesas "good old boys" and "old-fashioned" are insufficient evidence of age-based animus under ADEA). Thus more likely, these types of isolated comments would be considered stray remarks.
However, Ceinos' comments do not seem to be motivated by Acevedo's age, even if he admittedly "took it personally." Even more, "it is far from clear that the alleged remarks bespeak any age-based animus at all." El Dia, Inc., 304 F.3d at 69. Courts have held that "a statement that plausibly can be interpreted two different ways-one discriminatory and the other benigndoes not directly reflect illegal animus." Fernandes v. Costa Bros. Masonry, Inc., 199 *314 F.3d 572, 583 (1st Cir.1999); see also Speen v. Crown Clothing Corp., 102 F.3d 625, 636 (1st Cir.1996) (holding that "`[a]mbiguous remarks, tending to suggest animus based on age, are insufficient, standing alone, to prove an employer's discriminatory intent.'") In analyzing Ceinos' comments, this Court notes that Ceinos did not even allude to Acevedo's or any employees' age when he made the comments. More so considering that the fact that an employee has worked at Ex-Lax for a long time does not imply that said employees are within the protected age group, i.e. over the age of 40. Therefore, Plaintiffs' alleged direct evidence of age discrimination is insufficient.
Since Plaintiffs lack direct evidence of discrimination, the McDonnell burden-shifting analysis applies. On this point, Ex Lax concedes that Acevedo falls within the protected group, that he suffered an adverse employment action when he was discharged, and that he was replaced by someone younger with similar qualifications. Docket # 29-3, p. 8. However, Ex Lax contends that Acevedo fails to satisfy the second prong of the prima facie case test insofar as he did not meet the company's legitimate work expectations. Id. According to Ex-Lax, Acevedo's termination was a legitimate business decision unrelated to his age. Specifically, Ex-Lax contends that Ceinos' decision to terminate Acevedo was based on the Unplanned Deviation Reports regarding the 2004 and 2006 incidents in the maintenance and engineering area, and due to Acevedo's failure to comply with the established quality control standards. In opposition, Acevedo negates responsibility over the incidents which occurred at the plant, and which allegedly led to his termination. He further avers that Ex-Lax's proffered reason for his dismissal is pretextual.
Courts have pointed out that at the summary judgment phase, "courts should not unduly complicate matters ... by applying legal rules which were devised to govern the basic allocation of burdens and order of proof." Dominguez-Cruz v. Suttle Caribe, Inc., 202 F.3d 424, 430-431 (1st Cir. 2000) (citing Mesnick v. General Elec. Co., 950 F.2d 816, 825 (1st Cir.1991)). "Instead, the focus should be on the ultimate issue: whether, viewing the `aggregate package of proof offered by the plaintiff and taking all inferences in the plaintiff's favor, the plaintiff has raised a genuine issue of fact as to whether the termination of the plaintiff's employment was motivated by age discrimination." Id. at 431.
As in Morales-Figueroa v. Banco Bilbao Vizcaya Argentaria, 550 F.Supp.2d 220, 226-227 (D.P.R.2007), in his opposition, Acevedo attacks Ex-Lax's decision to terminate him, and tries to convince this Court that he is not accountable for the incidents that allegedly led to his dismissal; he does not contest than the incidents occurred. In this case, we find that Plaintiffs have shown that there is controversy as to whether Acevedo met Ex-Lax's legitimate work expectations. Specifically, Acevedo's responsibility, and Ex-Lax's losses, for the following incidents is unclear: the record shows that one of the possible causes for the microbial incident of 2004 was that one of the operators who participated in the inspection process was sick, see Docket #57, p. 22, ¶ 30.2; the quality of the products as a result of the packaging process deviation was not negatively affected, see id., p. 32, ¶ 38.3; Acevedo was on vacation when the TOC parameter incident took place in 2006, see id., p. 62. ¶ 75. 1; and the investigation report for the 2006 fogging incident concluded that the Pest Control Procedure (written procedure) failed to establish how to proceed when a pest control activity takes place, see id., p. 70-71, ¶ 84.2 & Ex-Lax's SUF *315 ¶ 87. Pursuant to Rodriguez's testimony, if an employee succeeds a PIP, the factors that motivated the PIP cannot be used in support of discharging the employee. PAF ¶ 117 & 118. Although Acevedo successfully complied with the 2005 PIP, and received a "Fully Met Expectations" rating in 2005 as a result thereof, his termination is in part based on his 2004 Performance Evaluation. See Ex-Lax's SUF ¶ 71. Accordingly, for purposes of the present motion, this Court finds that Plaintiffs have established a prima facie case under the ADEA.
Notwithstanding, for an employee "to withstand summary judgment in an age discrimination case, there must be some significantly probative evidence from which the factfinder can infer that the employer discharged the employee because of his age." Morales-Figueroa, 550 F.Supp.2d at 226-227. Even finding that Plaintiffs established a prima facie case, that is, that he met his employer's legitimate work expectations, and considering "instead, whether there is evidence that, notwithstanding the employer's stated reasons for the termination, the real reason, at least in part, was age ... discrimination,'" we find that there is no evidence from which to conclude that Ex-Lax's proffered reason for Acevedo's termination was not in fact the real reason. Fontanez-Nunez v. Janssen Ortho LLC, 447 F.3d 50, 56 (1st Cir.2006) (citing Hillstrom v. Best Western TLC Hotel, 354 F.3d 27, 31 (1st Cir.2003)).
To show pretext, Plaintiffs set forth various arguments. First, Plaintiffs argue that Acevedo's evaluations were satisfactory, and that he received performance bonuses and salary increases. They further point to Ex-Lax's non-compliance with its disciplinary policy prior to Acevedo's dismissal, and its alleged discriminatory hiring practices. Specifically, Plaintiffs submit statistical information to show that Ex-Lax incurred in a pattern of age based discrimination when hiring and firing employees. Plaintiffs also point to Ceinos' alleged age-based recruitment plan. Lastly, they contend that despite lackluster performance, including the entrance of animals in the plant, Rivera was never disciplined nor received poor performance reviews for the incidents occurred in 2008.
At the pretext stage, "the question to be resolved is whether the defendant's explanation of its conduct, together with any other evidence, could reasonably be seen by a jury not only to be false but to suggest an age-driven animus." Ramirez Rodriguez v. Boehringer Ingelheim Pharms., Inc., 425 F.3d 67, 78 (1st Cir. 2005). Although Acevedo argues that Defendant's articulated reasons for his termination are a pretext and that he was terminated because of his age, "when assessing a claim of pretext in an employment discrimination case, a court's focus is necessarily on the motivations and perceptions of the decisionmaker," Davila v. Corporacion De P.R. Para La Difusion Publica, 498 F.3d 9, 17 (1st Cir.2007), that is, whether the employer believes its stated reason to be credible." Mesnick v. General Electric Co., 950 F.2d 816, 824 (1st Cir.1991) (citing Gray v. New England Tel. and Tel. Co., 792 F.2d 251, 256 (1st Cir. 1986)); see also Kouvchinov, 537 F.3d at 67. Thus, "the issue is not whether [the employer's] reasons ... were real, but merely whether the decisionmakers ... believed them to be real." Mulero-Rodriguez v. Ponte, Inc., 98 F.3d 670, 674 (1st Cir.1996); see also Morales-Figueroa v. Banco Bilbao Vizcaya Argentaria, 550 F.Supp.2d 220, 226-227 (D.P.R.2007) (citing Ronda Perez v. BBVA, 404 F.3d 42, 45 (1st Cir.2005)) (pointing out that in an age discrimination suit, "[t]he question is not whether plaintiff's or his fellow employees' version is the true one, but whether ... *316 his superiors believed what [they] had been told by those [they] interviewed."). Therefore, an "employee's perception of himself ... is not relevant. [Rather,] [i]t is the perception of the decision maker which is relevant." Torrech-Hernandez v. GE, 519 F.3d 41, 49 (1st Cir.2008).
Courts have held that "[t]his holds true even when the decisionmaker is relying on information that may later prove to be inaccurate. In other words, it is not enough for a plaintiff to show that the decisionmaker acted on an incorrect perception. Instead, the plaintiff must show that the decisionmaker did not believe in the accuracy of the reason given for the adverse employment action." Kouvchinov, 537 F.3d at 67. This is due to the fact that "anti-discrimination laws do not insure against inaccuracy or flawed business judgment on the employer's part; rather, they are designed to protect against, and to prevent, actions spurred by some discriminatory animus." Id. (citing Ronda-Perez, 404 F.3d at 47).
The First Circuit has noted that "courts in employment discrimination cases may not act as `super personnel departments,' substituting judicial judgments for the business judgments of employers." Arroyo-Audifred v. Verizon Wireless, Inc., 527 F.3d 215, 221 (1st Cir.2008); see also Davila, 498 F.3d at 17; Petitti v. New England Tel. & Tel. Co., 909 F.2d 28, 31 (1st Cir. 1990). Specifically, "as long as the [employer] believed that the [employee's] performance was not up to snuffand the [employee] has presented no evidence suggesting that management thought otherwiseit is not [the courts'] province to second-guess a decision to fire him as a poor performer. That is true regardless of whether, to an objective observer, the decision would seem wise or foolish, correct or incorrect, sound or arbitrary." Davila, 498 F.3d at 17.
Therefore, the plaintiff needs to "show more than his employer miscalculated in deciding that he had outlived his corporate usefulness: good-faith errors in an employer's business judgment are not the stuff of ADEA transgressions." Morales-Figueroa, 550 F.Supp.2d at 226 (citing Freeman v. Package Machinery Co., 865 F.2d 1331, 1341 (1st Cir.1988)). As to the evidence needed on this front, the Supreme Court has held that proof that the employer's explanation is "unworthy of credence" is one form of "circumstantial evidence that is probative of intentional discrimination." Reeves, 530 U.S. at 147, 120 S.Ct. 2097; see also Velazquez-Fernandez v. NCE Foods, Inc., 476 F.3d 6, 12 (1st Cir.2007). However, when the plaintiff fails to show that his employer's findings were inaccurate, unbelievable, idiosyncratic, or misleading, there is no basis to conclude that its legitimate business decisions were motivated by age animus. Id. (citing Gray v. New England Tel. and Tel. Co., 792 F.2d 251, 256 (1st Cir.1986)).
Performance evaluations
In the present case, upon reviewing the attached relevant performance reviews, and the uncontested facts, this Court notes that Acevedo agreed with some of Ceinos' annotations regarding his performance. In the 2004 performance evaluation, Ceinos and Acevedo agreed he was fully accountable for the situations concerning Pest Control, compressed air, Micro OOS and packaging equipment, which negatively impacted the performance of the site. Ex-Lax's SUF ¶ 63. They also agreed that there were problems in the communication between the departments. Id. Acevedo also recognized that sometimes results were not as acceptable as they should be, i.e., the installation of new potable water piping, Brush box, Qualification of Gas-X with Maalox tablets *317 change parts, that sometimes he did not spend the required time with each of his employees, and that he always felt responsible as to what his department did, good or bad. Id. at 64. Moreover, in his 2006 performance review, Acevedo stated that he was accountable for the delay in informing the over budget of the Thin Film device, and that he was responsible for all the matters related to the maintenance and engineering area. Id. at 108. Therefore, Acevedo cannot now argue that Ceinos' opinions regarding his performance were inaccurate or unbelievable. Especially considering that Acevedo participated in some of the investigations, that he signed the performance reviews and has not shown that he objected to the same to the HR Department or to Ceinos.
Additionally, Ceinos' comments and ratings in Acevedo's performance reviews were based on the investigation results for each incident. That is, Ceinos believed the information provided in the Unplanned Deviation Reports and investigation reports was an accurate depiction of the incidents occurred, and Acevedo has not shown otherwise. Lastly, this Court notes that Ceinos rated Acevedo in 2005 as "Fully Met Expectations," which evinces a lack of animus towards Acevedo, insofar as he was accorded positive review by Ceinos despite previous performance issues.
In essence, Plaintiffs ask us to excuse Acevedo's performance by replacing Ceinos' business judgment with his own absent proof that his employer's findings were inaccurate or misleading, which is an untenable position in light of the applicable case law. Velazquez-Fernandez v. NCE Foods, Inc., 476 F.3d 6, 12 (1st Cir.2007) (citing Webber v. Int'l Paper Co., 417 F.3d 229, 238 (1st Cir.2005)) (holding that "an employee's opinion of the efficacy of an employment decision, standing alone, cannot supplant the employer's business judgment.").
Ex-Lax's hiring practices, disciplinary procedure and Rivera's performance
In their attempt to show pretext, Plaintiffs further submit statistical information regarding Ex-Lax's hiring practices. Specifically, pursuant to the uncontested facts, after Ceinos was hired in 2003, a total of 17 employees were fired; 15 of those employees were over 40 years old. PAF ¶ 9. Moreover, Rodriguez, Ex-Lax's HR Manager of Ex Lax from 1997 to 2005, was 48 years old when she was terminated, and replaced by Pabellón, Ex-Lax's current HR Director; he was 39 years old when hired by Ex Lax. Id. at 65, 66, 67 & 68. Javier Garcia was replaced by Alexander Rochat, who was born in May 13, 1970. Id. at 69 & 70. Rochat was Ex-Lax's Site Leader from August 2006; at that time he was 34 years old. Id. at 71. Plaintiffs further submit Ex-Lax's answers to interrogatories # 4 and 16 to support their argument that Ex-Lax engaged in a pattern of age discrimination.[13]
This Court notes that a "company's overall employment statistics will, in at least many cases, have little direct bearing on the specific intentions of the employer when dismissing a particular individual." LeBlanc v. Great Am. Ins. Co., 6 F.3d 836, 848 (1st Cir.1993) (citing Gadson v. Concord Hosp., 966 F.2d 32, 35 (1st Cir.1992)). Although statistical evidence is sometimes relevant to show pretext, the First Circuit has cautioned that such evidence may vary greatly in its probative value. Bloomfield v. Bernardi Automall Trust, 170 F.Supp.2d 36, 45 (D.Mass.2001) (citing Blizard *318 v. Frechette, 601 F.2d 1217, 1223 (1st Cir.1979)). More to the point, "one potential flaw in the statistical evidence may arise when the ages of employees are given without any information about the age of the applicant pool. Specifically, `the fact that recently hired [employees] are younger than [the plaintiff] is not necessarily evidence of discriminatory intent, but may simply reflect a younger available work force'" Id. (citing LeBlanc, 6 F.3d at 848); see also Rodriguez v. Smithkline Beecham, 224 F.3d 1, 7-8 (1st Cir.2000). Accordingly, "[w]ithout an indication of a connection between the statistics," the practices of the employer, and the employee's case, statistics alone are likely to be inadequate to show that the employer's decision to discharge the employee was impermissibly based on age." Id. (citing Gadson, 966 F.2d at 35). Insofar as statistics alone are not likely to be probative of whether the employer's decision to terminate plaintiff was based impermissibly on plaintiff's age, if unsupported by other probative evidence of age discrimination, they are insufficient to show a discriminatory animus.
This district has held that "the fact that recently hired employees are younger than [the plaintiff] is not necessarily evidence of discriminatory intent, but may simply reflect a younger available work force." Tirado Arce v. ARAMARK Corp., 239 F.Supp.2d 153, 163 (D.P.R.2003). As in Tirado Arce, Acevedo failed to provide information regarding the pool of applicants or the composition of the relevant labor market. This alone leads us to finds that the statistics provided by Plaintiffs fail to create a triable issue of fact as to whether Acevedo was laid off for discriminatory reasons. Even so, upon reviewing the record, this Court notes that out of 171 employees hired, two were born in 1951, the year Acevedo was born; four employees were 50 or older, and 43 employees were over 40 years old. Thus the statistical information provided by Plaintiff fails to show a clear pattern of age discrimination in Ex-Lax's hiring practices. Furthermore, it should be noted that Acevedo was 45 years old when he was hired by Ex-Lax, that is, within the protected group. This in itself lends support to Ex-Lax's position.
Additionally, this Court notes that, as to the 2008 rodent incidents, Ceinos explains that they are not attributable to Rivera insofar as a major construction took place during that period of time which made it impossible to eliminate the entrance of animals in the plant. Even so, Rivera's lackluster performance is not conclusive evidence that Ex-Lax's proffered reason for terminating Acevedo is pretextual. Especially considering that Acevedo's performance deficiencies began in 2004 and he was granted opportunities to correct the same. Even more, he was terminated in 2007, that is, three years since the alleged deficiencies were first commented upon by Ceinos.
Lastly, it should be noted that Ex-Lax's alleged non-compliance with the disciplinary process is irrelevant for purposes of an ADEA claim. Notwithstanding, the record shows that exempt employees were not usually disciplined through the standard disciplinary forms, and instead the areas to be improved are identified via memos or the mid-year and annual performance reviews. See Docket # 89, pp. 465, 467-468. As such, the evidence suggests that Ex-Lax adequately complied with its disciplinary process in Acevedo's case.
Recruitment Plan
While arguing pretext, Plaintiffs also contend that when he was hired as Site Leader in 2003, Ceinos asked Rodriguez to prepare a recruitment plan to evaluate how the employees close to retirement *319 age would be replaced. PAF ¶ 102. He also sought to know whether said employees would retire or stay at Ex-Lax. Id. The employees approached had to be 55 years old, and have 5 years of service or more at Ex-Lax. Id. at 105. According to Rodriguez, the purpose was to substitute these persons and initiate a recruitment process. Id. at 103. Ceinos testified that the recruitment plan was based upon the fact that there were a substantial amount of employees in key positions near the retirement age, which could lead to numerous simultaneous vacancies for an extended period of time. See Docket # 89, p. 469. Ceinos believed this could negatively impact Ex-Lax's operations. Id.
On this point, the First Circuit has held that "company officials are permitted to gather information relevant to personnel planning without raising the specter of age discrimination." Wallace v. O.C. Tanner Recognition Co., 299 F.3d 96, 101 (1st Cir.2002) (citing Cox v. Dubuque Bank & Trust Co., 163 F.3d 492, 497 (8th Cir.1998)) (holding that "[m]any courts have recognized that an employer may make reasonable inquiries into the retirement plans of its employees."); Colosi v. Electri-Flex Co., 965 F.2d 500, 502 (7th Cir.1992) (finding that "a company has a legitimate interest in learning its employees' plans for the future, and it would be absurd to deter such inquiries by treating them as evidence of unlawful conduct.") Even "an offer of early retirement is not, on its own, evidence of discriminatory animus." Baralt v. Nationwide Mut. Ins. Co., 251 F.3d 10, 16 (1st Cir.2001); see also Alvarez-Fonseca v. Pepsi Cola of Puerto Rico Bottling Co., 152 F.3d 17, 27 (1st Cir.1998); Vega v. Kodak Caribbean, Ltd., 3 F.3d 476, 480 (1st Cir.1993). Even so, Rodriguez clarified that there was no recruitment plan in place to transfer those employees that refused to retire. Instead, a sole employee was approached by her supervisor, not Ceinos, and informed that if she did not retire, she would be transferred. Pursuant to Rodriguez's testimony, this was an isolated incident. Therefore, Plaintiffs did not show a clear generalized pattern or plan on Ex-Lax's behalf of pressuring employees to retire. Moreover, Ex-Lax's proffered reasons for evaluating which employees are close to retirement age is reasonable insofar as the company must ensure that all key positions are filled when employees retire.
Lastly, it should be noted that even "[d]iscrediting defendant's proffered reasons does not automatically entail a finding of age discrimination." Machin v. Leo Burnett, Inc., 376 F.Supp.2d 188, 200-201 (D.P.R.2005). Therefore, even a plaintiff's showing of pretext does not necessarily defeat a defendant's summary judgment motion. Such finding requires "sufficient evidence in the record for a reasonable factfinder to infer that plaintiff's termination was due to his age." Id.
After reviewing the record, this Court finds that Acevedo has not presented any evidence to demonstrate that age discrimination was the real reason for the terminationor even a motivating influence in the decision. Fontanez-Nunez, 447 F.3d at 56 (citing Reeves, 530 U.S. at 141, 120 S.Ct. 2097). Ceinos' alleged age-based comments are far from indicative of age-based animus. Moreover, given Ex-Lax's proffered reasons for Acevedo's termination, even assuming that the above-mentioned stray remarks made by Ceinos which we already held are unrelated to Acevedo's agewere in fact age related, they do not allow us to infer that Ex-Lax's real motivation was his age.
As such, even if Acevedo received performance bonuses and salary increases, this does not alone show age-based animus.[14]*320 There is not a single reference to Acevedo's age at any time by any witness or in any document. The only evidence submitted by Plaintiffs are Ceinos' comments regarding employees who have been working at the plant for a long time which have been discarded as age motivated. As a result, even if Plaintiffs discredited Ex-Lax's proffered reasons for Acevedo's dismissal, there is no proof that his termination was because of his age.
The First Circuit has noted that "federal law does not protect generally against arbitrary or unfair treatment in private employment, but only against actions motivated by listed prejudices such as race, age and gender ... Discrimination is a form of unfairness; but not all unfairness is discrimination." Sabinson v. Trs. of Dartmouth College, 542 F.3d 1, 4 (1st Cir.2008) (citations omitted). The "`ADEA does not stop a company from discharging an employee for any reason (fair or unfair) or for no reason, so long as the decision to fire does not stem from the person's age.'" Hidalgo v. Overseas Condado Ins. Agencies, 120 F.3d 328, 337 (1st Cir.1997) (citing Mesnick, 950 F.2d at 825). Thus while Acevedo may be entitled to other remedies due to his dismissal, the ADEA is inapplicable to the case at bar.
In light of the foregoing, this Court finds that Plaintiffs have failed to establish that a genuine issue of material fact exists as to pretext. Accordingly, Ex-Lax's request for summary judgment as to Plaintiffs' age discrimination claim is GRANTED.
Harassment
Courts have recognized claims for harassment other than sexual harassment, to wit, verbal abuse (racial epithets), pranks and other forms of hazing. DeNovellis v. Shalala, 124 F.3d 298, 310 (1st Cir.1997). However, not all offensive conduct is actionable as harassment, since trivial offenses do not suffice. Id. (citing Meritor Sav. Bank v. Vinson, 477 U.S. 57, 67, 106 S.Ct. 2399, 91 L.Ed.2d 49 (1986)). For example, in order to establish a Title VII[15] claim for sexual harassment under a hostile environment theory, the conduct must be "`sufficiently severe or pervasive to alter the conditions of the victim's employment and create an abusive [or hostile] working environment.'" Id. (citing Harris v. Forklift Sys., Inc., 510 U.S. 17, 21, 114 S.Ct. 367, 126 L.Ed.2d 295 (1993)). In this analysis, "courts look to the gravity as well as the frequency of the offensive conduct." Id. at 311.
More specifically, to succeed in a hostile workplace environment claim under the ADEA, Acevedo must show: (1) that he is a member of a protected class; (2) that he was subjected to unwelcome harassment; (3) that the harassment was based on his membership of the protected class; (4) that the harassment was so severe or pervasive that it altered the conditions of his employment and created an abusive work environment; (5) that the objectionable conduct was objectively and subjectively offensive, such that a reasonable person would find it hostile or abusive and the victim in fact did perceive it to be so; and (6) that some basis for employer liability has been established. Torres-Negron v. Merck & Co., 488 F.3d 34, 39 (1st Cir.2007) (citing O'Rourke v. City of Providence, 235 F.3d 713, 728 (1st Cir. 2001)). A plaintiff must establish that he *321 "suffered an adverse job action, that this was motivated by age, and that he suffered injury as a result of it." Collazo v. Nicholson, 535 F.3d 41, 44 (1st Cir.2008) (citing Melendez-Arroyo v. Cutler-Hammer de P.R. Co., 273 F.3d 30, 33 (1st Cir.2001)).[16]
The First Circuit has explained that "an employer's liability for a hostile work environment claim depends on the harasser's employment status relative to the victim's." Merck, 488 F.3d at 40. Therefore, Ex Lax is vicariously liable if Acevedo's supervisor at Ex Lax created a hostile work environment, whereas if a co-worker created the hostile work environment, Ex Lax will be held liable only if it was negligent either in discovering or remedying the harassment. Id.
Pursuant to his deposition testimony, Acevedo's harassment claim is based on the following: (i) Ceinos held Acevedo responsible for the maintenance and engineering incidents that occurred in the plant; (ii) in 2006, Ceinos allegedly raised his voice when talking to Acevedo in relation to some disagreements regarding the plant's cleanliness; specifically, Acevedo stated that Ex-Lax's facilities were clean and organized, while Ceinos stated that they were dirty and disorganized; (iii) Ceinos allegedly stopped talking to Acevedo; (iv) Ceinos allegedly started to take the lead in a project which had been previously led by Acevedo and excluded him from the project; (v) on one occasion, Ceinos allegedly became angry with Acevedo because he allegedly informed Ceinos' supervisor of a disagreement he had with Ceinos as to how to work with an "over budget," and (vi) Ceinos stopped inviting Plaintiff to the work meetings regarding big projects and he was excluded from the objectives. Ex-Lax's SUF ¶ 122; PAF ¶ 109, 111-113.
As previously stated, the ADEA is not applicable in the present case because Acevedo has not shown age-based animus. As such, his age-based harassment claims fail as well. Notwithstanding, this Court finds that the incidents Acevedo provides in support of his harassment claims are insufficient to withstand summary judgment. Specifically, the conduct Acevedo sets forth is not sufficiently severe and offensive to create a hostile work environment. This is evidenced by the fact that Acevedo never informed the HR Department about Ceinos' alleged harassment, despite knowing the mechanisms available within Ex-Lax. Moreover, according to Acevedo, he was unaware that the maintenance and engineering incidents that occurred at the plant were attributed to him. Insofar as the gist of his opposition to Ex-Lax's motion is that he was never advised that said incidents could lead to his dismissal, Acevedo is now barred from claiming that he was harassed by the same conduct he claims was never effectively brought to his attention. As such, Plaintiffs' harassment claims are DISMISSED with prejudice.
Supplemental law claims
Having dismissed Plaintiffs' federal law claims against Ex-Lax, Plaintiffs' state law claims are also dismissed. See Newman v. Burgin, 930 F.2d 955, 963 (1st Cir.1991) (holding that "[t]he power of a federal court to hear and to determine state-law *322 claims in non-diversity cases depends upon the presence of at least one `substantial' federal claim in the lawsuit.").
Conclusion
In light of the foregoing, Defendant's motion for summary judgment is GRANTED. Accordingly, Plaintiffs' federal claims are DISMISSED with prejudice, and their state law claims are DISMISSED without prejudice.
IT IS SO ORDERED.
NOTES
[1] GMP's refer to the Good Manufacturing Practice Regulations promulgated by the U.S. Food and Drug Administration under the authority of the Federal Food, Drug, and Cosmetic Act. Ex-Lax's SUF ¶ 2. These regulations, which have the force of law, require that certain manufacturers and packagers of certain drugs and medical devices take proactive steps to ensure that their products are safe, pure, and effective. Id. GMP regulations require a quality approach to manufacturing, enabling companies to minimize or eliminate instances of contamination, mix-ups, and errors. Id. at ¶ 3. This, in turn, protects the consumer from purchasing a product which is not effective or even dangerous. Id. Failure of firms to comply with GMP regulations can result in very serious consequences including recall, seizure, fines, and jail time. Id. GMP regulations address issues including recordkeeping, personnel qualifications, sanitation, cleanliness, equipment verification, process validation, and complaint handling. Id.
[2] An Unplanned Deviation Report is a technical document in which a deviation from an Ex-Lax's Standard Operating Procedure ("SOP") is thoroughly analyzed in order to ascertain the "root cause" of such deviation and to take corrective and preventive actions for its elimination, as well gauge the impact that the deviation at issue had on Ex-Lax's products. Ex-Lax's SUF ¶ 20.
[3] Although Ex-Lax posits that Acevedo's previous work experience and performance is irrelevant to said inquiry, courts have held otherwise. An employee may show that he possessed the necessary qualifications and adequately performed his job through proof of positive performance evaluations and raises earned from the employer. Rodriguez-Torres v. Caribbean Forms Mfr., Inc., 399 F.3d 52, 62 (1st Cir.P.R.2005) (citing Woodman v. Haemonetics Corp., 51 F.3d 1087, 1092 (1st Cir. 1995)). Moreover, the First Circuit has rejected the notion that prior work experience is irrelevant for all purposes in an employment discrimination case. Id. at n. 8. Accordingly, in Rodriguez-Torres, the Court concluded that "the district court acted within its discretion in admitting as relevant that [Plaintiff] obtained [relevant] knowledge [to do her job] from prior employment." Id.; see also Woods v. Friction Materials, Inc., 30 F.3d 255, 261 (1st Cir.1994). As such, it stands to reason that Plaintiff's proposed facts regarding his past work experience are relevant for purposes of the present motion.
[4] According to Acevedo, he was responsible for supervising all of the maintenance, building services, and engineering functions. As it related to these duties, Acevedo reported to Ex-Lax's Site Leader. Acevedo also acknowledged in his deposition that he did not know if any other Ex-Lax manager had the same duties and responsibilities as he did in relation to the maintenance, building services, and engineering of the plant.
[5] Insofar as Ex-Lax admits that whether Acevedo was the custodian of the personnel files of the Maintenance and Engineering Department is immaterial for purposes of the present motion, said portion of their SUF ¶ 7(iv) will be disregarded by this Court.
[6] The Performance Reviews are divided into two sections, "Objectives" and "Values and Behaviors." Each section is then divided into different sections or areas for which the employee is reviewed. The employee and the supervisor rate the employee's performance in each section or area, and they both award a rating. Thus the employee's self-appraisal and the supervisor's appraisal are not necessarily the same. The employee and the supervisor may include comments in each section. The ratings are as follows: 1 = "Partially Met Expectations", 2 = "Fully Met Expectations", and 3 = "Exceeded Expectations".
[7] Purified water is used for manufacturing Ex-Lax's products. Ex-Lax's SUF ¶ 73.
[8] Ceinos claims that he prepared the 2006 annual performance evaluation prior to that date, in November, December 2006 or January 2007. PAF ¶ 123 & 124.
[9] Although as Plaintiff points out, Ceinos alleged under penalty of perjury that Mariely Rivera was hired after Plaintiff was terminated (PAF ¶ 64) on February 23, 2007, the record shows Pabellon sent Rivera a letter confirming the offer of employment on February 2, 2007 (See Docket #70-17). Thus Rivera was not effectively hired on said date, and there is no evidence showing when Rivera began to work for Ex-Lax. Even so, that is immaterial for purposes of the present motion insofar as Ceinos admitted that the decision to terminate Acevedo was made in 2006.
[10] Defendant contests that Plaintiffs failed to properly support their statement that Acevedo is 22 years older than Rivera. See PAF ¶ 82. However, said fact is easily ascertainable, considering that their birth dates are uncontroverted.
[11] Jose Colón also stated that Mariely Rivera was in charge when the animals entered the plant, and no one was disciplined as a result of the discovery of a butterfly and a cricket in the plant. Id. at 48.
[12] Plaintiffs allege that pursuant to Acevedo's deposition, in August 2006, Ceinos told him that the problem that existed in Ex Lax relied in the employees that had been too long at the company specially, the older employees that worked in the maintenance group. PAF ¶ 107. However, Plaintiffs fail to include page 166 of Acevedo's deposition. Moreover, Defendant admits that Acevedo made that statement, but point out that on pages 167-170 Acevedo cleared up Ceinos' exact wording. This alone shows that Acevedo's comments at page 166 are self-serving conclusory statements that did not accurately reflect Ceinos' comments, and instead were Acevedo's interpretation of Ceinos' comments. As such, they are disregarded by this Court.
[13] Interrogatory # 4 is list of Ex-Lax's employees that were terminated after 2003, with their job title, termination date and birth date, and interrogatory #16 is a table of all persons hired by Ex-Lax after 2003, with their job title and birth date.
[14] Albeit bonuses and salary increases may meet the showing required for a prima facie case, our analysis is at the pretext stage.
[15] Because of their similarity, courts have analyzed ADEA claims under the same framework as claims under Title VII. See Trans World Airlines, Inc. v. Thurston, 469 U.S. 111, 121, 105 S.Ct. 613, 83 L.Ed.2d 523 (1985).
[16] Although this Circuit has recognized hostile work environment claims under the ADEA, it is well-established that the statute does not allow compensatory damages for pain and suffering. Collazo v. Nicholson, 535 F.3d 41, 45 (1st Cir.2008) (citing Vazquez v. E. Air Lines, Inc., 579 F.2d 107, 109 (1st Cir. 1978)). Instead, the ADEA only allows awards for " `pecuniary benefits connected to the job relation,' including unpaid wages or overtime compensation.'" Id. (citing Kolb v. Goldring, Inc., 694 F.2d 869, 872 (1st Cir. 1982)). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2470966/ | 763 F.Supp.2d 205 (2011)
Thomas HALKETT, Plaintiff,
v.
CORRECTIONAL MEDICAL SERVICES, INC., Defendant.
No. 1:09-cv-00637-JAW.
United States District Court, D. Maine.
February 4, 2011.
*207 Arthur J. Greif, Julie D. Farr, Gilbert & Greif, P.A., Bangor, ME, for Plaintiff.
Matthew J. Lamourie, Michael Messerschmidt, Preti, Flaherty, Beliveau, Pachios & Haley, LLP, Portland, ME, for Defendant.
ORDER ON MOTION FOR SUMMARY JUDGMENT
JOHN A. WOODCOCK, JR., Chief Judge.
Concluding that an employee has raised sufficient evidence to withstand a motion for summary judgment under the Maine Whistleblowers Protection Act (MWPA), the Court denies the employer's motion for summary judgment.
I. STATEMENT OF FACTS
A. Procedural History
On November 30, 2009, Thomas Halkett filed suit in Penobscot County Superior Court against his former employer, Correctional Medical Services, Inc. (CMS), alleging that CMS violated the Maine Whistleblower Protection Act (MWPA), 26 M.R.S. § 831 et seq., and the Maine Human Rights Act (MHRA), 5 M.R.S. 4551 et seq., by terminating his employment after he complained to CMS about its practices, which he reasonably believed were illegal. Notice of Removal (Docket # 1) Attach. 1 (Compl). On December 22, 2009, CMS removed the action to this Court based on its diversity jurisdiction. Notice of Removal. On June 22, 2010, CMS moved for summary judgment. Def.'s Mot. for Summ. J. (Docket # 16) (Def.'s Mot.). On August 16, 2010, Mr. Halkett responded. Pl.'s Mem. of Law in Opp'n to Def.'s Mot. for Summ. J. (Docket # 23) (Pl.'s Opp'n). On August 30, 2010, CMS replied. Def.'s Br. in Reply to Pl.'s Objection to Def.'s Mot for Summ. J. (Docket # 27) (Def.'s Reply).
B. Preliminary Objections
1. CMS's Objection to Plaintiff's Statement of Material Fact Paragraph 155
In its Reply to Mr. Halkett's Statement of Additional Material Facts, CMS objects to paragraph 155 on the ground that it violates Local Rule 56(c) by positing "two distinct statements of fact each with a distinct record citation." Def.'s Am. and Corrected Reply to Pl.'s Statement of Additional Material Facts ¶ 155 n. 1 (Docket # 29) (DRPSAMF). See D. ME. LOC. R. 56(c). Local Rule 56(c) requires that a party opposing a motion for summary judgment submit with its opposition "a separate, short, and concise statement of material facts." D. ME. LOC. R. 56(c). It allows the opposing party to submit additional facts, "each set forth in a separately numbered paragraph and supported by a record citation." Id. At the same time, the Court does not require that each paragraph contain only a single assertion. Randall v. Potter, 366 F.Supp.2d 120, 122 (D.Me.2005) ("[T]he requirement of `separately numbered paragraphs' does not mean each paragraph must contain only one sentence."); Capozza Tile Co. v. Joy, 223 F.Supp.2d 307, 313 n. 2 (D.Me.2002) (denying a motion to strike a statement of material facts "replete with multiple allegations set forth in the same numbered paragraph" because a response "would not be unduly burdensome"). The Court has reviewed Plaintiff's paragraph 155 and has concluded that it does not violate Local Rule 56(c). The Court overrules CMS's *208 objection to Plaintiff's Statement of Additional Material Fact paragraph 155.
2. CMS Objections to Background Facts
In his Statement of Additional Material Facts, Mr. Halkett provided some of his educational and professional background. Pl.'s Statement of Additional Material Facts ¶¶ 150-51 (Docket # 22) (PSAMF). CMS objects on the basis that his background and experience is not material to the motion. DRPSAMF ¶¶ 150-51. The Court overrules CMS's objection.
C. Thomas Halkett and CMS
1. Thomas Halkett's Background and Employment
Thomas Halkett is a licensed clinical professional counselor with a bachelor of arts degree in philosophy and a master's degree in divinity. PSAMF 150; DRPSAMF ¶ 150. Mr. Halkett has maintained a private counseling practice since the late 1980s, has been employed as an assistant professor of philosophy at the University of Maine at Machias since 1994, and had worked as a vicar at St. Aidan's Episcopal Church in Machias, Maine. PSAMF ¶ 151; DRPSAMF ¶ 151. Mr. Halkett worked with inmates at the Washington County Jail from 1985 to the mid-1990s. PSAMF ¶ 152; DRPSAMF ¶ 152. In January 2004, Mr. Halkett gave up his position as vicar at St. Aidan's.[1] PSAMF ¶ 153; DRPSAMF ¶ 153. Mr. Halkett has some background on inmate confidentiality through his experience and his work as a professor.[2] PSAMF ¶ 154; DRPSAMF ¶ 154.
2. Mr. Halkett, C.M., and the Telephone
In March 2006, Mr. Halkett was allowing inmates to make telephone calls from his office to people outside the prison. DSMF ¶ 71; Pl.'s Resp. to Def.'s Statement of Undisputed Material Facts ¶ 71 (Docket # 22) (PRDSMF). Specifically, Mr. Halkett was treating an inmate, "C.M.," for mental health issues. DSMF ¶ 72; PRDSMF ¶ 72. During this same time, Carol Geel, a licensed social worker and correctional caseworker for the Maine Department of Corrections (MDOC) at the Downeast Correctional Facility (DCF), was C.M.'s MDOC caseworker. DSMF ¶¶ 72-73; PRDSMF ¶¶ 72-73. Ms. Geel believed that C.M. had been convicted of domestic abuse and was a batterer who had remained obsessed about his girlfriend's whereabouts, and Ms. Geel had refused to authorize C.M.'s requests to telephone his girlfriend.[3] DSMF ¶¶ 75-78; PRDSMF ¶¶ 75-78.
*209 In March 2006, Mr. Halkett allowed C.M. to telephone his girlfriend from Mr. Halkett's office because C.M. was not allowed to make calls from Ms. Geel's office and because C.M. had no telephone of his own. DSMF ¶ 79; PRDSMF ¶ 79. Mr. Halkett believed that there were no MDOC regulations that prohibited these calls. DSMF ¶ 80; PRDSMF ¶ 80.
In the spring of 2006, Ms. Geel learned that Mr. Halkett had allowed C.M. to contact his girlfriend.[4] DSMF ¶ 81; PRDSMF ¶ 81; PSAMF ¶ 155; DRPSAMF ¶ 155. Ms. Geel believed that by allowing C.M. to telephone his girlfriend, Mr. Halkett was violating MDOC policy, and she notified Ralph Pennell, the Programs Manager at DCF, that she believed that Mr. Halkett had violated MDOC Policy 21.3. DSMF ¶¶ 85, 93-94; PRDSMF ¶¶ 85, 93. Ms. Geel considered Mr. Halkett's actions to be particularly serious because he had allowed an inmate who had been convicted of domestic assault to telephone his victim.[5] DSMF ¶ 86; PRDSMF ¶ 86.
In March 2006, Mr. Halkett thought it was entirely appropriate for C.M. to initiate telephone calls to his girlfriend. DSMF ¶ 91; PRDSMF ¶ 91. During the winter of 2006, Mr. Halkett believed that if he thought it was appropriate to do so, in certain circumstances, such as where there were family issues, where someone was incredibly distraught, or occasionally if the person needed to speak to a lawyer, inmates could place telephone calls from his office. DSMF ¶ 87; PRDSMF ¶ 87. He also believed that if a person outside prison was on an inmate's visiting list, and if that person sent mail to the prisoner, the inmate faced no restrictions against initiating telephone calls to that person so long as the inmate was "not in a domestic violence situation." DSMF ¶ 89; PRDSMF ¶ 89. Although C.M.'s girlfriend was on an approved list of his visitors, whether she visited him was her decision, based exclusively on her initiation, and as a result of Mr. Halkett's actions, although she could have terminated the conversation by hanging up, the girlfriend did not have the same freedom of choice with respect to telephone calls initiated by C.M.[6] DSMF ¶ 90; PRDSMF ¶ 90.
*210 3. June 2006: MDOC Informs Mr. Halkett About Its Inmate Telephone Policy
After learning about Mr. Halkett and C.M., on June 20, 2006, Mr. Pennell prepared a memorandum and submitted it to Mr. Halkett. DSMF ¶ 93; PRDSMF ¶ 93. MDOC Policy 21.3, which had an effective date of May 14, 2002, covers the right of inmates to make telephone calls to persons outside the prison. DSMF ¶ 94, 96; PRDSMF ¶ 94, 96. Mr. Halkett says, however, that there is a separate MDOC policy that defines rules for when a mental health worker can place a phone call on behalf of an inmate.[7] PRDSMF ¶ 94, 98. When Mr. Pennell informed Mr. Halkett in June 2006 that he was restricted from placing phone calls on behalf of inmates, this policy was contrary to what Mr. Halkett believed the MDOC allowed. PRDSMF ¶ 97. Mr. Halkett believes that restrictions went into place in June or July 2006 following the episode involving C.M.[8] DSMF ¶ 97; PRDSMF ¶ 97. As of late June 2006, Mr. Halkett understood that he was not to make any telephone calls for inmates from his office or to allow prisoners to make any telephone calls from his office. DSMF ¶ 101; PRDSMF ¶ 101. However, Mr. Halkett wrote a written response to Mr. Pennell's memorandum, citing a MDOC policy that allowed mental health workers to assist prisoners to facilitate contact with family and outside agencies when necessary.[9] PSAMF ¶ 157; DRPSAMF ¶ 157.
Kimberly Partridge, who was Mr. Halkett's direct supervisor at CMS, did not discipline Mr. Halkett for the incident involving C.M. but she issued a memorandum. DSMF ¶ 103; PRDSMF ¶ 103; PSAMF ¶ 159; DRPSAMF ¶ 159. Although Ms. Partridge considered the memorandum a counseling step, the memorandum itself does not say it was intended as a counseling step and Ms. Partridge did not consider it to be a written warning. DSMF ¶ 103; PRDSMF ¶ 103.
*211 4. October 26, 2007: Mr. Halkett Facilitates An Inmate Telephone Call From His Office
On October 26, 2007, Mr. Halkett allowed an inmate, "A.B.," whom he had been treating, to leave a voicemail message with his probation officer, Christopher Arbour, from Mr. Halkett's office at DCF. DSMF ¶¶ 104, 106; PRDSMF ¶¶ 104, 106. A.B.'s voicemail to Probation Officer Arbour informed the Officer that A.B. would contact his supervisor if he did not return the call.[10] DSMF ¶ 106; PRDSMF ¶ 106. On Monday, October 29, 2007, Officer Arbour listened to A.B.'s voicemail and he returned A.B.'s call and explained that he could not do any probation planning for him while he remained incarcerated; however, Officer Arbour then contacted MDOC officials at DCF and complained about having received a call from A.B. DSMF ¶¶ 106, 107; PRDSMF ¶¶ 106, 107.
In late October 2007, Ms. Partridge became aware of the telephone incident involving A.B. from Mark Caton, the Director of the DCF, and from Mr. Pennell on October 30, 2007.[11] DSMF ¶ 105; PRDSMF ¶ 105. On October 30, 2007, Ms. Partridge emailed Larry Amberger, CMS's regional director, about Mr. Halkett's actions and the telephone incident. DSMF ¶ 108; PRDSMF ¶ 108. In mid-November 2007, Mark Caton mentioned the telephone incident to Ms. Partridge and asked her to investigate what had happened. DSMF ¶ 109; PRDSMF ¶ 109. Mr. Caton further informed Ms. Partridge that he did not want Mr. Halkett on DCF grounds until she had completed her investigation. DSMF ¶ 110; PRDSMF ¶ 110. Mr. Caton decided to lock Mr. Halkett out of the DCF, an action that is within Mr. Caton's authority. DSMF ¶¶ 110-11; PRDSMF ¶¶ 110-11. Mr. Caton was aware that Mr. Halkett had violated the DCF's telephone policy previously. DSMF ¶ 112; PRDSMF ¶ 112.
Mr. Halkett was away for a two-week leadership training session but upon his return on November 15, 2007, Ms. Partridge notified him that allowing A.B. to leave a voicemail message was unacceptable and that CMS was "not sure that [Halkett] would be allowed to work [at DCF] anymore." DSMF ¶ 114; PRDSMF 1114. Ms. Partridge made it clear to Mr. Halkett that she was investigating the telephone incident involving A.B. and she asked him to prepare a written statement. DSMF ¶ 115; PRDSMF ¶ 115. During their conversation, Ms. Partridge gave Mr. Halkett an opportunity to clarify whether he had allowed an inmate to make a telephone call or whether he had helped the inmate make a call from his office. DSMF *212 ¶ 116; PRDSMF ¶ 116. Mr. Halkett responded that he had not allowed A.B. to make the phone call, but he had dialed the number and A.B. had left a message.[12] DSMF ¶ 117; PRDSMF ¶ 117.
Ms. Partridge prepared a memorandum dated November 15, 2007, following her conversation with Mr. Halkett. DSMF ¶ 118; PRDSMF ¶ 118. She also called Mr. Caton on November 15, 2007, and told him that Mr. Halkett denied making a call to a probation officer or allowing A.B. to make the call.[13] DSMF ¶ 119; PRDSMF ¶ 119. Mr. Caton lifted the lockout of Mr. Halkett based on Ms. Partridge's reporting that Mr. Halkett denied calling the probation office or allowing an inmate to do so. DSMF ¶ 120; PRDSMF ¶ 120.
After reviewing his progress notes, Mr. Halkett recalled that A.B. had come to him on October 26, 2007, and was extremely agitated, frightened, and obsessed about his pending release from prison. PSAMF ¶ 190; DRPSAMF ¶ 190. A.B. was very worried about where he was going to live and was very fearful that his probation officer was out to get him and would move quickly to revoke his probation. Id. Mr. Halkett was very concerned about A.B.'s mental state and the potential for A.B. to become violent. PSAMF ¶ 191; DRPSAMF ¶ 191. He therefore made the decision that it would be of great therapeutic value for Mr. Halkett to call A.B.'s probation officer in A.B.'s presence to attempt to assuage A.B.'s concerns. PSAMF ¶ 192; DRPSAMF ¶ 192.
Mr. Halkett prepared a written statement about the A.B. telephone incident and submitted it to her on November 16, 2007. DSMF ¶ 122; PRDSMF ¶ 122. In the statement, Mr. Halkett conceded that he:
suggested that [A.B.] talk with Linda (caseworker) and that I could call his probation officer to discuss mental health concerns. [A.B.] asked if he could talk with him, I said no. I said it would be good for him to let his probation officer know what he needed in a letter. Meanwhile, I called the probation office, and when got the answering machine asked [A.B.] if he would like to leave a message. He left a very coherent, polite message that expressed some of the concerns that we had been discussing.
DSMF ¶ 123; PRDSMF ¶ 123. He went on to write that "once in a while for therapeutic reasons, I have pushed the edge on this phone call prohibition," but he emphasized that these instances are "exceptional and from an institutional point of view, may be security problems, or in the parlance of our institution, disobeying a direct order. But I don't think so and would enjoy talking with you and Mark about that." DSMF ¶¶ 124-25; PRDSMF ¶¶ 124-25. He thought that allowing A.B. to leave a voicemail message was completely different from allowing A.B. to make a phone call, and that he had not violated the spirit of Mr. Pennell's June 20, 2006 letter. DSMF ¶ 126; PRDSMF ¶ 126. At the same time, he conceded that *213 allowing A.B. to leave a voicemail message with a probation officer "was somewhat inconsistent" with the June 20, 2006 directive; yet, he thought "it was not inconsistent with [his] role as a mental health professional at that facility." DSMF ¶ 127; PRDSMF ¶ 127. Mr. Halkett insisted that as a mental health professional, it was "his call to make" and believed that the inmate felt better and was less disruptive. DSMF ¶ 128-29; PRDSMF ¶ 128-29.
5. CMS Terminates Mr. Halkett
Mr. Halkett understood from his first conversation with Ms. Partridge that CMS considered what he had done to be very serious, and in fact, Ms. Partridge informed him that he might be terminated. DSMF ¶ 130-31; PRDSMF ¶ 130-31. She told Mr. Halkett that he was being "locked out" of the DCF because of the A.B. telephone incident. DSMF ¶ 132; PRDSMF ¶ 132. On December 5, 2007, Ms. Partridge recommended to Mr. Amberger and CMS's Human Resources representative that Mr. Halkett be terminated. DSMF ¶ 138-39; PRDSMF ¶ 138-39. Ms. Partridge consulted with Sterling Price, a human resources specialist, who only indicated that the conduct was "terminable," and with her superior, Mr. Amberger. PSAMF ¶ 204; DRPSAMF ¶ 204.
Mr. Amberger accepted Ms. Partridge's recommendation to terminate Mr. Halkett. DSMF ¶ 141; PRDSMF ¶ 141. On December 7, 2010, Ms. Partridge called Mr. Halkett and told him that CMS was terminating him because of the A.B. incident. DSMF ¶ 143-44; PRDSMF ¶ 143-44. Mr. Halkett believes that CMS applied the telephone policy selectively against him, since he was told by Patty Murphy, a fellow counselor, that she had been allowing inmates to make phone calls from her office ever since she started working there.[14] PSAMF ¶ 158; DRPSAMF ¶ 158. CMS has a corrective action policy that was in effect during Mr. Halkett's employment. PSAMF ¶ 195; DRPSAMF ¶ 195. The policy provided for progressive discipline, beginning with verbal counseling, written counseling, final written warning, and a recommendation for termination.[15] PSAMF ¶ 195; DRPSAMF ¶ 195.
D. Thomas Halkett and Whistle blowing
1. October 2006: Missing Records
In October 2006, Mr. Halkett became aware that his counseling records for an inmate, Brian, were missing from Brian's chart. PSAMF ¶ 159; DRPSAMF ¶ 159. Mr. Halkett expressed his concern about the missing records to Ms. Partridge, particularly since the absence of treatment records for an inmate who was required to undergo mental health treatment could adversely affect the inmate.[16] PSAMF ¶ 159; DRPSAMF ¶ 159. Mr. Halkett told Ms. Partridge that he believed that both state and federal law require that counseling records be kept in an identifiable secure *214 location.[17] PSAMF ¶ 160; DRPSAMF ¶ 160. He believed that the failure of security and confidentiality of the records was illegal and he assumed that HIPAA had made such tampering or destruction of records illegal. PSAMF ¶ 160; DRPSAMF ¶ 160.
2. Fall of 2006: D.B.'s Missing Records
In the fall of 2006, Mr. Halkett also became aware that a letter he had written for an inmate, "D.B.," concerning his progress in counseling with a goal to gain minimum security status within DCF, was missing from D.B.'s file. PSAMF ¶ 161; DRPSAMF ¶ 161. Mr. Halkett had given D.B. a copy of the letter and D.B. told him that his cell had been searched and the letter was missing from his cell after the search was completed.[18] PSAMF ¶ 161; DRPSAMF ¶ 161. Mr. Halkett placed a copy of that letter in D.B.'s chart but discovered that the letter and treatment notes had been removed from D.B.'s chart. PSAMF ¶ 162; DRPSAMF ¶ 162. It was Mr. Halkett's hypothesis that the letter had been purposefully removed and destroyed. Id.
3. Ms. Partridge Responds
When Mr. Halkett brought these missing records to Ms. Partridge's attention, she suggested that the missing records for both Brian and D.B. were only a problem of misfiling, not intentional removal. PSAMF ¶ 163; DRPSAMF ¶ 163. Mr. Halkett felt he had never received a satisfactory explanation for why the records were missing. Id.
4. Spring 2007: Mr. Halkett Complains Again
In the spring of 2007, Mr. Halkett emailed Ms. Partridge regarding a breach of confidentiality involving counseling records, which Mr. Halkett considered a violation of state and federal law. PSAMF ¶ 164; DRPSAMF ¶ 164.
5. Board of Nursing Complaints Against Kimberly Partridge and Michelle Snow and Mr. Halkett's Complaint
Mr. Halkett claims that "W.B.," an inmate, had filed complaints with the Board of Nursing against Ms. Partridge and Michelle Snow over their mishandling of a confidential medical discussion as well as other issues, including allowing a known narcotics addict to inject his own medicine.[19] PSAMF ¶ 165; DRPSAMF ¶ 165. Mr. Halkett believed that Ms. Partridge and Ms. Snow had been reviewing his counseling notes concerning W.B., not in an effort to assist his mental health concerns, but to gain information, such as W.B.'s mood or personality disorders, to defend against W.B.'s complaint.[20]*215 PSAMF ¶ 166; DRPSAMF ¶ 166. Mr. Halkett says that there was no legitimate reason for either Ms. Partridge or Ms. Snow to examine Mr. Halkett's treatment notes of W.B. for the purpose of preparing a defense to W.B.'s Nursing Board complaint.[21] PSAMF ¶ 167; DRPSAMF ¶ 167. He contended that the sole purpose for their examination of W.B.'s treatment notes was to provide Ms. Partridge and Ms. Snow with information detrimental of W.B. to allow them to respond to his Nursing Board complaint.[22]Id.
Mr. Halkett raised his concerns with Ms. Partridge and when she failed to respond, he went over her head and on May 8, 2007, sent a letter to David Wilkinson, the Regional Manager of CMS, complaining about the breach of inmate confidentiality by Ms. Partridge and Ms. Snow.[23] PSAMF ¶ 168; DRPSAMF ¶ 168. Mr. Wilkinson did not respond to Mr. Halkett's letter because he had left CMS for a new position.[24] PSAMF ¶ 169; DRPSAMF ¶ 169. When Mr. Wilkinson's replacement, Larry Amberger, was hired, Mr. Halkett sent his May 8, 2007 letter to him. PSAMF ¶ 169-70; DRPSAMF ¶ 169-70. In his June 7, 2007, cover letter to Mr. Amberger, Mr. Halkett explained that he was "mainly concerned about any repercussions regarding eval. or annual review, for putting myself in a sort of whistleblower situation." PSAMF ¶ 170; DRPSAMF ¶ 170. Mr. Amberger met with Mr. Halkett and told him that Ms. Partridge may have had a "lapse of judgment" in reviewing W.B.'s records but he did not consider it to be unethical or illegal.[25] PSAMF *216 ¶ 171; DRPSAMF ¶ 171. Mr. Halkett disagreed with Mr. Amberger. Id. No one within CMS management asked Ms. Partridge whether she had looked at W.B.'s records.[26] PSAMF ¶ 172; DRPSAMF ¶ 172.
6. Mr. Halkett's July 19, 2007 Complaint
On July 19, 2007, Mr. Halkett wrote another letter to Ms. Partridge complaining that an inmate's counseling records were not being kept confidential as he had seen a caseworker, Carol Geel, take an inmate's chart.[27] PSAMF ¶ 173; DRPSAMF ¶ 173. In response, Ms. Partridge informed Mr. Halkett that she had "taken care of this", although she would not go into details.[28] PSAMF ¶ 174; DRPSAMF ¶ 174.
7. Mr. Halkett's September 14, 2007 Complaint
On September 14, 2007, Mr. Halkett called and left a message for Ms. Partridge about another breach of inmate confidentiality. PSAMF ¶ 175; DRPSAMF ¶ 175. He informed Ms. Partridge that the records of an inmate, "F.B.," had been mishandled and that another inmate's records had been included in F.B.'s chart. PSAMF ¶ 175; DRPSAMF ¶ 175. When Ms. Partridge did not reply, Mr. Halkett followed up with a memorandum dated September 19, 2007 to Ms. Partridge with copies to Jeff Morin, the Director of the Charleston Correctional Facility (CCF), Judy Bailey, the Unit Manager of CCF, Larry Amberger, the Regional Director of CMS, and Joe Fitzpatrick, the Director of Mental Health for the Maine Prison System. PSAMF ¶ 175; DRPSAMF ¶ 175. In his September 19, 2010, memorandum, Mr. Halkett stated:
I have looked through the DOC policy and procedures and can't figure out if transferring notes in this manner is permissible or legal. To that end, the regulations suggest that the Attorney General's Office be appraised of the situation and complete an investigation.
PSAMF ¶ 176; DRPSAMF ¶ 176. On September 27, 2007, Mr. Halkett sent Ms. Partridge a follow-up letter, reiterating that he wanted to talk to her about the confidentiality issue. PSAMF ¶ 177; DRPSALF ¶ 177. Mr. Halkett never did get to speak to Ms. Partridge about these concerns nor did anyone at CMS or DOC address his concerns. PSAMF ¶ 178; DRPSAMF ¶ 178. Although Ms. Partridge may have discussed confidentiality protocols with CMS management after September 19, 2007, she does not recall *217 doing so.[29] PSAMF ¶ 179; DRPSAMF ¶ 179. Ms. Partridge did speak with Jeff Morin about guidelines for sharing information about an inmate's application for community home confinement, but spoke only in generalities and did not address inmate F.B.'s situation. PSAMF ¶ 180; DRPSAMF ¶ 180. Ms. Partridge did not get answers to all of Mr. Halkett's questions and did no further investigation. PSAMF ¶ 180; DRPSAMF ¶ 180.
Ms. Partridge did not investigate how the notes of one inmate ended up in another inmate's chart. PSAMF ¶ 181; DRPSAMF ¶ 181. If a records request had been made, it would have been the responsibility of the on duty nurse to locate and copy records, and that nurse should have discovered the presence of another inmate's notes within the chart.[30] PSAMF ¶ 181; DRPSAMF ¶ 181. Ms. Partridge did not know the name of the on-duty nurse in this case and did not speak to the nurse about her failure to discover the misplaced notes. PSAMF ¶ 181; DRPSAMF ¶ 181. Ms. Partridge never learned whether the inmate applying for home confinement had signed a release for his records. PSAMF ¶ 182; DRPSAMF ¶ 182.
8. Mr. Halkett and the Subpoena
On September 18, 2007, Mr. Halkett was served with a subpoena to testify at a trial on behalf of inmate "M.T.," and he provided Ms. Partridge with a copy of the subpoena. PSAMF ¶ 183; DRPSAMF ¶ 183. Ms. Partridge told Mr. Halkett that she would prefer he not testify on behalf of M.T. because it could be problematic for Mr. Halkett and CMS.[31] PSAMF ¶ 184; DRPSAMF ¶ 184.
9. Mr. Halkett and W.B.'s Lawsuit Against CMS
On November 16, 2007, Mr. Halkett received a telephone call from Chris Taintor, a lawyer representing CMS in a lawsuit brought by inmate "W.B." PSAMF ¶ 185; *218 DRPSAMF ¶ 185. Attorney Taintor told Mr. Halkett that he was aware W.B. had designated Mr. Halkett as an expert witness and he asked Mr. Halkett whether there would be any surprises. PSAMF ¶ 185; DRPSAMF ¶ 185. Mr. Halkett told Mr. Taintor that he would have to be truthful about what he thought of Ms. Partridge's and Ms. Snow's callousness over W.B.'s mental health notes, and Mr. Taintor responded that CMS did not penalize so-called whistleblowers and he was glad to hear that Mr. Halkett liked his job.[32] PSAMF ¶ 186; DRPSAMF ¶ 186.
E. The Parties' Positions
1. CMS's Argument
CMS first contends that Mr. Halkett failed to satisfy the prima facie elements of a MWPA claim. Def.'s Mot. at 9-14. It says that Mr. Halkett cannot demonstrate that he engaged in protected activity or that there was a causal connection between the activity and his termination. Id. at 10. Focusing on the definition of protected activity in 26 M.R.S. § 833(1)(A) and (B), CMS says that Mr. Halkett's complaints to CMS do not survive a "reasonableness" inquiry. Id. at 11. CMS insists that Mr. Halkett failed to identify any state or federal law, rule or regulation that CMS supposedly violated. Id. at 11-12. Even if Mr. Halkett held a subjective belief that CMS was violating the law, CMS says that to present a prima facie case in a MWPA claim, the employee must satisfy an objective component for the reasonableness of his belief. Id. at 11-14. It concludes that Mr. Halkett's belief cannot be deemed both subjectively and objectively reasonable. Id.
CMS contends that, even if Mr. Halkett survives the protected activity element of his MWPA claim, he has failed to present evidence that would satisfy his burden to establish a causal connection between his protected activity and his termination. Id. at 14-17. CMS says that of Mr. Halkett's four complaints, only two occurred within three months of his termination and the other two were "quite attenuated in time." Id. at 15. Even as to the latter two instances, CMS claims that "[n]either . . . provide the type of immediate temporal proximity which, standing alone, would be `strongly suggestive' of retaliation." Id. Furthermore, CMS asserts that Mr. Halkett's September 19, 2007, "broadside" was too vague to credit as the cause of his dismissal, especially in light of his serious violation of the CMS prisoner telephone policy. Id. at 16.
CMS says that, should the Court conclude that Mr. Halkett has sustained his prima facie case, it should also conclude that CMS has met the McDonnell Douglas burden to present a non-retaliatory reason for his termination. Id. at 17-18. As proof, CMS cites the facts surrounding Mr. Halkett's allowance of inmate phone calls from his office. Id.
*219 CMS turns then to the final question: whether Mr. Halkett has presented sufficient evidence from which a jury could find that CMS's termination was pretextual. Id. at 18-20. CMS observes that the First Circuit has cautioned that the courts do not act "as super personnel departments, assessing the meritsor even rationality of employers' nondiscriminatory business decisions." Id. at 19 (quoting Mesnick v. Gen. Elec. Co., 950 F.2d 816, 825 (1st Cir.1991)). Contrasting this case with those where employees have withstood dispositive motions, CMS emphasizes that there is no evidence that Ms. Partridge ever made retaliatory comments, that Mr. Halkett was treated differently from other similarly-situated employees, or that CMS had engaged in a pattern or practice of retaliation. Id.
2. Mr. Halkett's Response
Mr. Halkett first observes that CMS failed to address 26 M.R.S. § 833(1)(C), which extends the scope of protected activity to an employee's participation in an investigation, hearing or inquiry held by that public body or in a court action. Pl.'s Opp'n at 8-9. He contends that he was required to respond to the subpoena and testify on behalf of inmate M.T. and was designated as an expert witness by inmate W.B. and that his participation in those activities is protected conduct under section 833(1)(C). Id.
Regarding his complaints about confidentiality violations, Mr. Halkett says that the question is not whether the violations were in fact illegal but whether a reasonable person might have believed the practices were illegal. Id. at 9. Mr. Halkett goes on to assert that he was not merely reasonable in believing that the five instances of confidentiality breaches were illegal, "he was right." Id. at 11.
Addressing the causation issue, Mr. Halkett stresses that the question is whether there is sufficient evidence in this record to permit a factfinder to find that "there was differential treatment in an employment action and that the adverse employment decision was caused at least in part by a forbidden type of bias." Id. at 12. Finally, as regards his ultimate burden of proof, Mr. Halkett says that the temporal closeness of his protected activity and termination, the weaknesses, inconsistencies and contradictions in CMS's explanations, its failure to follow its progressive discipline policy, and its decision to allow the person against whom Mr. Halkett had complained to make the termination decision creates a factual question that can only be resolved by a factfinder. Id. at 11-20.
3. CMS's Reply
In its Reply, CMS disputes much of what Mr. Halkett contended in his Response. CMS begins with the facts, challenging Mr. Halkett's characterization of the events surrounding the handling of inmate treatment records and concluding that Mr. Halkett's argument requires the Court to "ignore the relationship between the inmates whose records were at issue and the specific duties of the employees who were in possession of those records." Def.'s Reply at 2-4. CMS then explains why the records were accessed. Id.
CMS next observes that Mr. Halkett's attempts to provide legal authority for his view of inmate confidentiality failed to account for (or even cite) the Maine statute that specifically addresses confidentiality among inmates: 34-A M.R.S. § 1216(1)(B). Id. at 4-5. CMS says that a review of section 1216(1)(B) confirms that Mr. Halkett's belief that CMS had violated laws protecting inmate confidentiality was simply incorrect. Id. at 5. It also says that Mr. Halkett's assumptions *220 about HIPPA[33] privacy rules were not reasonable. Id. at 5-6.
CMS disputes Mr. Halkett's rendition of the facts in this case. First, it recites the facts which, according to CMS, preclude an inference of pretext or animus by CMS. Id. at 6-9. Second, it emphasizes the facts supposedly discrediting Mr. Halkett's judgment, specifically his view that C.M. was not a perpetrator of domestic violence. Id. at 10.
II. DISCUSSION
A. Summary Judgment Standard
Summary judgment is appropriate when "the movant shows 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).[34] For summary judgment purposes, "`genuine' means that the evidence is such that a reasonable jury could return a verdict for the nonmoving party, and a `material fact' is one which might affect the outcome of the suit under the governing law." Buchanan v. Maine, 469 F.3d 158, 166 (1st Cir.2006) (quoting Seaboard Sur. Co. v. Town of Greenfield, 370 F.3d 215, 218-19 (1st Cir.2004)) (internal quotation marks omitted). "Neither conclusory allegations [nor] improbable inferences are sufficient to defeat summary judgment." Carroll v. Xerox Corp., 294 F.3d 231, 236-37 (1st Cir.2002) (citation and internal quotation marks omitted).
B. Maine Whistleblower Protection Act
To prevail on his MWPA claim, Mr. Halkett must prove three elements: "(1) the employee engaged in activity protected by the statute; (2) the employee was the subject of an adverse employment action; and, (3) there was a causal link between the protected activity and the adverse employment action." Costain v. Sunbury Primary Care, P.A., 2008 ME 142, ¶ 6, 954 A.2d 1051, 1053.
The MWPA analysis is guided by federal case law construing analogous statutes. Currie v. Indus. Sec., Inc., 2007 ME 12, ¶ 12, 915 A.2d 400, 404; see also Maine Human Rights Comm'n. v. City of Auburn, 408 A.2d 1253, 1261 ("[A]s we have previously held, the Maine legislature by adopting provisions that generally track the federal antidiscrimination statutes intended the courts to look to the federal case law to provide significant guidance in the construction of our statute." (internal quotation marks omitted)). Specifically, the statutory scheme follows "the shifting burdens analysis described in McDonnell Douglas Corp. v. Green, 411 U.S. 792, 93 S.Ct. 1817, 36 L.Ed.2d 668 (1973)." Le-Page v. Bath Iron Works Corp., 2006 ME 130, ¶ 19, 909 A.2d 629, 635-36. Pursuant to that analysis, if the plaintiff can establish a temporal relationship between the protected activity and the adverse employment action, "the employer, then, will be required to produce some probative evidence to demonstrate a nondiscriminatory reason for the adverse employment action." *221 Id. (quoting DiCentes v. Michaud, 1998 ME 227, ¶ 16, 719 A.2d 509, 515). "The final burden to prove the existence of the causal nexus remains with the plaintiff." Id. (citing DiCentes, 1998 ME 227, ¶ 16, 719 A.2d at 515). "[A] plaintiff can meet [this] final burden and survive a defense motion for a summary judgment by establishing a factual dispute as to whether a causal connection exists between the report protected by the [M]WPA and the adverse employment action." Stanley v. Hancock Cty. Comm'rs., 2004 ME 157, ¶ 24, 864 A.2d 169, 177.
C. Prima Facie Case
The First Circuit has explained that "[u]nder the MWPA, the complained-of conduct need not actually be illegal, but the employee must prove that a reasonable person might have believed that it was." Tripp v. Cole, 425 F.3d 5, 9, (1st Cir.2005) (emphasis in original) (internal punctuation and citation omitted); accord Bard v. Bath Iron Works Corp., 590 A.2d 152, 155 (Me. 1991). Armed with this understanding of the MWPA, the Court considers the reasonableness of Mr. Halkett's beliefs in the violations of inmate confidentiality.
The Court turns first to the statutory language and whether a reasonable person might have believed there were ongoing violations of inmate confidentiality. Assuming that CMS is correct that the applicable Maine statute regarding an inmate's right of confidentiality is 34-A M.R.S. § 1216(1)(B), this statute does not eliminate the individual right of confidentiality because he is an inmate. To the contrary, the Maine statute begins with the premise that inmate records are confidential. 34-A M.R.S. § 1216(1)(B) (providing that "[a]ll . . . medical . . . records. . . and facts contained in them, pertaining to any person receiving services from the department must be kept confidential and may not be disclosed to any person"). The statute allows for the disclosure of medical and other records "[t]o any state agency if necessary to carry out the statutory functions of the agency." 34-A M.R.S. § 1216(1)(B).
Mr. Halkett's complaints to CMS about misfiled and missing mental health care notes raised questions about whether CMS was complying with its statutory obligation as a contracting agency to the DOC under Maine law to protect inmate confidentiality. See id. Furthermore, if Ms. Partridge and Ms. Snow accessed an inmate's chart in order to obtain confidential information to assist them in their defense of a complaint the inmate had filed against them before the Board of Nursing, their access to the inmate chart would not have been consistent with accessing the records to perform "the statutory functions" of the DOC and its contractors. Id.
The Maine Supreme Judicial Court has stated that "if a Maine employee reports a suspected violation of federal law to his employer in compliance with the Act, he is protected by the Act." Bard, 590 A.2d at 156. The same applies to suspected violations of state law. Tripp, 425 F.3d at 9 (observing that the employee contended that the employer had violated a Maine statute). Here, the Court concludeseven accepting the DOC's position as to the applicable Maine statutethat the facts viewed in the light most favorable to Mr. Halkett show he had a "reasonable belief" that CMS's handling of confidential inmate records had "cross[ed] the line" and that he had "communicated that belief to his employer in good faith." Higgins v. New Balance Athletic Shoe, Inc., 194 F.3d 252, 261-62 (1st Cir.1999).
The Court also finds that there are sufficient facts from which a jury could reasonably perceive a temporal relationship between Mr. Halkett's complaints and *222 his dismissal. His last complaint about breaches of inmate confidentiality took place on September 19, 2007; he was terminated on December 7, 2007less than three months later. The First Circuit has stated, in addressing analogous retaliation claims, that "temporal proximity alone can suffice to meet the relatively light burden of establishing a prima facie case of retaliation." DeCaire v. Mukasey, 530 F.3d 1, 19 (1st Cir.2008) (internal punctuation and citation omitted). A gap of about two and a half months suffices. See Mariani-Colon v. Dep't of Homeland Sec. ex rel. Chertoff, 511 F.3d 216, 224 (1st Cir.2007) (concluding that the "`temporal proximity' between appellant's allegations of discrimination in June 2002 and his termination in August 2002 is sufficient to meet the relatively light burden of establishing a prima facie case of retaliation"). In addition, Mr. Halkett claims that his frank disclosure to CMS Attorney Taintor on November 16, 2007, where he stated he would have to be honest about what he thought of Ms. Partridge and Ms. Snow, fell within one month of his termination. See Venable v. T-Mobile USA, Inc., 603 F.Supp.2d 211, 219 (D.Me.2009) (finding a termination less than thirty days after an event sufficient to sustain prima facie burden); Speckin v. Nestle Waters N. Am. Inc., No. 08-149-P-S, 2009 WL 465988, at *10-11, 2009 U.S. Dist. LEXIS 14893, at *35-36 (D.Me. Feb. 24, 2009) (a two to three month interval is sufficient), affirmed by 08-149-P-S, 2009 WL 905611 *1, 2009 U.S. Dist. LEXIS 30240 *11 (D.Me. Apr. 2, 2009); Rhoades v. Camden Nat'l Corp., 575 F.Supp.2d 260, 262 (D.Me.2008) (approximately one month). See also Deslauriers v. Chertoff, No. 07-184-B-W, 2009 WL 1032854 *29-30, 2009 U.S. Dist. LEXIS 33123 *92-94 (D.Me. Apr. 16, 2009) (reviewing a number of holdings concerning temporal proximity).
D. Non-retaliatory Basis for Termination
Under the McDonnell Douglas burden-shifting framework, CMS has the burden of "articulating a legitimate, nondiscriminatory reason for the adverse employment decision." Mesnick, 950 F.2d at 823. CMS has amply sustained its burden, and Mr. Halkett does not argue it has not.
E. Pretext
"At the final stage, the plaintiff is required to show, unassisted by the original inference of discrimination, that the employer's proferred reason is actually a pretext for discrimination of the type alleged." Id. at 823-24. In DeCaire v. Mukasey, the First Circuit explained the plaintiff's burden of proof at this final stage: "it is permissible for a trier of fact to infer the ultimate fact of discrimination from the falsity of the employer's discrimination." 530 F.3d at 19. (quoting Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 147, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000)). A plaintiff is not required to produce direct evidence of pretext and may rely on circumstantial evidence to make his case. Id. at 20. In Collazo v. Bristol-Myers Squibb Mfg., 617 F.3d 39, 50 (1st Cir.2010), the First Circuit reiterated that to withstand summary judgment, a plaintiff need not "prove by a preponderance of the additional evidence that [retaliation] was in fact the motive for the action taken. All a plaintiff has to do is raise a genuine issue of fact as to whether [retaliation] motivated the adverse employment action." (quoting Dominguez-Cruz v. Suttle Caribe, Inc., 202 F.3d 424, 433 (1st Cir.2000)).
CMS's arguments may eventually carry the day before a jury; Mr. Halkett's stubborn repetitive violation of CMS and DOC policies regarding telephone contact *223 by prisoners with those on the outside may well have been sufficient grounds to terminate him.[35] Furthermore, as CMS points out, there is no evidence of retaliatory comments by Ms. Partridge, the person who made the termination decision. Def.'s Mot. at 19. However, the Court finds sufficient issues of material fact to justify allowing this case to proceed to jury.
As an initial matter, CMS's contention that there is no evidence that it treated Mr. Halkett differently than other similarly situated employees is disputed. Id. Mr. Halkett alleges that Patty Murphy, a Washington County Psychotherapy Associates employee who worked with DCF inmates, allowed inmates to make telephone calls, but there was no evidence she had been disciplined. Furthermore, CMS's decision to terminate Mr. Halkett, rather than to apply progressive discipline, suggests that it treated him differently than typical employees.
Moreover, a factfinder could infer that CMS's termination was pretextual based upon the number, frequency and nature of Mr. Halkett's complaints preceding his termination. Mr. Halkett's September 19, 2007 complaint was only the latest in a string of similar complaints, repeatedly accusing his fellow workers and supervisor of confidentiality violations and documenting potential violations of law and regulation. Mr. Halkett's punctiliousness in applying rules against others stands in marked contrast to his refusal to obey rules himself. A jury could reasonably conclude that CMS simply had enough of Mr. Halkett and his constant complaining.
CMS also emphasizes the context within which Mr. Halkett's confidentiality complaints occurred. According to CMS, all the persons who allegedly violated inmate confidentiality were involved with inmate care since they were employees at either CMS or DOC. CMS reasons that they must have, therefore, acted in accordance DOC policy. Def.'s Reply at 3-4. This point goes to the reasonableness of Mr. Halkett's complaints. However, the legal standard is not whether the activity was actually illegal but whether a reasonable person might have believed the activity was illegal. Tripp, 425 F.3d at 9. Moreover, if Ms. Partridge and Ms. Snow had reviewed an inmate's file to obtain information to defend a pending complaint, CMS must concede that this access would not have been appropriate and would cause a reasonable person to believe that a violation might have occurred.
Taken as a whole, the Court concludes that Mr. Halkett has raised genuine issues of material fact. The sum of Mr. Halkett's evidence is:
1) He had repeatedly complained to CMS about its lax and, in his view, unlawful procedures concerning inmate records;
2) He had complained six times about CMS's procedures over a span of a little more than one year;
*224 3) He had complained that his supervisor and another nurse had violated confidentiality laws;
4) He was subpoenaed by inmates to testify against his supervisor and the other nurse;
5) He had informed CMS's attorney that he intended to tell the truth about his supervisor and the nurse;
6) The supervisor about whom Mr. Halkett had complained and about whom he was about to testify was the person who decided to terminate him;
7) CMS failed to use progressive discipline against Mr. Halkett; and,
8) Mr. Halkett's last complaint about confidentiality was on September 19, 2007, his conversation with the CMS attorney was on November 16, 2007, and he was terminated on December 7, 2007.
These factors, taken together and viewed in the light most favorable to Mr. Halkett, are sufficient to withstand summary judgment.
III. CONCLUSION
The Court DENIES Correctional Medical Services, Inc.'s Motion for Summary Judgment (Docket # 16).
SO ORDERED.
NOTES
[1] Mr. Halkett's statement of additional material fact paragraph 153 states that he gave up his position at St. Aidan's in November 2003 and cites page 11 of his deposition. PSAMF ¶ 153. CMS posited a qualified response, noting that Mr. Halkett actually testified on page 11 that he gave up his vicar position in January 2004. DRPSAMF ¶ 153. CMS is correct. The reference to November 2003 on page 11 of Mr. Halkett's deposition is to the time he began working at CMS, not the time he left St. Aidan's. Def.'s Statement of Undisputed Material Facts (Docket # 15) (DSMF) Attach. 1, Deposition of Thomas Halkett, 11:6-22 (Halkett Dep.). The Court has used the January 2004 date.
[2] CMS posited a qualified response to this statement, noting that Mr. Halkett did not testify that he taught confidentiality issues and that he testified that he had reviewed only one student paper on HIPAA and inmate protection. DRPSAMF ¶ 154. CMS's qualified response does not contradict Mr. Halkett's statement of material fact paragraph 154.
[3] Mr. Halkett denied that C.M. had been convicted of domestic assault and objected to Ms. Geel's characterization of C.M. as hearsay, speculation, and impermissible expert testimony. PRDSMF ¶¶ 75-78. Mr. Halkett affirmatively states that C.M. was allowed to see his girlfriend and to receive mail and phone calls from her. Id. ¶¶ 77-78. The Court cannot know based on this record whether C.M. had been previously convicted of domestic assault, but whether Ms. Geel thought he had been so convicted and whether she believed he should not have contact with his girlfriend are not being submitted for the truth. Rather these facts explain CMS's response to Mr. Halkett's decision to allow C.M. to contact his girlfriend. The Court therefore overrules Mr. Halkett's denial of paragraph 75 and his qualified responses to Defendant's Statement of Material Facts paragraphs 76 through 78.
[4] In its statement of material fact, CMS says that MDOC Policy 21.3 applied to Mr. Halkett and that Ms. Geel considered Mr. Halkett's allowing C.M. to make calls to his girlfriend without obtaining Ms. Geel's permission to be a violation of Policy 21.3. DSMF ¶¶ 82-84. Mr. Halkett denied these statements of material fact. PRDSMF ¶¶ 82-84. Mr. Halkett has admitted, however, that Ms. Geel notified Ralph Pennell about C.M.'s telephone call and about her belief that Mr. Halkett had violated MDOC prisoner telephone usage policy. DSMF ¶ 85; PRDSMF ¶ 85. The Court considers CMS's statements of material fact paragraphs 82-84 not for their truth, but as background to explain why Ms. Geel took the action Mr. Halkett concedes she took.
[5] Mr. Halkett objected to this statement of material fact on the ground that Ms. Geel was not the decision-maker so her opinions were irrelevant. PRDSMF ¶ 86. The Court overrules his objection. The Court does not accept Ms. Geel's belief for its truth but to explain what CMS did as a consequence.
[6] Mr. Halkett objects to this statement on the ground that Ms. Geel was not a decisionmaker and her opinions are irrelevant. PRDSMF ¶ 90. The Court overrules Mr. Halkett's objection.
[7] Mr. Halkett posited a qualified response to this statement of material fact on the ground that there is another MDOC policy that "defines rules for when a mental health worker can place a phone call on behalf of an inmate." Id. ¶ 94. In support of his qualified response, Mr. Halkett cites his own deposition in which he testified that there is a separate written MDOC policy, which is contained in the MDOC binder. Id. (citing Halkett Dep. at 190:11-25, 191:1).
In its reply to Mr. Halkett's similar response to statement of material fact paragraph 98, CMS says that "[n]o such MDOC policy has been offered by Mr. Halkett for the Court's review, nor does any such policy appear in the discovery record." DRPSAMF ¶ 98. It goes on to say that "[n]o admissible documentary evidence has been offered to support Mr. Halkett's qualification in this Response, or to support the statement offered in Mr. Halkett's deposition on this issue." Id. At this stage, the Court is required to view the record in the light most favorable to Mr. Halkett and therefore will take his assertion at face value. Whether MDOC has such a written policy is presumably ascertainable. If it does not, Mr. Halkett and his counsel will owe this Court an explanation.
[8] Mr. Halkett posited a qualified response, stating that it was in June 2006 that Mr. Pennell informed Mr. Halkett that he was so restricted. PRDSMF ¶ 97. Although Mr. Halkett testified in his deposition that the restrictions took effect in June or July 2006, Halkett Dep. 184:22-24, Mr. Halkett later admits that he learned about these restrictions in late June 2006. DSMF ¶ 101; PRDSMF ¶ 101.
[9] CMS posited a qualified response to this statement of material fact, emphasizing that Mr. Halkett understood that the DCF inmate telephone policy applied to him. DRPSAMF ¶ 157. Mr. Halkett has admitted his understanding to this effect. DSMF ¶ 101; PRDSMF ¶ 101.
[10] Mr. Halkett objects to the content of the voicemail as hearsay. PRDSMF ¶ 106. The Court overrules the objection since the content of the message is not being considered for its truth but for background to explain how Mr. Halkett's action came to the attention of the prison officials at DCF and Mr. Halkett's supervisors at CMS.
[11] CMS says in its statement of material fact paragraph 105 that Ms. Partridge first became aware of the incident involving A.B. on October 30, 2007 from Mr. Pennell. DSMF % 105. CMS cites Ms. Partridge's deposition errata sheet and her affidavit. Id. Ms. Partridge's errata sheet, however, says that she was informed about the incident by Mark Caton, who was the director of DCF. DSMF Attach. 25, Dep. of Kim Partridge, at 94 (Partridge Dep.). Ms. Partridge's affidavit says that Mr. Pennell advised her about the incident on October 30, 2007, but it does not say that this was her first knowledge. DSMF Attach. 27 Aff. of Kimberly Partridge, ¶ 6. Mr. Halkett posited a qualified response to this statement of material fact, simply citing Ms. Partridge's deposition transcript at page 64. Putting this altogether, the Court concludes that Ms. Partridge heard about this incident from Mark Caton and on October 30, 2007 from Mr. Pennell.
[12] CMS says that Mr. Halkett denied calling a probation officer for an inmate or allowing the inmate to make the call. DSMF ¶ 117. Mr. Halkett denied making this statement, PRDSMF ¶ 117, and the Court considers the evidence in the light most favorable to him.
[13] Mr. Halkett denies this statement, asserting he had never denied that he dialed a phone number for A.B. and allowed A.B. to leave a message on the Officer's voicemail. PRDSMF ¶ 119. The Court still accepts this statement over Mr. Halkett's denial because even if he never made these denials, Ms. Partridge may still have told Mr. Caton that he made the denials.
[14] CMS objected to Ms. Murphy's statements as hearsay. DRPSAMF ¶ 158. The Court considers Ms. Murphy's statements not for their truth but to explain Mr. Halkett's belief that he had been singled out.
[15] CMS posited a qualified response, noting that even though it had a policy of progressive discipline, it reserved the right to "take progressive disciplinary action or to immediately terminate employment if appropriate." DRPSAMF ¶ 195. This additional information does not contradict Mr. Halkett's statement of material fact paragraph 195.
[16] CMS denied this statement, saying that Ms. Partridge has no recollection of the conversation. DRPSAMF ¶ 159. However, the Court is required to view the record in the light most favorable to the Plaintiff.
[17] CMS denies this statement, saying that Ms. Partridge has no recollection of the conversation. DRPSAMF ¶ 160. However, the Court is required to view the record in the light most favorable to the Plaintiff.
[18] CMS posited a qualified response to statement of material fact paragraph 161 on the ground that D.B.'s statements to Mr. Halkett are hearsay. DRPSAMF ¶ 161. The Court does not treat these statements as true. Rather they go to the reasonableness of his belief that he had been terminated due to his whistleblowing.
[19] CMS objects to this statement on the ground that it is immaterial to the issues presented in its motion for summary judgment. DRPSAMF ¶ 165. The Court disagrees and overrules CMS's objection.
[20] CMS qualified its response to this statement on the ground that Mr. Halkett had not read W.B.'s Nursing Board complaint and therefore could not know whether the information contained in W.B.'s record would assist their defense of W.B.'s complaint. DRPSAMF ¶ 166. The Court overrules CMS's qualified response since CMS elsewhere admits that the nurses would not have the right to review W.B.'s chart to assist in preparing their defense to his complaint. Furthermore, it is apparent that knowledge of an opponent's psychological background could assist the nurses' defense.
[21] CMS qualified its response to this statement on the ground that it mischaracterizes Ms. Partridge's testimony. DRPSAMF ¶ 167. CMS says Ms. Partridge testified that she would have no legitimate need to look at W.B.'s treatment record "in connection with responding to a simple Board of Nursing complaint." Id. (citing Partridge Dep. 46:6-8). Ms. Partridge reviewed Mr. Halkett's inmate notes to evaluate whether his notes contained information sufficient to ensure quality treatment and adequate mental health care. Id. (citing DSMF ¶ 50). The Court agrees that to the extent PSAMF ¶ 167 proffers that there would be no medical need for Ms. Partridge to examine W.B.'s treatment notes, the statement is not supported by the record, particularly since Mr. Halkett conceded in admitting Defendant's Statement of Material Fact paragraph 50 that Ms. Partridge undertook a review of Mr. Halkett's inmate progress notes to evaluate whether his notes contained information sufficient to ensure quality treatment and adequate mental health care. DSMF ¶ 50; PRDSMF ¶ 50.
[22] CMS denies this statement of material fact on the ground that Ms. Partridge reviewed the notes to ensure quality treatment and adequate mental health care. PSAMF ¶ 167; DRPSAMF ¶ 167. Even if Ms. Partridge had the right to monitor Mr. Halkett's treatment notes, her decision to exercise that right by reviewing the mental health treatment records of an inmate who had filed a complaint against her justifies an inference, viewing the facts in the light most favorable to Mr. Halkett, that she did so to gain an advantage in her defense of the inmate's claim.
[23] CMS objects to this statement on the ground that Mr. Halkett's May 8, 2007, letter is the best evidence of its contents. DRPSAMF ¶ 168. The Court overrules CMS's objection. Mr. Halkett is generally characterizing the letter. If CMS contended that his characterization was inaccurate, it would be one thing. But the statements of material fact by their nature shorthand evidence to allow a more narrow focused resolution of the motion.
[24] CMS objects to this statement on the ground that Mr. Wilkerson's failure to respond to his letter is immaterial. DRPSAMF ¶ 169. The Court overrules CMS's objection.
[25] CMS posits a qualified response to this statement of material fact, noting that at no time, did Mr. Amberger believe that Ms. Partridge had done anything wrong and that Mr. Amberger does not believe he communicated anything to the contrary to Mr. Halkett. DRPSAMF ¶ 171. The Court is required to view the evidence in the light most favorable to Mr. Halkett.
[26] CMS posited a qualified response to this statement of material fact, noting that Ms. Partridge did not recall anyone asking her whether she looked at W.B.'s records. DRPSAMF ¶ 172. If Ms. Partridge did not recall anyone in management asking her about whether she looked at W.B.'s records, it is a logical inference that no one in management did ask her about whether she did so.
[27] CMS posited a qualified response to this statement of material fact, explaining that Ms. Geel took inmate H.'s file to make a referral in connection with H.'s application for social security disability. DRPSAMF ¶ 183. CMS's explanation does not contradict Mr. Halkett's asserted fact.
[28] CMS posited a qualified response to this statement of material fact, explaining that Ms. Partridge had instructed Ms. Geel to have the medical department personnel photocopy the inmate medical records she required in order to obviate the need for her to take records to the copier. DRPSAMF ¶ 174. CMS's explanation does not contradict Mr. Halkett's asserted fact.
[29] Mr. Halkett's statement of material fact paragraph 179 states that Ms. Partridge "did not have any conversations with CMS management about confidentiality protocols after September 19, 2007." PSAMF ¶ 179. For support, Mr. Halkett cites Ms. Partridge's deposition at page 56. Id. CMS posited a qualified response, noting that Ms. Partridge actually stated that she could not recall any such conversations but that she might have had some. DRPSAMF ¶ 179. The Court has reviewed Ms. Partridge's deposition and agrees with CMS that Mr. Halkett's statement of material fact paragraph 179 overstates her testimony and is not supported by the record. The Court has inserted Ms. Partridge's narrower actual testimony.
[30] CMS objected to the materiality of this statement and the next statement. DRPSAMF ¶ 181. CMS disputes whether the on duty nurse should have discovered the misplaced note, whether Ms. Partridge knew who was on duty, and whether Ms. Partridge spoke to the nurse are material to the determination of the pending motion for summary judgment. Id. The Court overrules CMS's objection. The statements are material as to whether Mr. Halkett's complaints could have provoked CMS's allegedly retaliatory response.
[31] CMS posited a qualified response, saying that the statement mischaracterizes Ms. Partridge's testimony. DRPSAMF ¶ 184. It says Ms. Partridge testified that she never discouraged Mr. Halkett from testifying and never told him he should not testify. Id. She realized that he had to respond to the subpoena. Id. She recalled a conversation in 2006 in which she mentioned that it can cause problems when a CMS employee testifies voluntarily for an inmate, but she said that this conversation was not directed to Mr. Halkett's response to the 2007 subpoena. Id. CMS cites Ms. Partridge's testimony. Id. The problem is that this statement of material fact is supported by Mr. Halkett's testimony. Halkett Dep. 235:19-25; 236:1. Furthermore, Mr. Halkett says that Ms. Partridge may have told him this in 2006. Id. The Court is required to view the evidence in the light most favorable to Mr. Halkett.
[32] The next statement of material fact asserts that when Ms. Partridge was asked at her deposition whether CMS's attorney Chris Taintor had told her that Mr. Halkett had been designated by W.B. as an expert witness, CMS invoked the attorney-client privilege and instructed her not to answer. PSAMF ¶ 187. CMS objects on the ground that the assertion of the attorney-client privilege does not entitle Mr. Halkett to a negative inference for purposes of ruling on the motion for summary judgment. DRPSAMF ¶ 187.
Neither party's position is supported by the record. Although at one point the question is objected to, Partridge Dep. 62:9-15, later during her deposition, Ms. Partridge effectively answered the question:
Q. And you were aware that he (Mr. Halkett) had been designated as an expert witness by W.B. in the civil action brought against you and CMS?
A. I don't recall if I remember being told that or not.
Id. 73:19-22.
[33] Health Insurance Portability and Accountability Act of 1996, Pub.L. No. 104-191, 110 Stat. 1936.
[34] On December 1, 2010, while this motion was pending, an amended version of Rule 56 of the Federal Rules of Civil Procedure became effective. See Farmers Ins. Exch. v. RNK, Inc., No. 09-2524, 632 F.3d 777, 782 n. 4, 2011 WL 183969, *3 n. 4, 2011 U.S.App. LEXIS 1255, at *8 n. 4 (1st Cir. Jan. 21, 2011). Applying the amended version of Rule 56 to this case is "just and practicable" and would not "work a manifest injustice" because the amendments "do not change the summary judgment standard or burdens." Id.
[35] In its Reply, CMS says that the criminal records attached to Ms. Geel's affidavit confirm that Mr. Halkett allowed C.M. to contact the same person against whom he had committed a domestic assault. Def.'s Reply at 10. The Court admits to some confusion. According to the records, a Washington County Grand Jury indicted C.M. on August 5, 2004 for assaulta violation of 17-A M.R.S. § 207(1)and on September 28, 2004, C.M. was found guilty of violating 17-A M.R.S. § 207(1)(B). Section 207(1)(B), however, deals with an assault by someone who is at least 18 against someone who is less than 6 years old. 17-A M.R.S. § 207(1)(B). CMS seems to assume that the domestic assault was against C.M.'s girlfriend and that Mr. Halkett was allowing C.M. to telephone the victim of the crime. However, it appears based on the docket sheet that C.M. was found guilty of assaulting a young child, not his girlfriend. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2471950/ | 757 F. Supp. 2d 1050 (2010)
OAKLEY, INC., Plaintiff,
v.
BUGABOOS EYEWEAR CORP., and Bugaboos Eyewear (U.S.) Inc., Defendant.
Case No. 09CV2037 JLS (JMA).
United States District Court, S.D. California.
December 15, 2010.
*1051 Gregory K. Nelson, Weeks Kaufman Nelson and Johnson, for Plaintiff.
Lawrence R. LaPorte, Michael A. Tomasulo, Steven Paul Inman, II, Dickstein Shapiro LLP, Los Angeles, CA, Robert Lee Kinder, Dickstein Shapiro LLP, Washington, DC, for Defendants.
ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT ON DEFENDANT'S SEVENTH COUNTERCLAIM FOR FALSE MARKING
JANIS L. SAMMARTINO, District Judge.
Defendants Bugaboos Eyewear, Corp., and Bugaboos Eyewear (U.S.) Inc., (collectively Bugaboos) allege in its counterclaim that Plaintiff Oakley, Inc. (Oakley) falsely marked its products in violation of 35 U.S.C. § 292, the patent false marking statute. In response, Oakley motions for summary judgment on the issue whether warranty cardspackaged with the eyewear soldcan give rise to a false marking claim. To make its decision, the Court considers Oakley's motion (Doc. No. 27 (Mot. Summ. J.)), Bugaboos' response in opposition (Doc. No. 59 (Opp'n)), and Oakley's reply in support. (Doc. No. 67 (Reply).) And having done so, the Court GRANTS Oakley's motion for summary judgment on the seventh counterclaim with respect to warranty cards. On a related note, Bugaboos requests the Court delay adjudication of Oakley's motion on two bases: first, that adjudication of Oakley's motion is improper at this time, and second, that Bugaboos requires additional discovery under Federal Rule of Civil Procedure 56(f). Both requests are DENIED.
BACKGROUND
Oakley and Bugaboos are both in the eyewear business. On November 6, 2009, Oakley filed a first amended complaint against Bugaboos. (Doc. No. 7 (FAC).) Oakley asserted claims for infringement of U.S. Design Patent D580,963, U.S. Patent 5,387,949, U.S. Patent 5,638,145, Trademark 2,393,107, Trademark 2,900,432, and Trademark 2,768,242. Six months later, *1052 Bugaboos filed its answer and counterclaims. (Doc. No. 12 (Counterclaim).) Oakley answered the counterclaims soon thereafter. (Doc. No. 15.) And on August 26, 2010, Oakley filed the present motion for summary judgment on Bugaboos' seventh counterclaim.
Bugaboos' seventh counterclaim is for false marking arising under 35 U.S.C. § 292. Bugaboos contends that Oakley eyewear "are sold with a box or package directing a purchaser to examine the packaging or enclosed warranty card for a list of patents covering the enclosed product." (Counterclaim ¶ 46.) The package states "[t]his product may be protected by one or more U.S. and international patents identified on the packaging or enclosed warranty card." (Id.) And the "enclosed warranty card" contains a listing of United States and foreign patents. Each warranty card also states "patents pending in the USA" even though there are allegedly no patents pending. (Id. ¶ 62.) And finally, one version of the warranty card not only includes patents that are not owned by Oakley, but also patents that are unrelated to glasses. (Id. ¶¶ 75 & 76.)
Oakley understood Bugaboos' counterclaim to mean that "the list of patents on the warranty card constitutes false marking because numerous patents do not all apply to the enclosed products, some patents are expired, and other patents are erroneous numbers." (Mot. Summ. J. at 2.) And based on that understanding, Oakley brings its motion for summary judgment. Oakley argues that the warranty cards and the list of patents found on the warranty cards cannot give rise to liability under § 292 as a matter of law. (Id.)
In its opposition to Oakley's motion, Bugaboos also raises two new issues. First, Bugaboos argues that the motion for summary judgment should be denied because Oakley's false marking violations extend beyond the warranty cards. (Opp'n at 22-23.) Second, Bugaboos argues that Oakley's motion is premature and additional time should be granted for Bugaboos to obtain additional discovery. (Opp'n at 23.)
Thus, this Order discusses two topics. The Court will first discuss Oakley's motion for summary judgment. As part of this discussion, the Court will resolve the issue whether Oakley's motion for summary judgment should be denied in light of other potential bases for false marking liability. The second portion of the Order will discuss whether Bugaboos' request for additional discovery under Rule 56(f).
OAKLEY'S MOTION FOR SUMMARY JUDGMENT
1. Legal Standard
Federal Rule of Civil Procedure 56 permits a court to grant summary judgment where (1) the moving party demonstrates the absence of a genuine issue of material fact and (2) entitlement to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). "Material," for purposes of Rule 56, means that the fact, under governing substantive law, could affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986); Freeman v. Arpaio, 125 F.3d 732, 735 (9th Cir.1997). For a dispute to be "genuine," a reasonable jury must be able to return a verdict for the nonmoving party. Anderson, 477 U.S. at 248, 106 S. Ct. 2505.
The initial burden of establishing the absence of a genuine issue of material fact falls on the moving party. Celotex, 477 U.S. at 323, 106 S. Ct. 2548. The movant can carry his burden in two ways: (1) by presenting evidence that negates an essential element of the nonmoving party's case; or (2) by demonstrating that the nonmoving *1053 party "failed to make a sufficient showing on an essential element of her case with respect to which she has the burden of proof." Id. at 322-23, 106 S. Ct. 2548. "Disputes over irrelevant or unnecessary facts will not preclude a grant of summary judgment." T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir.1987).
Once the moving party establishes the absence of genuine issues of material fact, the burden shifts to the nonmoving party to set forth facts showing that a genuine issue of disputed fact remains. Celotex, 477 U.S. at 324, 106 S. Ct. 2548. The nonmoving party cannot oppose a properly supported summary judgment motion by "rest[ing] on mere allegations or denials of his pleadings." Anderson, 477 U.S. at 256, 106 S. Ct. 2505. When ruling on a summary judgment motion, the court must view all inferences drawn from the underlying facts 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).
2. Analysis
Before getting into the nitty-gritty, it helps to visualize the items at issue. When a consumer purchases a pair of Oakley eyewear, the consumer receives a box.[1] After opening it, the purchaser discoversamong other thingsa pair of eyewear and a warranty card.
Bugaboos' false marking counterclaim is brought under 35 U.S.C. § 292. Section 292 states in relevant part:
Whoever marks upon, or affixes to, or uses in advertising in connection with any unpatented article, the word "patent" or any word or number importing that the same is patented for the purpose of deceiving the public . . . [s]hall be fined not more than $500 for every such offense.
35 U.S.C. § 292. When broken down, the statute has four important parts: (1) the word "patent" or any word or number importing that an article is patented, (2) marked on, affixed to, or used in advertising in connection with, (3) an unpatented article, (4) with intent to deceive the public. See Clontech Labs., Inc. v. Invitrogen Corp., 263 F.Supp.2d, 780, 791 (D.Del. 2003).
From the statutory morass, a roadmap is revealed. A plaintiff must first find some instance of "the word `patent' or any word or number conveying that an article is patented." 35 U.S.C. § 292. For the purposes of discussion, the Court refers to this as the "patent coverage language" or "coverage language." The Court uses this instead of "marking," because "marking" in the patent context conjures 35 U.S.C. § 287, the notice statute. And involving § 287 in the fray has only served to confuse the matter.
Once the patent coverage language has been established, the analysis moves to elements two and three. The plaintiff must show that the coverage language is "marked upon" an unpatented article, "affixed to" an unpatented article, or "used in advertising in connection with" an unpatented article. If any of the three occur, the plaintiff must finally establish element four, that the action was done with "intent to deceive the public." 35 U.S.C. § 292.
Oakley moves for summary judgement on the issue whether the warranty card found inside the packaging can give rise to false marking liability. On summary judgment, Oakley bears the initial burden of showing that the warranty cards do not satisfy § 292's requirements. If Oakley *1054 succeeds, the burden is on Bugaboos to show that an issue of material fact remains.
A. Element One: Patent Coverage Language
The Court begins its analysis with the first element of the statute. In doing so, the Court not only determines the scope of Oakley's motion for summary judgment, but also lays the groundwork for the Order. On the surface, the question seems straightforward: Bugaboos need only identify the "the word `patent' or any word or number conveying that an article is patented." 35 U.S.C. § 292. But this has been a source of confusion between the parties. And the discussion has meandered down paths that needn't be traveled.
For the purposes of this Order the patent coverage language is the warranty cards and the patents printed on them. Bugaboos' counterclaim focuses entirely on the warranty cards. (See Counterclaim ¶¶ 39-87.) And Oakley's motion for summary judgment responded in kind. Oakley understood Bugaboos' counterclaim as alleging that "the warranty card constitutes false marking." (Mot. Summ. J. at 2.) It was not until Bugaboos' opposition to Oakley's motion did Bugaboos raise the possibility of false marking based on something other than warranty cards. (Opp'n at 22-23 (discussing barcodes as potential basis for false marking).) But just because Bugaboos may have found a new source of false marking liability does not widen what is at issue in this motion. Oakley requested summary judgment only on the issue of warranty cards, and that is what the Court will adjudicate.
For clarity's sake, the Court notes what is not at issue in this motion, and that is two things. The barcodes on the boxes are not at issue here. (See Opp'n at 22-23.) And more importantly the phrase that is printed on the exterior of the box"this product may be protected by one or more U.S. and international patents identified on the packaging or enclosed warranty card"is not at issue either. Bugaboos relies on this language to argue that the warranty cards are subject to § 292 liability. (Opp'n at 12.) But Bugaboos does not argue that the language itself is liable.
This latter point is important in light of Pequignot v. Solo Cup Co., 608 F.3d 1356 (Fed.Cir.2010). The parties spill considerable ink discussing the merits and applicability of Pequignot, but the discussion is not useful. There were two instances of coverage language at issue in Pequignot. The first was two patents molded onto the product. Id. at 1358-59. The second was language printed on the packaging: "This product may be covered by one or more U.S. or foreign pending or issued patents. For details contact www.solocup.com." Id. at 1359. The Pequignot court indicated that Solo Cup could not be liable for false marking arising from the "may be covered" language because Solo Cup did not have the requisite intent. Id. at 1365.
The important distinction between this case and Pequignot is that Pequignot discussed the "may be covered" language on the packaging. Id. Here, the coverage language at issue is not the "may be protected" language on Oakley's box: it is Oakley's warranty cards. Any discussion of Pequignot on this matter is irrelevant. If Pequignot had discussed whether the contents of the website found at www.solocup.com could be subject to false marking liability, the Court might find the case useful. But it didn't, so the Court doesn't.
The narrow focus of the motion for summary judgment raises another issue. Bugaboos argues that Oakley's motion is not appropriately adjudicated at this time if it focuses on the warranty cards only. Bugaboos *1055 argued in oral argument that Federal Rule of Civil Procedure 56 does not allow for the partial adjudication of a claim. The Court disagrees. See Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co., 313 F.3d 385, 391 (7th Cir. 2002). The Court finds it appropriate to determine whether Bugaboos can assert a false marking claim based on the warranty cards. Resolving this issue clarifies and narrows Bugaboos' false marking claim for trial. If there are other bases for § 292 liability, those bases can be resolved another day.
At this point, the Court has determined that the entity satisfying the "the word `patent' or any word or number conveying that an article is patented" portion of the false marking statute is the warranty card. And with that, the Court moves to the next two elements.
B. Elements Two and Three
These elementsparticularly element twoconstitute the main dispute. Whether the warranty cards satisfy these elements determines whether Oakley has met its burden on summary judgment. And after considering the matter, the Court finds that no issue of material fact remains. The warranty cards cannot be subject to § 292 liability as a matter of law.
Elements two and three of the statute are: "(2) marked on, affixed to, or used in advertisement in connection with, (3) an unpatented article." "Unpatented article" has been defined in the § 292 context, but the Court will not reproduce that definition here. Instead, the Court will assume that every pair of Oakley eyewear constitutes a § 292 unpatented article. This limits the question to whether the warranty cards are "marked on, affixed to, or used in advertising in connection with" the co-packaged eyewear. The Court discusses each in turn.
(1) Marked On
Here, the issue is whether warranty cards and the list of patents printed on the warranty cards can be subject to the false marking statute by virtue of being "marked on" an unpatented article, the Oakley eyewear. The operative phrase is "marked upon."
It is undisputed that the neither the warranty card nor the contents of the warranty card are marked upon the eyewear. This is not fatal to Bugaboos' false marking claim, however, because it is possible for markings on the packaging of an item to be subject to the false marking statute. See Pequignot, 608 F.3d at 1365. But again the problem is that neither the warranty card nor its contents are printed on the packagingthey are found inside.
Bugaboos argues that the warranty cards are incorporated onto the packaging because printed on the packaging is the statement "this product may be protected by one or more U.S. and international patents identified on the packaging or enclosed warranty card." (See Opp'n at 12.) But Bugaboos provides no authority for the argument that incorporation is sufficient to meet the "marks upon" requirement. And the Court finds the notion contrary to the plain meaning of the language.
On this issue, the parties expend considerable ink discussing the finer points of patent lawnone of which the Court finds relevant. For instance, the parties contest whether a marking must provide constructive notice under 35 U.S.C. § 287 before it can be subject to false marking liability. That discussion sheds no light on whether the warranty cards in question are "marked upon" anything. The Court can find no authority that patent coverage language must be marked in a way that satisfies *1056 § 287 before it is "marked upon" for the purposes of the false marking statute.
Bugaboos does raise one case that could provide support for the proposition that a coverage found inside packaging can satisfy the "marked upon" portion of the statute. The district court in Clontech, held a bench trial concerning, among other things, false marking of Invitrogen's products. One finding of fact was that Invitrogen had marked "the product profile sheets" of its products. Clontech, 263 F.Supp.2d at 788. The product profile sheets were, at least according to Bugaboos, placed "inside product packages." (Opp'n at 15.) The court later held that Invitrogen had falsely marked its products but that it did not have the requisite intent for liability under § 292. Clontech, 263 F.Supp.2d at 793. Based on these facts, Bugaboos contends that packaging inserts can be "false marking within the statute." (Opp'n at 15.)
A closer reading of Clontech proves the issue less clear cut. The district court found that Invitrogen "marked the product profile sheets of SS, SSII, kits including SSII, and cDNA libraries." Clontech, 263 F.Supp.2d at 788. And the remainder of the decision uses the word "products" when indicating that items were wrongly marked. The Clontech court never explicitly stated that the product profile sheets were subject to the false marking statute.
In fact, the issue of wrongful marking was a non-issue; Invitrogen conceded the point. The Clontech court never discussed out what constituted the patent coverage language. It didn't need to because plenty of items clearly satisfied that requirement. Instead, "the gravamen of plaintiff's false marking claim [was] whether or not defendant marked its products `with intent to deceive the public.'" Id. at 792. Given the facts of the case, this Court will not infer from Clontech that items found inside the packaging satisfy the "marks upon" language of the false marking statute.
The Court finds, as a matter of law, that the warranty cards and the patents listed on them cannot be subject to the false marking statute under the "marks upon" language. The warranty cards are not marked upon the glasses or the packaging. The statutory language seems clear, and the Court applies it accordingly.
(2) Affixed To
As noted before, each box contains a warranty card and a pair of eyewear. The issue here is whether the warranty cards are affixed to the eyewear in a manner subjecting the warranty cards to false marking liability. Bugaboos provides that "a common definition of the word `affix' is to `attach in any way.'" (Opp'n at 17.) And Bugaboos argues that the warranty card is attached to "each Oakley eyewear product by virtue of the way in which they are tightly packaged with each product." (Id.) But this argument fails as a matter of law: one pea in a pod is not affixed to the other. While the warranty card and the eyewear are tightly packaged together, doing so does not render one affixed to the other.
(3) Used in Advertising in Connection With
The final issue is whether the warranty cards are "used in advertising in connection with" the eyewear, and thus subject to false marking liability.
The first step is to determine whether "advertising" has a "plain and unambiguous meaning with regard to the particular dispute in the case." Robinson v. Shell Oil Co., 519 U.S. 337, 117 S. Ct. 843, 136 L. Ed. 2d 808 (1997). "Advertising" is defined as "the action of calling something to the attention of the public especially by *1057 paid announcements." Advertising, Merriam-Webster.com, http://www.merriam-webster.com (last visited November 10, 2010).
"Case law interpreting a similar term under the Lanham Act provides further guidance.'" Inventorprise, Inc. v. Target Corp., 2009 WL 3644076 (N.D.N.Y. Nov. 2, 2009). The Lanham Act provides, in relevant part, that "to constitute commercial advertising or promotion, a statement of fact must be: . . . (3) for the purpose of influencing consumers to buy defendant's goods or services. While the representations need not be made in a `classic advertising campaign,' but may consist instead of more informal types of `promotion,' the representations (4) must be disseminated sufficiently to the relevant purchasing public to constitute `advertising' or `promotion' within that industry." Newcal Indus., Inc. v. Ikon Office Solution, 513 F.3d 1038, 1054 (quoting Coastal Abstract Serv., Inc. v. First Am. Title Ins. Co., 173 F.3d 725, 735 (9th Cir.1999)).
But this definition is actually too broad for our purposes. For where the Lanham Act concerns both "advertising" and "promotion," the patent false marking statute concerns only "advertising." See Chamilia, LLC v. Pandora Jewelry, LLC, 2007 WL 2781246 (S.D.N.Y. Sept. 24, 2007) (internal quotations omitted). Thus, the false marking statute captures a narrower scope of activities than the Lanham Act.
Given the plain meaning of "advertising" and the body of law interpreting "advertising" in the Lanham context, the Court finds that Oakley's warranty cards are not "advertising" subject to false marking liability. Oakley's warranty cards are found inside the packaging; they are invisible until the product is purchased and the packaging opened. And in that regard, they are not used to call something to the attention of the public by way of paid announcement. Advertising, Merriam-Webster.com, http://www.merriam-webster.com. It would be impossible for them to call attention to the eyewear before the eyewear is purchased.
The Lanham Act provides additional support. The Court finds no situation in which the warranty cards, contained inside the packaging, could influence customers to buy Oakley's eyewear. See Newcal Indus., 513 F.3d at 1054. And because the warranty cards are accessible only after the product is sold, the warranty cards are not disseminated to the "relevant purchasing public." See id. Thus, to the extent the Lanham Act is relevant, it supports the finding that the warranty cards are not "advertising" subject to false marking penalties.
Many courts have cited to Accent Designs, Inc. v. Jan Jewelry Designs, Inc., 827 F. Supp. 957 (S.D.N.Y. July 12, 1993), for the proposition that "`uses in advertising' cannot refer to any and all documents by which the word "patent" is brought to the attention of the public; it can only refer to use of the word "patent" in publications which are designed to promote the allegedly unpatented product, namely, advertisements." Accent Designs, 827 F.Supp. at 968-69. The language supports this Court's position. But in citing to it, the Court notes that the Accent Designs court ultimately rejected that line of reasoning as being too narrow in the context of that case. Under the facts of this case, however, the Court finds the reasoning applicable and convincing.
Bugaboos attempts to create an issue of material fact regarding the warranty cards status as "advertisement" by entering the declaration of an expert witness. (Opp'n, Nunes Decl.) But the expert's testimony is irrelevant under the circumstances because, as noted above, statutory interpretation falls under the purview of the Court. *1058 And having interpreted the meaning of "advertising" as a matter of law, the expert's testimony provides little to the discussion.
At oral argument, Bugaboos argued that the warranty cards also constitute advertising sufficient for § 292 liability because they are handed out to customers and given away separate from eyewear. And thus, the warranty cards are used in advertising independent from their inclusion in the product packaging. But to find that this action satisfies § 292 would ignore a portion of the statute.
Section § 292 states that the coverage language must be "use[d] in advertising in connection with any unpatented article." 35 U.S.C. § 292. If the Court accepted Bugaboos' argument that distributing warranty cards separate from eyewear constitutes advertising sufficient to satisfy § 292, the Court would have to ignore the "in connection with" language. Even if Bugaboos' allegations were true, there would not be a connection between the coverage language and an unpatented product in that situation. No connection exists when the warranty cardswhich do not reference specific productsare separated from products. Consumers would not know what products the warranty cards referred to.
After construing "advertising" as it is found in the false marking statute, the Court finds that Oakley's warranty cards are not subject to false marking liability on that grounds that they are "use[d] in advertising in connection with any unpatented article." 35 U.S.C. § 292. Considering the plain meaning of "advertising" and its construction in the Lanham context, the warranty cards and their use do not constitute advertising.
3. Conclusion
Having determined that the warranty cards are the patent coverage language at issue, the Court then considered whether the warranty cards could satisfy elements two and three of § 292. This portion of the analysis formed the core of Oakley's motion summary judgment: simply that the warranty cards could not be subject to the false marking statute because the warranty cards are not "marked upon," "affixed to," or "used in advertising in connection with" an unpatented article. To simplify the analysis, the Court assumed, without deciding, that all Oakley eyewear was unpatented for § 292 purposes. And on the issue whether the warranty cards are "marked upon," "affixed to," or "used in advertising in connection with," the Court finds that the warranty cards do none of those things.
First, the warranty cards and their contents are not marked upon the eyewear or upon the outer packaging. Thus, Bugaboos' counterclaim fails as a matter of law as to this portion of the statute. The Court finds unpersuasive the argument that the warranty cards are incorporated onto the outer packaging. The Court also finds unpersuasive the argument that something found inside the packaging can be subject to the false marking statute. Second, the warranty cards cannot be affixed to the glasses by virtue of close proximity. Bugaboos counterclaim fails as a matter of law as to this portion of the statute. And finally, the warranty cards are not advertising as a matter of law. The plain meaning of "advertising" and its construction under the Lanham Act forecloses the possibility that warranty cards found inside packaging and available to consumers only after purchase can be considered advertising.
No issues of material fact remain. Oakley's motion for summary judgment on the issue whether the warranty cards can be subject to § 292 liability is GRANTED. *1059 The warranty cards are not subject to § 292 liability.
BUGABOOS' RULE 56(f) MOTION
Bugaboos argues that it "has been unfairly prejudiced by Oakley's premature summary judgment motion and requests additional discovery responses so that it can fully expose Oakley's false marking practices." (Opp'n at 23.)
Rule 56(f) allows the Court to deny or continue a motion for summary judgement if the opposing party needs time to discover essential facts. Garrett v. City and Cnty. of San Francisco, 818 F.2d 1515, 1518 (9th Cir.1987). To obtain a Rule 56(f) continuance, a party must show: "(1) that they have set forth in affidavit form the specific facts that they hope to elicit from further discovery, (2) that the facts sought exist, and (3) that these sought-after facts are `essential' to resist the summary judgment motion." Cal. ex rel. Cal. Dep't of Toxic Substances Control v. Campbell, 138 F.3d 772, 779 (9th Cir.1998). If the moving party can make this showing, rule 56(f) "requir[es], rather than merely permit[s]," an opportunity for additional discovery. Metabolife Int'l, Inc. v. Wornick, 264 F.3d 832, 846 (9th Cir.2001) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 n. 5, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986)).
Bugaboos argues that "Oakley has still not produced all versions of the warranty cards that are the subject of its motion and has still not produced all samples of its products, product packaging and marking for eyewear products." (Opp'n, LaPorte Decl. ¶ 12.) The Court finds that these sought-after-facts are not essential to resist Oakley's motion for summary judgment.
Obtaining all versions of the warranty cards would not overcome the fact that the warranty cards are not subject to the false marking statute as a matter of law. Bugaboos' attempts to subject the warranty cards to false marking liability fail for reasons that cannot be remedied by additional facts. For instance, Bugaboos argues that the warranty cards are "marked upon" the packaging because of a turn-of-phrase found on the packaging. The Court rejects this theory. Reviewing additional warranty cards would not solve Bugaboos' shortcomings.
Bugaboos also requests discovery on additional "products, product packaging and marking for eyewear products." (Id.) These requests are unrelated to the motion at hand, which concerns the warranty cards only.
Bugaboos requests the Court to continue or deny Oakley's motion for summary judgment pending further discovery. But the Court finds that the additional discovery Bugaboos requests is orthogonal to the motion being considered. Thus, Bugaboos Rule 56(f) motion is DENIED.
CONCLUSION
In response to Bugaboos' counterclaim for false marking under 35 U.S.C. § 292, Oakley motioned for summary judgment on the issue whether its warranty cards could be subject to false marking liability. For the reasons stated above, the Court GRANTS Oakley's motion for summary judgment. Oakley's warranty cards are not subject to 35 U.S.C. § 292 liability. Moreover, the Court DENIES Bugaboos' requests to deny Oakley's motion as untimely and for additional discovery under Rule 56(f).
IT IS SO ORDERED.
NOTES
[1] The box is often referred to as "packaging." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2472021/ | 728 F. Supp. 2d 168 (2010)
Candy L. HICKMAN, on behalf of M.A.H., Plaintiff,
v.
Michael J. ASTRUE[*], Commissioner of Social Security, Defendant.
No. 7:07-CV-1077 (NAM/VEB).
United States District Court, N.D. New York.
July 27, 2010.
*170 Conboy, McKay, Bachman & Kendall, LLP, Peter L. Walton, Esq., of Counsel, Watertown, NY, for Plaintiff.
Andrew T. Baxter, United States Attorney for the Northern District of New York, Susan Reiss, Esq., Special Assistant U.S. Attorney, of Counsel, Syranuse, NY.
MEMORANDUM-DECISION AND ORDER
NORMAN A. MORDUE, Chief Judge:
I. INTRODUCTION
Plaintiff Candy Hickman on behalf of her daughter M.A.H., brings the abovecaptioned action pursuant to 42 U.S.C. § 405(g) of the Social Security Act, seeking review of the Commissioner of Social Security's decision to deny her application for supplemental security income ("SSI") on behalf of her daughter.
II. BACKGROUND
On November 10, 2004[1], an application for SSI was protectively filed on behalf of M.A.H. (T. 14).[2] M.A.H. was 9 years old at the time of the application. (T. 59). Plaintiff claimed that M.A.H. was disabled due to a learning disorder and speech/language delays. (T. 59-61). On March 31, 2005, plaintiff's application was denied and plaintiff requested a hearing by an ALJ which was held on July 17, 2006. (T. 26, 182). On August 8, 2006, the ALJ issued a decision denying plaintiff's claim for benefits. (T. 11-25). The Appeals Council denied plaintiff's request for review on September 27, 2007, making the ALJ's decision the final determination of the Commissioner. (T. 4). This action followed.
III. DISCUSSION
An individual under the age of eighteen is disabled, and thus eligible for SSI benefits, if he has a medically determinable physical or mental impairment, which results in marked and severe functional limitations, and which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.
42 U.S.C. § 1382c(a)(3)(C)(i). That definitional provision goes on to exclude from coverage any "individual under the age of 18 who engages in substantial gainful activity. . . ." 42 U.S.C. § 1382c(a)(3)(C)(ii). The agency has prescribed a three-step evaluative process to be employed in determining whether a child can meet the statutory definition of disability. 20 C.F.R. § 416.924; Kittles ex rel. Lawton v. Barnhart, 245 F. Supp. 2d 479, 487-88 (E.D.N.Y.2003); Ramos v. Barnhart, 2003 WL 21032012, at *7 (S.D.N.Y.2003). The first step of the test, which bears some similarity to the familiar, five-step analysis employed in adult disability cases, requires a determination of whether the child has engaged in substantial gainful activity. 20 *171 C.F.R. § 416.924(b); Kittles, 245 F.Supp.2d at 488. If so, then both statutorily and by regulation the child is ineligible for SSI benefits. 42 U.S.C. § 1382c(a)(3)(C)(ii); 20 C.F.R. § 416.924(b).
If the child has not engaged in substantial gainful activity, then the second step requires examination of whether the child suffers from one or more medically determinable impairments that, either singly or in combination, are severethat is, which causes more than a minimal functional limitation. 20 C.F.R. § 416.924(c); Kittles, 245 F.Supp.2d at 488; Ramos, 2003 WL 21032012, at *7. If the existence of a severe impairment is discerned, the agency must next determine whether it meets or equals a presumptively disabling condition identified in the listing of impairments set forth by regulation, 20 C.F.R. Pt. 404, Subpt. P, App. 1 (the "Listings"). Id. Equivalence to a Listing can be either medical or functional. 20 C.F.R. § 416.924(d); Kittles, 245 F.Supp.2d at 488; Ramos, 2003 WL 21032012, at *7. If an impairment is found to meet, or qualify as medically or functionally equivalent to, a listed disability, and the twelve month durational requirement is satisfied, the child will be deemed disabled. 20 C.F.R. § 416.924(d)(1); Ramos, 2003 WL 21032012, at *8.
Under the Social Security Regulations (the "Regulations"), analysis of functionality is performed by consideration of how a claimant functions in six areas which are denominated as "domains," and described as "broad areas of functioning intended to capture all of what a child can or cannot do." 20 C.F.R. § 416.926a(b)(1); Ramos, 2003 WL 21032012, at *8. Those prescribed domains include:
(i) [a]cquiring and using information;
(ii) [a]ttending and completing tasks;
(iii) [i]nteracting and relating with others;
(iv) [m]oving about and manipulating objects;
(v) [c]aring for [oneself]; and
(vii) [h]ealth and physical well-being.
20 C.F.R. § 416.926a(b)(1). A finding of disability is warranted if a "marked" limitation, defined as when the impairment "interferes seriously with [the claimant's] ability to independently initiate, sustain, or complete activities," 20 C.F.R. § 416.926a(e)(2)(I), is found in two of the listed domains. 20 C.F.R. § 416.926a(a); Ramos, 2003 WL 21032012, at *8. Functional equivalence also exists in the event of a finding of an "extreme" limitation, meaning "more than marked," representing an impairment which "interferes very seriously with [the claimant's] ability to independently initiate, sustain, or complete activities," and this rating is only "give[n] to the worst limitations". 20 C.F.R. § 416.926a(e)(3)(I); see also Morgan v. Barnhart, 2005 WL 925594, at *11 (S.D.N.Y.2005).
A Commissioner's determination that a claimant is not disabled will be set aside when the factual findings are not supported by "substantial evidence." 42 U.S.C. § 405(g); see also Shaw v. Chater, 221 F.3d 126, 131 (2d Cir.2000). Substantial evidence has been interpreted to mean "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Id. The Court may also set aside the Commissioner's decision when it is based upon legal error. Rosa v. Callahan, 168 F.3d 72, 77 (2d Cir.1999).
Using the three-step disability evaluation, the ALJ found at step one that M.A.H. has never engaged in any substantial gainful activity. (T. 17). At step two, the ALJ concluded that M.A.H. has severe impairments consisting of a learning disorder and speech/language delays. (T. 17). *172 At the third step of the analysis, the ALJ found that none of M.A.H.'s severe impairments meet, medically equal, or functionally equal any of the listed, presumptively disabling conditions set forth in Appendix 1 of the Regulations. (T. 18-19). The ALJ evaluated M.A.H.'s functional abilities in the six domains established by 20 C.F.R. § 416.926a(b)(1) and found that M.A.H.'s limitations were "less than marked" with respect to acquiring and using information. (T. 20). The ALJ found that M.A.H. had no limitation with regard to attending and completing tasks, interacting and relating with others, in her ability to move about and manipulate objects, her ability to care for herself, and no limitation in health and physical well-being. (T. 20-25). Consequently, the ALJ concluded that M.A.H. was not disabled. (T. 25).
This matter was referred to United States Magistrate Judge Victor E. Bianchini for a Report and Recommendation pursuant to 28 U.S.C. § 636(b)(1)(B) and Local Rule 72.3(d). Magistrate Judge Bianchini reported that: (1) substantial evidence supported the ALJ's decision that M.A.H.'s impairments did not meet or medically equal §§ 112.05A or 112.05E of the Listings; (2) substantial evidence supported the ALJ's decision that M.A.H.'s impairments did not functionally equal a listed impairment; (3) substantial evidence supported the ALJ's decision that plaintiff's testimony was not entirely credible; and (4) new evidence submitted to the Appeals Council provided no basis for disturbing the ALJ's decision. (Dkt. No. 15). Magistrate Judge Bianchini recommended that this Court enter judgment on the pleadings affirming the Commissioner's decision denying disability and dismissing plaintiff's claims. (Dkt. No. 15).
Pursuant to 28 U.S.C. § 636(b)(1)(C), this Court engages in a de novo review of any part of a Magistrate's Report and Recommendation to which a party specifically objects. Failure to object timely to any portion of a Magistrate's Report and Recommendation operates as a waiver of further judicial review of those matters. See Roldan v. Racette, 984 F.2d 85, 89 (2d Cir.1993); Small v. Sec'y of Health & Human Servs., 892 F.2d 15, 16 (2d Cir.1989). When a party reiterates her original arguments, the Court reviews the Report and Recommendation only for clear error. Barratt v. Joie, 2002 WL 335014, at *1 (S.D.N.Y.2002).
Plaintiff objects to the Magistrate's Report and Recommendation on four grounds: (1) that the Magistrate Judge erroneously found that the Commissioner's conclusion that M.A.H. did not have an impairment that met the requirements of §§ 112.05A and 112.05E of the Listings was supported by substantial evidence; (2) that the Magistrate Judge erred in finding that the ALJ's conclusion that M.A.H.'s impairments were not functionally equivalent to a listing was supported by substantial evidence; (3) that the Magistrate Judge erred when he found no reversible error in the ALJ's evaluation of plaintiff's credibility; and (4) the Magistrate Judge erred when he found no error in the Appeals Council's decision not to remand the matter to the ALJ based upon new evidence.[3] (Dkt. No. 16).
*173 A. Listed Impairments
By regulation, the Commissioner has set forth a series of listed impairments describing a variety of physical and mental conditions, indexed according to the body system affected. 20 C.F.R. Pt. 404, Subpt. P, App. 1; Lusher ex rel. Justice v. Comm'r of Soc. Sec., 2008 WL 2242652, at *6 (N.D.N.Y.2008). For both adults and children, "if an applicant satisfied the Listings, the applicant was presumed to be disabled, and did not have to prove `whether he [or she] actually can perform his [or her] own prior work or other work.'" Lusher, 2008 WL 2242652, at *6 (quoting Sullivan v. Zebley, 493 U.S. 521, 529-530, 110 S. Ct. 885, 107 L. Ed. 2d 967 (1990)).
Plaintiff argues that M.A.H.'s impairments meet or equal the §§ 112.05A and 112.05E of the Listings. (Dkt. No. 16, p. 2). Accordingly, plaintiff claims that claimant is entitled to a legal presumption of disability. Defendant contends that claimant has never been classified as mentally retarded and there is no evidence in the record that claimant has deficits in adaptive functioning. (Dkt. No. 18, p. 3).
The Commissioner's determination as to whether the claimant's impairment meets or equals the Listings must reflect a comparison of the symptoms, signs, and laboratory findings about the impairment, including any functional limitations that result from the impairment, with the corresponding criteria shown for the listed impairment. 20 C.F.R. §§ 416.925, 416.926a; see also Giles v. Chater, 1996 WL 116188, at *5-6 (W.D.N.Y.1996) (holding that the ALJ must provide some explanation of the claimant's impairments in regard to the specified listings). Where the claimant's symptoms, as described by the medical evidence, appear to match those described in the Listings, the ALJ must provide an explanation as to why the claimant failed to meet or equal the Listings. Booker v. Heckler, 1984 WL 622, at *3 (S.D.N.Y.1984). Mere recitation of the medical evidence is insufficient unless the reports referred to contain substantiated conclusions concerning the Listings, and the ALJ expressly adopts the reasoning of those conclusions. Id. The ALJ must "build an accurate and logical bridge from the evidence to [his] conclusion to enable a meaningful review". Steele v. Barnhart, 290 F.3d 936, 941 (7th Cir.2002) (internal citations omitted). A court "cannot . . . conduct a review that is both limited and meaningful if the ALJ does not state with sufficient clarity the legal rules being applied and the weight accorded the evidence considered." Morgan on Behalf of Morgan v. Chater, 913 F. Supp. 184, 188-189 (W.D.N.Y.1996) (quoting Ryan v. Heckler, 762 F.2d 939, 941 (11th Cir.1985)).
Listing 112.05 involves mental retardation which is, "[c]haracterized by significantly subaverage general intellectual functioning with deficits in adaptive functioning." See 20 C.F.R. Pt. 404, Subpt. P, App. 1 § 112.05. To meet or equal Listing 112.05A, for children of claimant's age, claimant's condition must result in at least two of the following:
a. Marked impairment in age-appropriate cognitive/communicative function, documented by medical findings (including consideration of historical and other information from parents or other individuals *174 who have knowledge of the child, when such information is needed and available) and including, if necessary, the results of appropriate standardized psychological tests, or for children under age 6, by appropriate tests of language and communication; or
b. Marked impairment in age-appropriate social functioning, documented by history and medical findings (including consideration of information from parents or other individuals who have knowledge of the child, when such information is needed and available) and including, if necessary, the results of appropriate standardized tests; or
c. Marked impairment in age-appropriate personal functioning, documented by history and medical findings (including consideration of information from parents or other individuals who have knowledge of the child, when such information is needed and available) and including, if necessary, appropriate standardized tests; or
d. Marked difficulties in maintaining concentration, persistence, or pace.
See 20 C.F.R. pt. 404, Subpt. P, App. 1 § 112.02B.
To meet the requirements of § 112.05E, a claimant must first have "[a] valid verbal, performance, or full-scale IQ of 60 through 70." See 20 C.F.R. Pt. 404, Subpt. P, App. 1, § 112.05E. Additionally, a claimant must satisfy the requirements listed in one of the following: § 112.02B(2)(b); § 112.02B(2)(c); or § 112.02B(2)(d).[4]See Williams v. Astrue, 2008 WL 4755348, at *12-13 (S.D.N.Y.2008).
In this case, plaintiff argues that M.A.H. suffers from a "marked" limitation in the areas of age-appropriate cognitive and communicative functioning, age-appropriate social functioning and maintaining concentration, persistence or pace.[5] (Dkt. No. 16, p. 5-6).
In the decision, the ALJ summarized plaintiff's records including: (1) a psychological assessment for the Carthage Central School District; (2) medical records; (3) school records; (4) records from Mercy Center for Behavioral Health and Wellness; (5) a consultative evaluation by Dr. Dennis M. Noia, Ph.D.; (6) a speech evaluation by Melissa Drake, MS, CSS-SLP; and (7) a report from Karen Prowda, M.D., an administration medical review physician. (T. 17-18). The ALJ provided a brief synopsis of the aforementioned records but did not assign any weight to any opinions at this step of the evaluation. The ALJ noted that according to the Carthage School records, claimant had a full scale IQ of 76 and that claimant was diagnosed as speech and language impaired and received special education services. (T. 17). The ALJ noted that claimant was treated at Mercy Center after an instance of "sexual abuse". (T. 17). The ALJ discussed Dr. Noia's opinion that claimant was not "mentally impaired" and that her attention and concentration were intact and that she was functioning in the low average range of intelligence. (T. 18). The ALJ also cited to Drake's Speech and Language evaluation which revealed that claimant's communication skills were weak and M.A.H. required extra attention and assistance in an academic setting. (T. 18).
The ALJ concluded:
The child claimant has the following severe impairments: a Learning Disorder and Speech/Language Delays. (T. 17). The child claimant does not have an impairment or combination of impairments that meets or medically equals *175 one of the listed impairments in 20 CFR Part 404, Subpart P, Appendix 1. (T. 18).
The ALJ specifically cited, as support for her conclusion, Dr. Karen Prowda's March 31, 2005 Childhood Disability Evaluation. (T. 132). The ALJ stated:
On March 31, 2005, Dr. Prowda opined that the child's severe impairments did not meet or medically equal the criteria of any listed impairment. No allegation has been made that the child's impairments are of listing level severity, only that they functionally equal it. The medical evidence does not show that her impairments meet or medically equal the criteria of listed impairments. (T. 19).
The ALJ's decision does not address whether or not claimant has marked limitations in any of the areas of functioning outlined in § 112.02B. Moreover, the ALJ failed to discuss whether or not claimant's impairments met the specific requirements of §§ 112.05A or 112.05E of the Listings. See Williams, 2008 WL 4755348, at *13 (holding that although there was no "persuasive proof in the record", there was some evidence of limitation sufficient to warrant further evidentiary proceedings). Upon a review of the record, the Court finds that the ALJ made conclusory findings and failed to apply the appropriate legal standard. The Second Circuit has held that, "[w]here there is a reasonable basis for doubt whether the ALJ applied correct legal principles, application of the substantial evidence standard to uphold a finding of no disability creates an unacceptable risk that a claimant will be deprived of the right to have her disability determination made according to legal principles." Johnson v. Bowen, 817 F.2d 983, 986 (2d Cir.1987). The ALJ should have provided some explanation as to why claimant's impairments do not meet the criteria of the specified listings and should have discussed the applicable paragraphs of § 112.02B. Although plaintiff did not expressly claim that M.A.H. satisfied Listings 112.05A and 112.05E, plaintiff was proceeding pro se and given the non-adversarial nature of the proceedings, the ALJ was obligated to consider all impairments. See Pimentel v. Barnhart, 2006 WL 2013015, at *11, n. 7 (S.D.N.Y.2006).
The ALJ's failure to explain her conclusion is plain error. See Morgan, 913 F.Supp. at 188-189 (holding that a onesentence denial is insufficient to support the determination, especially in light of the evidence to the contrary). The ALJ recited some of the evidence but failed to provide an analysis of plaintiff's impairments sufficient to enable this Court to conclude that the ALJ's finding is supported by substantial evidence. The Court will not engage in a discussion which is a task properly left to the Commissioner, however, given the similarities between M.A.H's symptoms and the criteria of Listing § 112.05, the ALJ should have given some explanation as to why the impairment(s) do(es) not meet the criteria. Specifically, the ALJ failed to adequately discuss the significance of a January 2006 IEP evaluation prepared by the Subcommittee on Special Education. The IEP evaluators concluded that claimant had a full scale IQ of 72. (T. 81). Further, the ALJ failed to address the fact that M.A.H. was continually diagnosed with a "learning disability" and that M.A.H had speech and language impairments and received special education services. (T. 62, 82, 129). Moreover, there is evidence that M.A.H. suffers from impairments in age-appropriate social functioning documented by claimant's arrest in September 2004 for sodomy in the first degree and endangering the welfare of a child and received therapy and counseling after claiming that she was sexually abused. (T. 110, 194). On remand, the ALJ should specifically address whether M.A.H.'s impairments meet §§ 112.05A and 112.05E of the Listings and further, *176 should specifically address the factors listed in § 112.02B.
B. Functional Domains
A child's impairment functionally equals one in the Listings if she exhibits "marked" limitations in at least two or an "extreme" limitation in one of the six domains of childhood functioning: (1) acquiring and using information; (2) attending and completing tasks; (3) interacting and relating with others; (4) moving about and manipulating objects; (5) caring for oneself; and (6) health and physical well-being. Scott v. Astrue, 2009 WL 2929823, at *2 (W.D.N.Y.2009) (citing 20 C.F.R. § 416.926a(b)(1)(i-iv); 20 C.F.R. § 416.926a(d)). A child has a "marked" limitation in a domain when the impairment "interferes seriously with [the child's] ability to independently initiate, sustain, or complete activities." Id. (citing 20 C.F.R. § 416.926a(e)(2)). A "marked limitation" is "more than moderate" but "less than extreme". Satchell v. Astrue, 2009 WL 2986386, at *8 (S.D.N.Y.2009).
Plaintiff argues that the ALJ erred when she failed to find claimant's impairments functionally equivalent to a Listing. Specifically, plaintiff claims that M.A.H. has marked limitations in three of the six domainsacquiring and using information, attending and completing tasks, and interacting and relating with others. (Dkt. No. 16, p. 6). Defendant argues that claimant may have some limitation in acquiring and using information but that the limitation is not marked and further, substantial evidence does not support plaintiff's claim that M.A.H. has a marked impairment in the remaining two domains. (Dkt. No. 18, p. 8-9).
1. Acquiring and Using Information
A claimant of M.A.H.'s age:
should be able to learn to read, write, and do math, and discuss history and science. You will need to use these skills in academic situations to demonstrate what you have learned; e.g., by reading about various subjects and producing oral and written projects, solving mathematical problems, taking achievement tests, doing group work, and entering into class discussions. You will also need to use these skills in daily living situations at home and in the community (e.g., reading street signs, telling time, and making change). You should be able to use increasingly complex language (vocabulary and grammar) to share information and ideas with individuals or groups, by asking questions and expressing your own ideas, and by understanding and responding to the opinions of others.
20 C.F.R. 416.926(g)(2)(iv). In assessing this domain, the ALJ must consider how well a child acquires or learns information, and how well she can use the information she has learned. Edmond v. Barnhart, 2006 WL 2769922, at *9 (W.D.N.Y.2006). In this regard, the Commissioner encourages the use of school records including non-medical evidence provided by a teacher, who works with a child on a daily basis and observes her in a social setting with peers as well as adults. Id. at *10 (holding that the ALJ erred by not considering the report of the claimant's teacher in making a determination on the domain of acquiring and using information) (citing Matthews o/b/o Dixon v. Barnhart, 339 F. Supp. 2d 1286, 1290, n. 8 (N.D.Ala.2004)); see also Jones ex rel. SA v. Astrue, 2009 WL 1924763, at *6 (N.D.N.Y.2009) (citing 20 C.F.R. § 404.1513(d)(2)(e)). Moreover, opinions and reports from a school psychologist and speech therapist can provide evidence to establish an impairment. 20 C.F.R. § 404.1513(d)(2); 20 C.F.R. § 404.1513(a)(2).
*177 In this case, the ALJ found that M.A.H. has "less than a marked limitation" in this domain. (T. 20). To support that conclusion, the ALJ cited to Dr. Prowda's March 31, 2005 opinion. Dr. Prowda concluded that, "the child had a less than marked limitation in the domain of Acquiring and Using Information". The ALJ assigned "[g]reatest weight" to Dr. Prowda's assessment because, "it was provided by a medical professional who had reviewed the evidence of record". (T. 21).
The Court has reviewed the record in its entirety and finds that substantial evidence does not support the ALJ's conclusion. In September 2003, Vicky Kellner-Landers, a school psychologist, evaluated claimant and reported that claimant's full scale IQ was 76 which was indicative of borderline low intelligence. (T. 99-103). Ms. Kellner-Landers also noted that claimant was held back in the first grade and recommended that M.A.H. continue to receive speech services for language delays. (T. 103).
In October 2004, the Subcommittee on Special Education met to review M.A.H's educational program. (T. 61). M.A.H. was classified as Speech and Language Impaired. (T. 61). At the time of the evaluation, M.A.H. was in third grade and received consultant teacher service for 1 ½ hours daily and speech therapy twice on a 6 day cycle. (T. 61). The Kaufman Education Achievement Test showed that claimant was at a first grade level for math and second grade level for spelling and reading. (T. 60-61). The evaluators concluded that M.A.H. would benefit from more instruction time within the classroom and further agreed to discontinue speech therapy. (T. 61). However, the evaluators noted that M.A.H. was inconsistent with math and below grade level. (T. 61). It was also agreed that M.A.H. would be classified as Learning Disabled. (T. 62).
In January 2005, M.A.H.'s special education teacher, Larry Thompson, and her 3rd grade teacher, Mary Hunt, completed a Teacher Questionnaire. (T. 66-76). At the time of the evaluation, the teachers noted that claimant was at a first-grade level for math. (T. 66). The teachers concluded that claimant had a specific learning disability in the areas of math and written expression. (T. 66). In the area of acquiring and using information, the teachers noted that claimant needed "extra help with written expression and math word problems and multi-step problems". (T. 70).
In February 2005, Melissa Drake, a speech pathologist, evaluated M.A.H. at the request of the New York State Office of Temporary and Disability Assistance. (T. 127). Ms. Drake concluded that claimant's overall language skills were "poor" and that she had difficulties in the area of oral communication. (T. 129). M.A.H. attained "below average" scores on listening and semantics composites and her oral communication skills were weak. (T. 129). Ms. Drake opined that this, "will negatively impact on her everyday interactions as well as on her academic progress. She will require extra attention and assistance to succeed in an academic setting." (T. 129).
In February 2005, Dennis M. Noia, Ph. D., a psychologist, examined claimant at the request of the agency. (T. 121). At the time of the examination, claimant was in a regular education classroom and had a special education teacher in the classroom to assist her. (T. 119). In addition, claimant received speech therapy three times a week. (T. 119). Dr. Noia found that the results of the examination were consistent with low average intellectual functioning and recommended that M.A.H. continue with her current educational placement. (T. 122). In March 2005, Dr. Prowda completed *178 a Childhood Disability Evaluation based upon a review claimant's records. (T. 132). Dr. Prowda opined that plaintiff had a "less than marked" limitation in acquiring and using information and based her opinion on the report of Jacqueline M. Weir, MA, CCC-SLP. (T. 131). On March 7, 2005, Ms. Weir completed a form entitled "Electronic Request for Medical Advice". (T. 131). Ms. Weir reviewed claimant's records and stated, "[p]ropose less than marked D# 1 communication, less than marked D# 3 communication".[6] (T. 134).
In January 2006, an IEP school evaluation was prepared by the Subcommittee on Special Education. (T. 83). At that time, claimant's full scale IQ was 72. (T. 83). The evaluators noted that claimant had speech and language impairments. (T. 82). M.A.H. needed extra time to complete math concepts and that she needed directions to be simplified and explained. (T. 82). The evaluators concluded that M.A.H. should continue to receive special education services and that her testing should be administered in a location with minimal distractions. (T. 83).
On September 19, 2006, plaintiff's teachers, Leann Paige and Thelma Williams, prepared a Childhood Disability Evaluation.[7] (T. 176). The teachers noted that claimant's WISC IV examination revealed a "verbal IQ of 77 and full scale IQ of 72". (T. 178).[8] The teachers concluded that claimant has a marked limitation in the area of acquiring and using information. (T. 178). The teachers opined that M.A.H., "often needs information and directions repeated and/or simplified. She works with a special education consultant for 2 ½ hours each day." (T. 178).
Based upon the record, the Court finds that the ALJ failed to apply the proper legal standard. The opinions of state agency physicians may constitute substantial evidence if they are consistent with the record as a whole. Leach ex rel. Murray v. Barnhart, 2004 WL 99935, at *9 (S.D.N.Y.2004). In this matter, the record as a whole, does not support Dr. Prowda's assessment. There is significant evidence from claimant's teachers and other education professionals that contradicts Dr. Prowda's opinions. Given this discrepancy, the ALJ improperly assigned "greatest weight" to Dr. Prowda's opinions. Moreover, despite the fact that the ALJ summarized the opinions of claimant's teachers, school psychologist, speech pathologist, the ALJ failed to explain what weight, if any, she assigned to those opinions. The regulations instruct ALJs to consider all relevant evidence in determining a child's functioning, including information from the child's teachers, though the weight to be assigned to that information should depend upon the extent of the teacher's contact with the child. Oliveras ex rel. Gonzalez v. Astrue, 2008 WL 2262618, at *7, n. 13 (S.D.N.Y. 2008) (citing 20 C.F.R. § 416.924a(a)). The ALJ provided no rationale for rejecting the opinions of claimant's classroom teachers, special education teachers and school psychologist in favor of the nonexamining, consultative physician. See Carballo ex rel. Cortes v. Apfel, 34 F. Supp. 2d 208, 218 (S.D.N.Y.1999) (holding *179 that the ALJ improperly did not give proper weight to the observations of from the claimant's teachers). Thus, the Court cannot conclude that the ALJ's determination that claimant has less than marked limitations in acquiring and using information is supported by substantial evidence.
2. Attending and Completing Tasks
Plaintiff contends that the ALJ erred by failing to find that M.A.H. has a marked impairment in the domain of attending and completing tasks. (Dkt. No. 14, p. 19). The domain of attending and completing tasks gauges how well a child is able to focus and maintain attention. 20 C.F.R. § 416.926a(h). For children of M.A.H.'s age (ages 6 to 12), the regulations provide:
When you are of school age, you should be able to focus your attention in a variety of situations in order to follow directions, remember and organize your school materials, and complete classroom and homework assignments. You should be able to concentrate on details and not make careless mistakes in your work (beyond what would be expected in other children your age who do not have impairments). You should be able to change your activities or routines without distracting yourself or others, and stay on task and in place when appropriate. You should be able to sustain your attention well enough to participate in group sports, read by yourself, and complete family chores. You should also be able to complete a transition task (e.g., be ready for the school bus, change clothes after gym, change classrooms) without extra reminders and accommodation.
20 C.F.R. § 416.926a(h)(2)(iv).
Some examples of limited functioning include: (1) being "easily startled, distracted, or over reactive to sounds, sights, movements, or touch"; (2) "being slow to focus on, or fail to complete activities of interest"; (3) becoming repeatedly sidetracked from activities or frequently interrupting others; and (4) being easily frustrated and giving up on tasks. See 20 C.F.R. § 416.926a(h)(3)(i)-(v); see also Morgan, 2005 WL 925594, at *13.
The ALJ found that the claimant had no limitation in attending and completing tasks. (T. 22). The ALJ again relied upon Dr. Prowda's opinion and further noted, "[t]he mother said she had just spoken with the teacher who told her that if the child doesn't understand, she just sits and stares. She gets extra time to complete homework, but can attend and concentrate". (T. 22).
Based upon a review of the record, the Court finds that the ALJ erroneously assigned "greatest weight" to Dr. Prowda's opinion. In the section of Dr. Prowda's evaluation form that involves this domain, the doctor checked the box for "no limitation" but failed to provide any narrative or explanation. (T. 134). "[B]ecause nonexamining sources have no examining or treating relationship with you, the weight we will give their opinions will depend on the degree to which they provide supporting explanations for their opinions". 20 C.F.R. § 404.1527. As Dr. Prowda failed to offer any explanation for her opinion, the ALJ improperly assigned "greatest weight" to her conclusions.
Moreover, Dr. Prowda's conclusion is not supported by the record as a whole. Mr. Thompson and Ms. Hunt reported that M.A.H. had problems functioning in this domain and stated, "[M.A.H.] is an independent and good worker; needs some help w/reading grade level material. Follows directions/rules well." (T. 71). The teachers also noted that claimant had a slight problem working at a reasonable pace and completing work accurately without careless mistakes. (T. 71). Ms. Paige and Ms. Williams concluded that M.A.H. *180 has a marked limitation in the area of attending and completing tasks and stated that while M.A.H. is very focused and attentive, she has difficulty completing writing and math assignments. (T. 178). Moreover, as noted supra, the record contains evidence that M.A.H. needs extra time to complete math concepts, needs directions to be simplified and explained, has difficulty completing writing and math assignments and must have her testing administered in a location with minimal distractions. Accordingly, the Court cannot conclude that the ALJ's determination that M.A.H. suffers from "no limitation" in this domain is supported by substantial evidence.
3. Interacting and Relating to Others
The domain of interacting and relating with others considers how well the child initiates and sustains emotional connections with others, develops and uses the language of his community, cooperates with others, complies with rules, responds to criticism, and respects and takes care of the possessions of others. 20 C.F.R. § 416.926a(i). For school-age children of M.A.H.'s age, the Regulations further provide:
When you enter school, you should be able to develop more lasting friendships with children who are your age. You should begin to understand how to work in groups to create projects and solve problems. You should have an increasing ability to understand another's point of view and to tolerate differences. You should be well able to talk to people of all ages, to share ideas, tell stories, and to speak in a manner that both familiar and unfamiliar listeners readily understand.
20 C.F.R. § 416.926a(i)(2)(iv).
In this case, the ALJ concluded that the claimant has no limitation in interacting and relating with others. (T. 22). The ALJ noted that:
Dr. Prowda advised that the child had a less than marked limitation in the domain of Interacting and Relating with Others, citing the report of the Speech/Language Pathologist on March 7, 2005 where the child's ability to communicate was indicated to likely have an adverse effect on her ability in this area. (T. 22). However, the child's speech is clear and easily understood. The child does get along, socially and has some friends. Additionally, her teacher identified no limitations in this area. Therefore, this evidence outweighs the medical assessment that relies on a finding that her speech was "likely" to have an effect on this domain rather than actually having an effect.
In the ALJ's analysis of the previous domains, the ALJ assigned "greatest evidentiary weight" to Dr. Prowda's assessments and rejected, without explanation, the assessments of claimant's teachers. However, in the context of the domain of interacting and relating with others, the ALJ inexplicably rejected Dr. Prowda's opinion and seemingly affords greater weight to M.A.H.'s teacher's opinions. The ALJ failed to provide any explanation for this inconsistency. See Nix v. Astrue, 2009 WL 3429616, at *6 (W.D.N.Y.2009) (holding that it is a fundamental tenet of Social Security law that an ALJ cannot pick and choose only parts of a medical opinion that support his determination) (citing Robinson v. Barnhart, 366 F.3d 1078, 1083 (10th Cir.2004)). In addition to the erroneous selective analysis, the Court finds that the ALJ's conclusion is not supported by substantial evidence. On September 8, 2004, claimant was admitted to Mercy Center for Behavioral Health and Wellness after being arrested and charged with sodomy in the first degree and endangering the welfare of a child. (T. 104). *181 Plaintiff found claimant in bed with another 9 year old engaging in "sex play/act". (T. 104). Claimant was evaluated by Vanessa Gary, M.S.W. Plaintiff advised Ms. Gary that claimant may have been sexually abused by a babysitter at her father's home. (T. 110). Claimant received counseling and therapy at Mercy until October 2004. Claimant's therapy focused on "working through the issue of sexual abuse with consequential understanding and control of feelings and behavior". (T. 115). The ALJ summarized these records in the decision but failed to apply any weight to the opinions of claimant's therapist and failed to explain why these records did not support plaintiff's claim that M.A.H. had a marked limitation in this domain. See Adams ex rel. Williams v. Barnhart, 2003 WL 102824, at *12 (S.D.N.Y.2003) (finding that the ALJ overlooked evidence of "odd sexual behavior towards [claimant's] peers" and that such behavior warrants a finding of a "marked" limitation). Consequently, the Court finds that the ALJ's decision on this point is legally deficient and not supported by substantial evidence.
On remand, the ALJ must re-evaluate claimant's functional equivalence in the following domains: acquiring and using information, attending and completing tasks and interacting and relating with others.
C. Credibility
Plaintiff argues that the ALJ improperly discounted her testimony and did not articulate reasons for failing to fully credit plaintiff's testimony. (Dkt. No. 16, p. 14). SSR 96-7p requires ALJs to articulate the reasons behind credibility evaluations:
The reasons for the credibility finding must be grounded in the evidence and articulated in the determination or decision. It is not sufficient to make a conclusory statement that "the individual's allegations have been considered" or that "the allegations are (or are not) credible." ... The determination or decision must contain specific reasons for the finding on credibility, supported by the evidence in the case record, and must be sufficiently specific to make clear to the individual and to any subsequent reviewers the weight the adjudicator gave to the individual's statements and the reasons for that weight.
1996 WL 374186, at *4 (S.S.A. July 2, 1996).
As a fact finder, the ALJ is free to accept or reject testimony of a claimant's parent. Williams on Behalf of Williams v. Bowen, 859 F.2d 255, 260 (2d Cir.1988). A finding that a witness is not credible must be set forth with sufficient specificity to permit intelligible review of the record. Id. (citing Carroll v. Sec'y of Health and Human Servs., 705 F.2d 638, 643 (2d Cir. 1983)). If the child claimant is unable adequately to describe his symptoms, the ALJ must accept the description provided by testimony of the person most familiar with the child's condition, such as a parent. Jefferson v. Barnhart, 64 Fed.Appx. 136, 140 (10th Cir.2003). In such a case, the ALJ must make specific findings concerning the credibility of the parent's testimony, just as he would if the child were testifying. Id. (citation omitted) (holding that the finding that the mother's testimony was, "credible only to the extent that [it was] supported by evidence of record" is "standard boilerplate language" and an insufficient explanation of credibility).
Where a significant portion of the record supports the testimony, the ALJ must explain why he has determined that the testimony is not credible. Smith v. Barnhart, 157 Fed.Appx. 57, 62 (10th Cir.2005); see also Briggs ex rel. Briggs v. Massanari, 248 F.3d 1235, 1239 (10th Cir.2001) (ALJ's conclusion that the mother's testimony was, "unconvincing, not substantiated *182 by objective medical findings, and credible only to the extent that claimant's impairments have not produced marked and severe limitations" was insufficient as significant probative evidence supported testimony).
In this case, the ALJ determined that:
After considering the evidence of record, the undersigned finds that the child claimant's medically determinable impairments could reasonably be expected to produce the alleged symptoms, but that the statements by the mother concerning the intensity, persistence and limiting effects of the child's symptoms are not entirely credible. (T. 20).
Having reviewed the Administrative Transcript in its entirety, the Court finds that the ALJ did not provide sufficient rationale for questioning plaintiff's credibility. Of note, plaintiff testified that claimant has difficulty working independently, has a "real bad time" with math, has a low self esteem and gets extra time with her homework. A review of the record reveals that there is some evidence to support plaintiff's testimony. The ALJ failed to explain the weight she afforded to plaintiff's statements and failed to cite to any evidence in the record that contradicted any portion of plaintiff's testimony. See Brindisi ex rel. Brindisi v. Barnhart, 315 F.3d 783, 788 (7th Cir.2003) (holding that the ALJ's determination of the mother's credibility lacked any explanation that would allow the court to understand the weight given to the statements or the reasons for that weight as required by SSR 96-7p). As a result, the Court remands this case for a determination of plaintiff's credibility which must contain specific findings that are closely and affirmatively linked to substantial evidence and "not just a conclusion in the guise of findings". See cf. Miller ex rel. Thompson v. Barnhart, 205 Fed.Appx. 677, 681 (10th Cir.2006) (the ALJ properly discussed the testimony, identifying particular examples of statements that were contradicted by other evidence in the record).
D. New Evidence
Plaintiff argues that the Appeals Council should have remanded this matter to the ALJ based upon the submission of new evidence. Defendant does not object to the Court's consideration of the new evidence, but argues that the Appeals Council did not err when it declined to review the case based on the additional evidence. (Dkt. No., p. 15).
The Appeals Council shall consider evidence that is "new and material and relates to the period on or before the ALJ's decision." Perez v. Chater, 77 F.3d 41, 45 (2d Cir.1996) (citing 20 C.F.R. §§ 404.970(b) and 416.1470(b)). The Appeals Council "will then review the case if it finds that the [ALJ]'s action, findings, or conclusion is contrary to the weight of the evidence currently of record." Florek v. Comm'r of Soc. Sec., 2009 WL 3486643, at *11 (N.D.N.Y.2009) (citing 20 C.F.R. §§ 404.970(b); 416.1470(b)). "`Weight of the evidence' is defined as the balance or preponderance of evidence; the inclination of the greater amount of credible evidence to support one side of the issue rather than the other." Id. (citing HALLEX: Hearings, Appeals and Litigation Manual I-3-3-4 (S.S.A.2009) available at http:// www.ssa.gov/OP_Home/hallex/I-03/I-3-3-4.html). Even if the Appeals Council denies review, evidence submitted to the Appeals Council following the ALJ's decision becomes part of the administrative record to be considered on judicial review. Perez, 77 F.3d at 45. The role of the district court is to determine if the Appeals Council erred when it determined that the new evidence was insufficient to trigger review of the ALJ's decision. Woodford v. Apfel, 93 F. Supp. 2d 521, 528 (S.D.N.Y.2000).
*183 Following the ALJ's decision, plaintiff submitted new evidence to the Appeals Council for consideration. (T. 175). This evidence consisted of a Childhood Disability Evaluation provided by Leann Paige and Thelma Williams, claimant's teachers. (T. 176). In the evaluation, the teachers state that M.A.H. has a full scale IQ of 72 (which is in the 3rd percentile) and further note that claimant needs information and directions repeated and/or simplified. (T. 178). The teachers state that M.A.H. has difficulty completing writing and math assignments and opine that M.A.H. suffers from "marked limitations" in the domains of acquiring and using information and attending and completing tasks. (T. 178). Although the Appeals Council denied review of the ALJ's decision, it acknowledged receipt of the additional evidence and, "found that this information does not provide a basis for changing the [ALJ's] decision". (T. 5). Upon a review of the record and in light of the new evidence, the Court finds that the ALJ's conclusion that claimant suffers from "less than marked limitation" in the area of acquiring and using information and from "no limitation" is attending and completing tasks is not supported by the weight of the evidence. See Morse v. Astrue, 2009 WL 1322301, at *4-5 (N.D.N.Y.2009). Proper weight must be given to individuals, such as teachers, who have had significant contact with the claimant/child. See Quinones on Behalf of Quinones v. Chater, 117 F.3d 29, 35 (2d Cir.1997). Therefore, the Appeals Council erred in failing to review the ALJ's decision.
IV. CONCLUSION
Based upon the foregoing, it is hereby
ORDERED that the Report and Recommendation of Magistrate Judge Victor E. Bianchini is REJECTED; and it is further
ORDERED that the Commissioner's determination is REVERSED; and it is further
ORDERED that this action is REMANDED to the Commissioner for further proceedings; and it is further
ORDERED that pursuant to Local Rule 72.3, the parties are advised that the referral to a Magistrate Judge has been RESCINDED, as such, any appeal taken from this Order will be to the Court of Appeals for the Second Circuit.
IT IS SO ORDERED.
NOTES
[*] On February 12, 2007, Michael J. Astrue was sworn in as Commissioner of the Social Security Administration. Pursuant to Federal Rule of Civil Procedure 25(d)(1), he is automatically substituted for former Commissioner Joanne B. Barnhart as the defendant in this action.
[1] According to the ALJ, the application was filed on November 10, 2004. However, the Report and Recommendation indicated that the filing date was "August of 2004". (Dkt. No. 15). The actual application is not part of the record herein.
[2] "(T.)" refers to pages of the Administrative Transcript, Dkt. No. 7.
[3] Defendant briefly argues that plaintiff reiterates the same arguments that she previously raised in her initial brief before the Magistrate Judge. (Dkt. No. 18, p. 1). When "parties make only frivolous, conclusive or general objections, the court reviews the report-rec-ommendation for clear error." See Brown v. Peters, 1997 WL 599355 at *2 (N.D.N.Y.1997) (citing Camardo v. Gen. Motors Hourly-Rate Employees Pension Plan, 806 F. Supp. 380, 382 (W.D.N.Y.1992)) (instead of citing objections to specific portions of the proposed findings and recommendations, the defendant attempted to take a "second bite" and merely submitted a revised version of the same arguments presented to the Magistrate Judge). The Court has reviewed plaintiff's initial brief and the objections to the Report and Recommendation and is satisfied that plaintiff provided specific objections to the proposed findings and recommendations. Even assuming that plaintiff presented general objections and restated original arguments, the Court must still review the Report and Recommendation for clear error. See Salmini v. Astrue, 2009 WL 1794741, at *1 (N.D.N.Y.2009).
[4] These sections are cited supra.
[5] Plaintiff concedes that claimant does not suffer from a marked limitation in her personal functioning.
[6] The record does not provide an explanation for "D # 1" or "D # 3".
[7] This evaluation was provided to the Appeals Council after the ALJ rendered the decision. However, as discussed infra, the report is part of the record herein and should have been considered by the Appeals Council.
[8] WISC is an abbreviation for the Wechsler Intelligence Scale for Children. http://www. medilexicon.com (last visited November 9, 2009). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2472042/ | (2007)
QUYEN LE, Plaintiff,
v.
METROPOLITAN LIFE INSURANCE COMPANY, et al., Defendants.
No. C 07-00847 CRB.
United States District Court, N.D. California.
April 6, 2007.
MEMORANDUM AND ORDER
CHARLES R. BREYER, District Judge.
This lawsuit involves a dispute between plaintiff and her deceased husband's children from a previous marriage. Defendant Metropolitan Life Insurance Company removed the lawsuit to this federal court on the ground that the single claim alleged against Metropolitan is preempted by the Employee Retirement Income Security Act ("ERISA"). Now pending before the Court for decision are plaintiffs motion to remand and Metropolitan's motion to dismiss. After carefully considering the papers filed by the parties, and having had the benefit of oral argument, the Court GRANTS the motion to dismiss and DENIES the motion to remand.
RELEVANT ALLEGATIONS OF THE COMPLAINT
Plaintiff Quyen Le left Vietnam, married Thanh Vo, and came to America with him to live as Thanh Vo's wife in reliance on an oral agreement by Thanh Vo to provide for Quyen Le. Complaint ¶ 2. Throughout Thanh Vo's marriage to Quyen Le he continued to be employed at Rolls Wood Group. Rolls Wood Group provided Thanh Vo with life insurance and Thanh Vo designated the plaintiff, Quyen Le, as the beneficiary of the policy, Id. ¶ 20.
Thanh Vo became seriously ill and as a result of his illness became despondent. Id. ¶ 22. "One result was emotional conflict with Quyen Le, his wife. Thanh Vo became very angry and moved out of the home in which' he and Quyen Le were living." Id. Thanh Vo's five children from his first wife "took advantage of this unfortunate situation to exercise undue influence over Thanh Vo to entirely and immediately change his financial arrangements" to benefit the five Vo children to the detriment of Quyen Le. Id. Among other things, Thanh Vo removed Quyen Le as the beneficiary of his life insurance policy. Id. ¶ 53. Thanh Vo subsequently died.
PROCEDURAL HISTORY
Quyen Le filed an action in state court against the five Vo children, Thanh Vo's employer Rolls Wood USA ("Rolls Wood"), and the life insurer Metropolitan Life Insurance ("Metropolitan"). The Complaint asserts state law claims for conversion, quiet title, negligence, undue influence, breach of contract, and interference with economic advantage. In the Seventh Cause of Action plaintiff alleges that Metropolitan and Rolls Wood were negligent by allowing Thanh Vo to remove Quyen Le as a beneficiary of the life insurance policy to the exclusion of her California community property interest. Id. ¶ 53. Plaintiff seeks, among other remedies, "equitable relief to rescind or correct life insurance transactions."
Metropolitan removed the action to this federal court on the ground that the only claim stated against it, the Seventh Cause of Action, is preempted by ERISA and therefore removable. Metropolitan alleged further that no other defendants had yet been served with the Complaint. Plaintiff has moved to remand the case to state court on the ground that the negligence claim is not preempted, and Metropolitan has moved to dismiss the negligence claim with leave to amend to allege an ERISA claim. The dispositive issue is whether ERISA preempts state community property law when that law requires an employee benefit plan to pay benefits to someone other than the designated beneficiary. The Court concludes that it does.
DISCUSSION
The first question is whether Metropolitan properly removed this action to federal court based on federal question jurisdiction. "Ordinarily, determining whether a particular case arises under federal law turns on the `well-pleaded complaint'" rule. Aetna Health Inc. v. Davila, 542 U.S. 200, 207, 124 S. Ct. 2488, 159 L.Ed.2d 312(2004) (citation omitted). "[W]hether a case is one arising under the Constitution or a law or treaty of the United States, in the sense of the jurisdictional statute[,] ... must be determined from what necessarily appears in the plaintiffs statement of his own claim in the bill or declaration, unaided by anything alleged in anticipation of avoidance of defenses which it is thought the defendant may interpose." Taylor v. Anderson, 234 U.S. 74, 75-76, 34 S. Ct. 724, 58 L. Ed. 1218 (1914). "In particular, the existence of a federal defense normally does not create statutory `arising under' jurisdiction", ... and "a defendant may not [generally] remove a case to federal court unless the plaintiffs complaint establishes that the case `arises under' federal law." Aetna Health Inc., 542 U.S. at 207, 124 S. Ct. 2488 (internal quotation marks and citation omitted). "[W]hen a federal statute wholly displaces the state-law cause of action through complete pre-emption," however, the state claim can be removed. Beneficial Nat. Bank v. Anderson, 539 U.S. 1, 8, 123 S. Ct. 2058, 156 L. Ed. 2d 1 (2003). "This is so because `[w]hen the federal statute completely pre-empts the state-law cause of action, a claim which comes within the scope of that cause of action, even if pleaded in terms of state law, is in reality based on federal law.'" Aetna Health Inc., 542 U.S. at 207-08, 124 S. Ct. 2488. "ERISA is one of these statutes." Id. at 208, 124 S. Ct. 2488. Thus, removal was proper if plaintiffs claim against Metropolitan is preempted by ERISA.
"ERISA's preemption clause is deliberately expansive, and contains one of the broadest preemption clauses ever enacted by Congress." Spain v. Aetna Life Ins. Co., 11 F.3d 129, 130-31 (9th Cir.1993) (internal quotation marks and citations omitted). "ERISA preempts all state laws `insofar as they may now or hereafter relate to any employee benefit plan.'" Winterroivd v. American General Annuity Ins. Co., 321 F.3d 933, 937 (9th Cir.2003) (quoting 29 U.S.C. § 1144(a)). A state law "relates to an ERISA plan `if it has a connection with or reference to such a plan.'" Egelhoff v. Egelhoff, 532 U.S. 141, 147, 121 S. Ct. 1322, 149 L. Ed. 2d 264 (2001) (quoting Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 97, 103 S. Ct. 2890, 77 L. Ed. 2d 490 (1983)). "[T]o determine whether a state law has a forbidden connection, [courts] look both to the objectives of the ERISA statute as a guide to the scope of the state law that Congress understood would survive, as well as to the nature of the effect of the state law on ERISA plans." Id. (internal quotation marks and citations omitted).
Egelhoff establishes that plaintiffs claim is preempted. In Egelhoff, the plan participant David Egelhoff originally designated his wife as the beneficiary of his life insurance policy. Two months after David and his wife divorced, David died intestate following an automobile accident; in the intervening two months David had not removed his wife as the named beneficiary of his policy. David's children by a previous marriage brought suit to recover the life insurance proceeds under a Washington statute that automatically revokes a former spouse's designation as a life insurance beneficiary if the marriage ends in divorce. In effect, the statute requires plan administrators to "pay benefits to the beneficiaries chosen by state law, rather than to those identified in the plan documents." Id. at 147, 121 S. Ct. 1322.
The Supreme Court held that the children's claims were preempted by ERISA because the state statute on which they based their claims
binds ERISA plan administrators to a particular choice of rules for determining beneficiary status. The administrators must pay benefits to the beneficiaries chosen by state law, rather than to those identified in the plan documents. The statute thus implicates an area of core ERISA concern. In other words,... this statute governs the payment of benefits, a central matter of plan administration.
Id. at 147-48, 121 S. Ct. 1322. The Court also held that the statute has a "prohibited connection" with ERISA plans "because it interferes with nationally uniform plan administration."
One of the principal goals of ERISA is to enable employers to establish a uniform administrative scheme, which provides a set of standard procedures to guide processing of claims and disbursement of benefits. Uniformity is impossible, however, if plans are subject to different legal obligations in different States.
Id. at 148, 121 S. Ct. 1322. The Court concluded that the statute posed a threat to uniformity because plan administrators cannot simply identify the beneficiary identified by the plan documents but instead must "familiarize themselves with state statutes so that they can determine whether the named beneficiary's status has been `revoked' by operation of law." Id.
Plaintiffs claim herebased on California community property lawis similarly "connected with" ERISA. The California law on which plaintiff relies "binds ERISA plan administrators to a particular choice of rules for determining beneficiary status. The administrators must pay benefits to the beneficiaries chosen by state law, rather than to those identified in the plan documents." Id. at 147, 121 S. Ct. 1322. In this context, California's community property law also poses a threat to uniformity of plan administration because under the law, as asserted by plaintiff, plan administrators cannot simply identify the beneficiary identified by the plan documents, but instead must "familiarize themselves with state statutes so that they can determine" whether an unnamed beneficiary as a claim to the proceeds under the governing state law. Id. Accordingly, plaintiffs claim is preempted and removal was proper.
Plaintiff appears to dispute that the life insurance at issue is an ERISA plan. Her Complaint, however, specifically alleges that the life insurance was provided to her husband as an employee benefit. Complaint ¶ 20. Plaintiff also appears to dispute that Thah Vo removed plaintiff as a beneficiary of the life insurance proceeds. Plaintiffs Reply at 6. Again, the Complaint alleges that Thah Vo removed plaintiff as the beneficiary. Id. at ¶ 53.
CONCLUSION
In Egelhoff the Supreme Court held that ERISA preempts state law that operates to channel ERISA plan benefits to someone other than the designated beneficiary. Accordingly, plaintiffs Seventh Cause of Action alleging that under California community property law she is entitled to a share of the proceeds of her husband's employer-provided life insurance is preempted. The motion to remand is DENIED and Metropolitan's motion to dismiss is GRANTED with 20 days leave to amend.
IT IS SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2471927/ | 761 F. Supp. 2d 7 (2011)
Rajesh SRIRAMAN, Plaintiff,
v.
Shashikant PATEL, Defendant.
No. 09 Civ. 5531 (BMC).
United States District Court, E.D. New York.
January 24, 2011.
*9 Saritha Chandrupatla Reddy, Gail Miriam Eckstein, Steven Cooper, Reed Smith LLP, New York, NY, for Plaintiff.
David Clifford Burger, Robinson Brog Leinwand Greene Genovese & Gluck, P.C., New York, NY, for Defendant.
CORRECTED FINDINGS OF FACT AND CONCLUSIONS OF LAW
COGAN, District Judge.
Plaintiff Dr. Rajesh Sriraman brings this diversity action against his former partner, defendant Dr. Shashikant Patel, asserting claims for an accounting and related claims. The parties practiced pulmonary and critical care medicine in two different medical partnerships from 2003 to 2008. However, they never entered into a written partnership agreement and never orally discussed the terms of their arrangement. Thus, the terms and scope of their partnership are in dispute.
At the center of this dispute are three contracts that defendant entered into in *10 2003. Two of them were with North Shore University Hospital at Forest Hills (hereinafter "Forest Hills Hospital")a Critical Care Services Agreement and an employment agreement for Chief of the Department of Medicine (together, the "Forest Hills contracts"). The third was another contract to provide critical care to Queens-Long Island Medical Group, P.C. ("Q-LI Medical Group"). Plaintiff contends that defendant failed to disclose the existence of the Forest Hills contracts and improperly withheld the monies earned by the partnership under these contracts. Conversely, defendant maintains that plaintiff was aware of these contracts and that the money was not included in the partnership because they were not partnership opportunities. He further contends that if the Forest Hills contracts are deemed partnership property, then the Queens-Long Island contract, pursuant to which plaintiff received all the proceeds, should also be regarded as partnership property, and plaintiff should account for the proceeds he received.
This case was tried to the Court. For the reasons set forth below, the Court finds that plaintiff is entitled to judgment in the amount of $222,300.00.
FINDINGS OF FACT
I. Defendant's Prior Partnerships
Defendant has been practicing medicine since 1970. Since the mid-1980s, he has entered into a series of partnerships with different doctors for the purpose of practicing pulmonary and critical care medicine for patients in the Intensive Care Unit ("ICU") of different hospitals.
A. Patel Silverman LLP
The first partnership defendant entered into was with Dr. Joel Silverman ("Silverman"). Silverman began working with defendant in 1983 and under the terms of his employment agreement, he would work as an employee of defendant's for three years and would receive a salary. Thereafter, he would become an equity partner and receive 50% of the partnership profits. In light of Silverman's exceptional work, defendant elevated him to partner after only a year. They established Patel Silverman LLP and entered into a written partnership agreement. Both agreed that for the first two years Silverman was a partner, defendant would receive $50,000 more per year, and by the third year the profits would be split 50/50. All of the partnership profits consisted of income from patient care that was provided by the doctors at both their office and at Parkway Hospital.
During the course of this partnership, defendant held several different positions at Parkway Hospital. These included: Director of the Pulmonary Medicine and Intensive Care Unit, Chief of Medicine, and Medical Director of the entire hospital. Defendant held both the Chief of Medicine and Medical Director positions from 1985 to 2003, and as compensation he received an annual salary of $75,000 plus health insurance. Defendant and Silverman agreed that defendant's salary would not be included as partnership income.
B. Patel Silverman Chadha LLP
In the late 1980s, Dr. J.B. Chadha ("Chadha") began working with defendant and Silverman. Like Silverman, Chadha entered into an employment agreement which provided that he would receive a salary for the first three years of his employment, and then would become a full equity partner. After the three years were up, Chadha became a partner in Patel Silverman Chadha LLP ("PSC") and the doctors entered into a new written partnership agreement.
*11 By this time, PSC was primarily responsible for taking care of the ICU at Parkway Hospital. Defendant remained the Medical Director of the hospital and he appointed Chadha as Chief of Pulmonary Medicine at Parkway Hospital, which was an unpaid position. Under their partnership agreement, the doctors limited the scope of their partnership to patient care and all of the income that the partners derived from patient care that was provided at the office and Parkway Hospital was divided equally amongst the three partners. However, there were a few years during which the partners agreed that Chadha would receive $50,000 more than defendant and Silverman. Moreover, although defendant did not explicitly discuss with Chadha that defendant's salary as Medical Director would be excluded as partnership income, Chadha was aware it was a paid position and made no objection.
On May 9, 1997, plaintiff joined PSC. As was the case with Silverman and Chadha, plaintiff entered into an employment agreement with PSC, effective July 1, 1997, under which he would receive a salary for the first five years of his employment, and that "at the end of the 5th Year you shall be entitled to an equity interest in the practice equal to that of the other members." The reason that PSC required plaintiff to work for five years, instead of three, before becoming a partner was due to the fact that he had just completed his medical training and had yet to pass all of his medical board certifications ("Boards").
During the first five years of his employment, plaintiff received a salary as provided under his employment agreement. He worked out of Parkway Hospital and performed essentially the same services as the other doctors in the partnershiphe saw patients in the ICU, performed consultations, and admitted patients. However, plaintiff continued to struggle to pass all of his Boards.
In plaintiff's fifth year of employment, PSC's practice had grown and defendant was looking to transition the partnership away from Parkway Hospital and to Forest Hills Hospital, which is a teaching hospital. Defendant had started engaging in discussions with Forest Hills Hospital about the possibility of him becoming Chairman of the Department of Pulmonary Medicine and having PSC provide services for the hospital's ICU.
In 2003, after his five years were completed, Plaintiff began receiving a 25% share of the profits in PSC and was listed as a partner on PSC's 2003 tax returns and balance sheets. However, he never received any confirmation that he had become a partner and was never offered a written partnership agreement. This was due in part to the fact that defendant was still finalizing negotiations with Forest Hills Hospital, but it was also because during that same year, Silverman and Chadha decided to leave the partnership.
II. 2003 Contracts
Despite the pending termination of PSC and without entering into any formalized partnership with plaintiff, defendant executed three different contracts in 2003. Two were with Forest Hills Hospital and one was with Q-LI Medical Group.
A. Chief of Medicine Contract
On March 22, 2003, defendant entered into an employment agreement with Forest Hills Hospital to serve as the Chief of their Department of Medicine ("Chief of Medicine Contract"). Under this agreement, defendant would receive a salary of $350,000 per year for a period of five years commencing on April 15, 2003. The agreement delineated defendant's duties as Chief of Medicine, which included administrative *12 and teaching responsibilities, and noted that he was expected to allocate twenty-five hours per week to carrying out these duties. Moreover, the contract provided that "[d]uring the term of your employment and under this Agreement, you may render professional services as a private physician, consultant, or otherwise to the extent that rendering such services does not interfere with the full performance of your duties hereunder."
B. Critical Care Services Agreement
Defendant also entered into a critical care services agreement with Forest Hills to provide intensivist, or critical care services, for the hospital ("FH-ICU Contract"). The agreement was for a five year period beginning July 1, 2003 and ending on June 30, 2008, and was subject to automatic renewal for an additional year. The draft version of this agreement was originally between Forest Hills Hospital and defendant, Silverman, Chadha, and plaintiff. However, because Silverman and Chadha had left PSC by the time the contract was executed, it was revised so that it was between the hospital and "Shashi Patel, MD (referred to as the `Group')." Defendant signed the FH-ICU Contract.
The contract provided for the Group to perform both clinical and administrative duties. These duties included: creating monthly staffing schedules to ensure 24/7 coverage of the ICU; establishing procedures to ensure the consistency and quality of the clinical services being provided; participating in the hospital's overall performance improvement programs; and serving as active participants in the hospital's Medical Residency Training program by conducting lecture series and daily teaching rounds in the ICU.
It also set forth that defendant would appoint a Group employee to serve as Director of the Division of Critical Care. The Director would maintain overall responsibility of the ICU and would be required to devote at least 18 hours per week in performing general administrative and supervisory functions. However, the Director could designate other doctors to perform these duties as needed.
As compensation for both the clinical service and administrative services provided under the FH-ICU Contract, the hospital agreed to pay the Group the sum of $300,000 per year. This was $100,000 more than the amount set forth in the draft agreement. The $300,000 was to be disbursed in equal monthly installments of $25,000 by checks made payable to "Shashi Patel, MD."
C. Queens-Long Island Agreement
Defendant also entered into an agreement with the Q-LI Medical Group to provide critical care services ("Q-LI Contract"). This one-year agreement was effective as of July 1, 2003, and was subject to automatic renewal for one year terms unless terminated as provided for in the contract. (It also renewed at all times relevant to this lawsuit.) As compensation, defendant would receive $250,000 annually, which would be paid in equal monthly installments.
III. The Patel Sriraman Partnership
With the exodus of Silverman and Chadha, defendant and plaintiff were left to perform the services under these three contracts. For tax purposes, defendant and plaintiff continued to use the name Patel Silverman Chadha LLP until the end of 2004. On October 5, 2004, defendant filed a Certificate of Registration for Patel Sriraman LLP ("PS LLP") with the State of New York. Thereafter, the parties practiced under the name Patel Sriraman LLP until plaintiff left the partnership on June 30, 2008.
*13 Although they never entered into a formal partnership agreement, the parties had a general understanding when they began working together that functionally speaking, defendant would be the "originating" or "managing" partner and plaintiff would be the "service partner." (These are the Court's terms to describe their relationship, not the parties'.) They also discussed the nature of their practice and how, in addition to providing critical care services at the hospital and seeing patients in their office, they needed to increase their presence at the hospital in order to grow their practice.
The manner in which the partnership work was divided is reflective of this managing vs. service partner relationship. Defendant made the majority of the management decisions, ran the practice on a day-to-day basis, established relationships with other doctors and the hospital, and focused on building the practice. He also exclusively performed the responsibilities of Chief of Medicine, and in January 2004, also assumed the position of Medical Directorone of the most important positions in the hospital. In fact, it was through these positions that defendant was able to increase the partnership's presence at Forest Hills Hospital and generate business for their ever-growing office-based practice.
As a service partner, plaintiff's primary duties were to provide patient care. He had full access to the partnership books and records, and occasionally would sign checks on behalf of the partnership, but had little if any involvement in the management of the partnership. Plaintiff was solely responsible for performing under the Q-LI Contract, but both parties performed the duties under the FH-ICU Contract. When additional staffing was needed, defendant hired doctors to work on a per diem basis to perform clinical services and administrative services. These per diem doctors were paid out of the partnership's patient revenues; they did not receive any money from these contracts.
In regard to the Director of Critical Care position set forth in the FH-ICU Contract, defendant initially performed the functions of Director himself. In or around 2005, defendant appointed plaintiff to that position. However, plaintiff was unable to remain in that position because he had not passed his Board Certification in Critical Care Medicine.[1] Nevertheless, plaintiff continued to perform many of the Director duties and assisted defendant in carrying out the others.
Defendant also made all the decisions as to when draws would be made and how income would be divided. There was no set draw every year and the profit distribution varied annually. The Tax Returns and Balance Sheets for PS LLP from 2004 to 2008 report that the partnership profits were distributed as follows:[2]
--------------------------------------
% PROFIT
YEAR PLAINTIFF DEFENDANT SHARING
--------------------------------------
2004 $182,120 $187,198 50%-50%
--------------------------------------
2005 $183,518 $183,518 50%-50%
--------------------------------------
2006 $245,380 $142,245 63%-37%
--------------------------------------
2007 $114,223 $ 80,158 59%-41%
--------------------------------------
2008 $112,895 $ 39,216 78%-22%
--------------------------------------
*14 However, defendant did not include monies earned from the three contracts he signed in 2003 as partnership income. He excluded his Chief of Medicine salary, for which he received a total of $1,822,918 between April 2003 and June 30, 2008. Although plaintiff was aware that defendant held this position and was receiving a salary, he never knew the details of the contract or exactly how much money defendant was earning. Unlike in his prior partnerships, defendant never discussed whether his salary as Chief of Medicine could be excluded as a partnership asset, and plaintiff never asked.
In regard to the critical care agreements, defendant allocated to plaintiff all of the money under the Q-LI Contract, and he kept all the money under the FH-ICU Contract. During the tenure of the partnership, plaintiff received a total of $849,599.96 under the Q-LI Contract and defendant received $1,500,000.00 under the FH-ICU Contract.
Defendant originally decided to distribute the contract income in this manner because when they first started working at Forest Hills Hospital, the practice was not generating any money, and he knew that plaintiff needed income. Defendant was receiving his salary as Chief of Medicine, and rather than have plaintiff wait to get paid from patient billing, defendant distributed all of the money under the Q-LI Contract to plaintiff, as he was performing all of that work.
Plaintiff was aware of the terms of the Q-LI Contract and in fact, signed an Addendum on February 16, 2005, modifying and supplementing the original agreement signed by defendant. This Addendum changed the contract so that it was between plaintiff and the Q-LI Medical Group, and directed payment to plaintiff.
Plaintiff had only seen the draft version of the FH-ICU Contract, and never saw the final version which increased the amount of the contract from $200,000 to $300,000 per year. Plaintiff suspected that a final agreement had been executed around 2003, but never questioned defendant as to its terms or whether the money earned from that contract was being included as partnership income.
Plaintiff did ask defendant whether the Director of Critical Care position was a paid position. Defendant indicated that the hospital usually pays a director of a subspecialty anywhere from $25,000-$50,000 per year, but noted that in their situation, the money for the Director position had been included in the FH-ICU Contract, so the position was unpaid.
There is no question that the purpose of the parties' partnership was to provide critical care medicine at both the hospitals for which they had contracts and at their office. Although the parties discussed the scope of their medical practice, they never discussed how profits would be divided or shared or from what revenue streams their profits would derive. Rather, defendant unilaterally made decisions as to how profits would be divided and what income would be deemed partnership income. The limited discussions these parties had regarding their partnership concerned the nature of the practice and their respective roles.
Defendant's positions as Chief of Medicine and Medical Director were vital to his success in expanding the practice and increasing the partnership's presence at the hospital. Conversely, it was plaintiff's work in the ICU providing patient care that enabled the partnership to satisfy its responsibilities under the FH-ICU Contract and generate revenue. Although plaintiff did not officially maintain the role of Director of Critical Care for an extended period of time, he did perform many of *15 those duties and assisted defendant with others over the course of the partnership.
IV. Findings as to the Parties' Intent
There is no dispute that plaintiff was entitled to receive 50% of the partnership distributions. His employment letter so provided, and as noted below, the New York partnership law presumes equal sharing of profits absent agreement to the contrary.[3] There is also no dispute that this arrangement applied to patient billing, i.e., bills sent out by the partnership for services rendered directly to patients. The sole issue in this case is which, if any, of the 2003 contracts constituted partnership property so that revenues received under those contracts had to be distributed pursuant to the 50/50 arrangement.
I find that defendant never considered the income from the Chief of Medicine Contract to be partnership property, and gave plaintiff no reason to expect otherwise. That contract in effect replaced the Chief of Medicine contract at Parkway Hospital that defendant had retained as his own property during his predecessor partnerships. Although defendant's position as Chief of Medicine may have brought additional patient billings into the partnership, that collateral benefit does not indicate that he considered the contract partnership property. In not sharing either information or revenues about that contract with plaintiff, defendant was simply carrying forward the arrangement he had under his prior partnerships.
I also find that plaintiff has not proven that he had any intent or reasonable expectation to the contrary during the term of the partnership. Although he knew in a general sense that defendant had various administrative positions, including Chief of Medicine, and received compensation for those, plaintiff never gave any indication that he considered himself entitled to share in the income from those activities until after he withdrew from the partnership. In addition, it is undisputed that plaintiff performed no work under this agreement. Given the historical precedent of the Chief of Medicine contract at Parkway Hospital; the fact that it is written in the terms of an employment contract with only defendant as the employee; plaintiff's failure to make a definitive inquiry about the contract during the term of the partnership; and the fact that plaintiff did not render services under that contract and did not expect to, it is not only clear that the parties never had a meeting of the minds as to whether the Chief of Medicine Contract would generate partnership revenue, but it is also clear that neither of them intended that it would.
With regard to the FH-ICU Contract, however, I reach the opposite conclusionthat both parties intended that the revenue from that contract would be a partnership asset. The FH-ICU Contract was, in fact, originally drafted so that all of the partners at that timeChadha, Silverman, defendant, and plaintiffwere supposed to be signatories, and that was only changed because Silverman and Chadha *16 left the group. Indeed, even though defendant was the only signatory to the final agreement on the doctors' side, the shorthand reference to him was "the Group," just as it had referred to the partnership in the initial draft. The agreement itself clearly contemplated its performance by more than one physician; it expressly required 24/7 coverage in the ICU, which could only be performed by more than one doctor. Plaintiff, in fact, did render services under that agreement, unlike the Chief of Medicine Contract. The objective indicia of intent thus indicate that both parties regarded it as a partnership asset, and I therefore find that both parties intended the revenue from that contract to be partnership income.
The same is true with respect to the Q-LI Contract. The services provided under this contract were directly related to the purpose of the partnershipto provide critical care services in the ICU. As noted above, defendant's intent in allowing plaintiff to retain all of the revenues to that contract was as an advance against his future distributions once patient billings reached a level allowing for such distributions. There is no question that defendant was wholly responsible for the origination of that contract. Defendant did not intend the contract as a "gift" to plaintiff outside of the partnership, which is what it would amount to if I accepted plaintiff's argument that it was his sole property. I therefore find that the parties considered the income from that contract to be within the scope of their partnership agreement.
V. Termination of the Patel Sriraman Partnership
In May 2008, plaintiff notified defendant that he was going to be moving down south and was leaving the partnership. He ultimately left the partnership on June 30, 2008, and hired an attorney to handle the winding up of the partnership's affairs.
During this process, plaintiff made his first attempts to find out whether defendant had entered into any contracts with Forest Hills Hospital. He retained three different attorneys, all of whom requested copies of any contracts between the partnership and Forest Hills Hospital. Defendant never produced the FH-ICU or Chief of Medicine Contracts to any of plaintiff's attorneys. Plaintiff's current counsel made specific requests for an accounting with respect to the partnership and sought to confirm if defendant had any contracts entered into by PS LLP and/or its partners. Defendant advised his attorney that there were no agreements between Forest Hills Hospital and PS LLP that he signed on behalf of PS LLP.
Plaintiff commenced this action on December 17, 2009. It was not until the parties engaged in discovery that plaintiff was finally able to obtain copies of the final FH-ICU Contract and the Chief of Medicine Contract from Forest Hills Hospital.
CONCLUSIONS OF LAW
Despite the fact that plaintiff has brought both law and equity claims, this case can be resolved in its entirety by the claim for an accounting. The central issue in this case is the partnership agreementwhat were its terms and did it include the 2003 contracts. Moreover, the relief the parties are seeking under all of their claims is identicalthey seek to recover the amounts they believe are due pursuant to their partnership arrangement. This is the precise purpose of an accounting claim, and its resolution is dispositive of all of the parties' remaining claims.
*17 I. The Accounting Claim
Under New York law, as well as equity practice in most other common law jurisdictions, an action for an accounting is a two-step process. The first step is to establish the right to an accounting. See Wood v. Cross Properties, Inc., 5 A.D.2d 853, 171 N.Y.S.2d 338 (2d Dep't 1958). This requires the plaintiff initially to establish that he and the defendant had a fiduciary or trust-based relationship concerning the general subject matter of the controversy. See Village of Hoosick Falls v. Allard, 249 A.D.2d 876, 879, 672 N.Y.S.2d 447, 449 (3d Dep't 1998).
It is axiomatic that partners maintain a fiduciary relationship with regard to the affairs of the partnership. See Tucker Anthony Realty Corp. v. Schlesinger, 888 F.2d 969, 972-73 (2d Cir.1989). A partner, as a fiduciary, is held to higher standards than those of the marketplace. "Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior." Meinhard v. Salmon, 249 N.Y. 458, 464, 164 N.E. 545 (1928) (Cardozo, C.J.). Moreover, "it is elemental that a fiduciary owes a duty of undivided and undiluted loyalty to those whose interests the fiduciary is to protect." Birnbaum v. Birnbaum, 73 N.Y.2d 461, 466, 541 N.Y.S.2d 746, 747-48, 539 N.E.2d 574 (1989). The broad scope of this rule not only bars self-dealing, but also imposes an affirmative duty on partners to communicate business opportunities to one another. Id. When partners engage in self-dealing, they will be held accountable for the secret profit made. R.C. Gluck & Co. v. Tankel, 12 A.D.2d 339, 211 N.Y.S.2d 602, 605 (1st Dep't 1961).
Once a plaintiff establishes that he has a right to an accounting, the second step is for the Court to "true-up" the partners' individual accounts to make sure that each has been allocated his fair share of partnership distributions, "fair share" referring to the allocation agreed between the partners or required by law. See N.Y. Partnership Law §§ 40 and 71(a)(I). In making this determination, the Court can consider clerical errors in allocations to the individual accounts; breaches of any partnership agreement or of fiduciary duty or fraud committed by one partner against another; diversion or non-contribution of assets that should be within the partnership; or any other matters necessary to restore the individual accounts to the levels established by the partners' agreement or the law. See Wilde v. Wilde, 576 F. Supp. 2d 595, 607-08 (S.D.N.Y.2008); Vinlis Constr. Co. v. Roreck, 30 A.D.2d 668, 668, 291 N.Y.S.2d 924 (2d Dep't 1968). In connection with this second step, the Court can also consider whether an asset which one partner contends is not within the scope of the partnership should in fact be included in the adjustment of the partners' individual accounts. See N.Y. Partnership Law § 43(1) ("Every partner must account to the partnership for any benefit, and ... any profits derived by him without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use by him of its property."); R.C. Gluck & Co., 12 A.D.2d at 345, 211 N.Y.S.2d at 608.
In the instant case, there can be no dispute that plaintiff, as a partner, became entitled to an accounting upon his withdrawal from the partnership and its dissolution thereupon as a matter of law. See N.Y. Partnership Law § 74; Scholastic, Inc. v. Harris, 259 F.3d 73, 90 (2d Cir. 2001) ("New York law provides that partners are entitled to an accounting of a partnership following its dissolution."). The first step is therefore satisfied. The remaining issue for this Court is to reconcile the individual partners' accounts to *18 make sure that each receives the distribution to which he is entitled.
A partnership results from an express or implied contract. Martin v. Peyton, 246 N.Y. 213, 158 N.E. 77 (1927); N.Y. Partnership Law §§ 10, 11. The rights and obligations of the partners arise from, and are fixed by, their agreement. Levy v. Leavitt, 257 N.Y. 461, 178 N.E. 758 (1931). A partnership agreement can be oral, Missan v. Schoenfeld, 95 A.D.2d 198, 208, 465 N.Y.S.2d 706, 712 (1st Dep't 1983); however, in the absence of an agreement to the contrary, the rights and duties of partners in relation to the partnership are determined pursuant to New York Partnership Law. Where there is no oral or written partnership agreement, the partnership's profits are split equally and all the partnership property is considered an asset. N.Y. Partnership Law §§ 40 and 71(a)(I) ("[i]n settling accounts between the partners after dissolution ... subject to any agreement to the contrary... [t]he assets of the partnership" include the "partnership property"). This includes any secret profits a partner earned over the course of the partnership. See N.Y. Partnership Law § 43(1); R.C. Gluck & Co., 12 A.D.2d at 345, 211 N.Y.S.2d at 608.
There is surprisingly little New York authority on how a court is to determine what property is within or without a partnership. Perhaps that is because whether one looks to the Uniform Partnership Act (adopted in New York as Partnership Law § 1 et seq. (McKinney's 1919)) or the common law, the question of whether a particular asset is partnership property is resolved by the fundamental contractual interpretation exercise of determining the parties' intent. See The John E. Enright, 40 F.2d 588, 590 (2d Cir.1930) ("the intent of the partners sets the bounds to which among themselves, at least, the ownership of their own property is transferred to the partnership"); In re Amy, 21 F.2d 301, 303 (2d Cir.1927) ("Whether property owned by a partner and used in the firm business shall be deemed an asset of the firm or of the individual depends upon the intention of the partners."); Altman v. Altman, 271 A.D. 884, 67 N.Y.S.2d 119 (2d Dep't 1946) (concluding from written agreement that partners intended specific property to belong to the partnership); see also Pendleton v. Strange, 381 S.W.2d 617, 618 (Ky.1964) ("The Uniform Partnership Act ... does not appear to change the common law partnership principles applicable to this case. The intention of the parties evidenced by their conduct governs what constitutes partnership property."); In re Peyton's Estate, 143 Cal. App. 2d 379, 383, 299 P.2d 897, 899 (1956) (property in the name of one partner "may under some circumstances be treated as partnership property" but requires "a clear showing which discloses such an understanding and intention among the partners"). As one treatise has summarized the law:
The question whether or not personal property owned or acquired by a partner has been contributed by him or her to the firm so as to become partnership property depends on the intention of the parties as revealed by their conduct; by the provisions of the partnership agreement or agreement preliminary thereto; by the terms of written instruments relative to the transfer of the property to or for use of the firm; by entries in the firm books; and by the use of the property in the firm business, although the mere fact that property is used in the firm business will not of itself show that it is firm property.
68 C.J.S. Partnership § 107 (2010).
There are limits, of course, to the use of intent in resolving this question. A partner may fully intend to keep an opportunity *19 to himself, but it is axiomatic that if the opportunity fairly belongs to the partnership, even if he honestly believes it does not, he will have breached his fiduciary duty to his partner by not offering it. See Meinhard, 249 N.Y. at 464, 164 N.E. 545 (Cardozo, C.J.). Yet it seems clear that before the Court can find a breach of fiduciary duty for such a usurpation, it needs to know what the parties intended to fall within the scope of their partnership, as opposed to what the parties would be allowed to do for their own account.
In the instant case, the parties have devoted much effort to the issue of whether defendant breached his fiduciary duty and the partnership agreement by not allocating revenues from the Forest Hills contracts, but very little effort to assist me in determining the parties' intent as to these contracts. However, this case depends far more on the intent of the parties with regard to specific assets than on the existence of any breach, as a breach cannot be found if the parties did not agree that revenue from that asset would belong to the partnership.
From plaintiff's view, the resolution of this issue is so straightforward it is simply assumed. Since both parties were physicians; they established a medical partnership, and the Forest Hills contracts related to medicine, then it follows ipso facto, according to plaintiff, that revenue from those contracts belonged to the partnership.[4] But that is too simplistic a view. Partners can agree to include or exclude revenue from any asset obtained by one of them, either before or after the commencement of their partnership, without limitation. And there is no "default" scenario whereby, if there is no such agreement, any asset relating to medicine becomes a partnership asset simply because the parties never discussed it and it relates to medicine. In other words, there is no more a requirement for defendant to have expressly "reserved" his rights to the Forest Hills contracts than there was such a requirement that plaintiff lay claim to those contracts during the partnership. If there is any "default determination" of this issue, it is that plaintiff has the burden of proving that the parties intended the net revenue from these contracts to be distributed as partnership profits. I cannot find that plaintiff has met that burden.
In this regard, the revenues generated from patient billing and the salary that defendant received under the Chief of Medicine Contract come from very different activities. They cannot be lumped together under "the practice of medicine." Patient billingrevenues from treating patientsis the core of any medical practice. The Chief of Medicine Contract, in contrast, is not something shared by most medical practices, but a special opportunity afforded to defendant because of who he was. It is written in the language of a personal employment agreement between Forest Hills Hospital and defendant. It does not involve the practice of medicine at all or the treating of patients, but rather the performance and undertaking of administrative and teaching responsibilities. It allows for no substitution of personnel *20 only defendant can perform under that contract.
Plaintiff's argument that this was a partnership opportunity is like arguing that a lawyer, who happens to be an adjunct professor at a law school or author, must contribute his teaching and royalty income to a partnership if he joins his practice with another lawyer (without written or oral agreement). Are the teaching salary and royalty payments included in partnership income? Perhaps or perhaps not. It depends on the parties' mutual intent. Certainly there is no principle of law that automatically requires their inclusion. The question remains as to how the parties intended those revenues to be treated. This intent issue is rendered more difficult where there is an absence of written or even oral discussions, but that is no reason to forcibly expand the partnership to include all income that an individual may earn, simply because he is a partner in a partnership.
When I asked plaintiff at trial why he never followed up to find out about the FH-ICU Contract until after he withdrew from the partnership, he responded essentially that he simply trusted defendant to properly allocate partnership revenues. No doubt he feels the same way about the Chief of Medicine Contract. I find that his answer is credible, but it also indicates that plaintiff was willing to defer to defendant's intent as to what was and was not included as a partnership asset; that, in essence, was the parties' agreement. It is insufficient for plaintiff to rely on his "trust" of defendant as a substitute for forming his own intent instead of acquiring some understanding of the scope of the partnership. He never questioned defendant as to the particulars of his employment as Chief of Medicine; he deferred to defendant in making all management decisions; and never discussed with defendant during the partnership what income should be included as partnership assets.
By so completely deferring to defendant's intent, plaintiff essentially failed to have any expectation or intent of his own until after he left the partnership (perhaps after he spoke to a lawyer). Stated otherwise, the partnership assets would be those which defendant intended would be partnership assets. That was the parties' agreement because plaintiff had no intent to the contrary and was satisfied with that arrangement during his tenure as a partner. Of course, plaintiff's position as a partner did not require him to match defendant in the day-to-day management of the business. It did, however, preclude plaintiff from failing to have any intent as to whether potential sources of income were partnership property, and then forming such an intent only after he had left the partnership.
Based on the evidence adduced at trial, the partnership profits were originally distributed as follows:
-------------------------------------------------------
PARTNERSHIP PROFITS PLAINTIFF DEFENDANT TOTAL
-------------------------------------------------------
2004 $ 182,120 $ 187,198 $ 369,318
-------------------------------------------------------
2005 $ 183,518 $ 183,518 $ 367,036
-------------------------------------------------------
2006 $ 245,380 $ 142,245 $ 387,625
-------------------------------------------------------
2007 $ 114,223 $ 80,158 $ 194,381
-------------------------------------------------------
2008 $ 112,895 $ 39,216 $ 152,111
-------------------------------------------------------
FH-ICU Contract ---- $1,500,000 $1,500,000
-------------------------------------------------------
Q-LI Contract $ 849,599 ---- $ 849,599
_______________________________________________________
TOTAL: $1,687,735 $2,132,335 $3,820,070
-------------------------------------------------------
*21 The total distributions of PS LLP from 2003 to 2008 were therefore $3,820,070, in which each partner was entitled to half, or $1,910,035. Plaintiff did not receive his full share of profits, and accordingly defendant must account to plaintiff in the amount of $222,300.
Plaintiff's request for punitive damages is denied, as there is no evidence of "intentional or deliberate wrongdoing, aggravating or outrageous circumstances, a fraudulent or evil motive, or a conscious act that willfully and wantonly disregards the rights of another." Amusement Industry, Inc. v. Stern, 693 F. Supp. 2d 301, 317 (S.D.N.Y.2010) (citation omitted).[5]
II. Statute of Limitations
Defendant raises an objection to the Court's reconciliation of the accountshe contends that plaintiff's claim for an accounting is time-barred. According to defendant, if plaintiff's theory is correct, then defendant breached his fiduciary duty and their oral partnership agreement by not paying him distributions from the 2003 contracts when defendant first started receiving payments under those contracts in 2003. The statute of limitations is six years for a breach of contract, see N.Y. C.P.L.R. § 213(2), and either three or six years (depending on the facts and the relief sought, see Kermanshah v. Kermanshah, 580 F. Supp. 2d 247, 262 (S.D.N.Y. 2008)), for breach of fiduciary duty. Because defendant received some of the payments under those contracts more than six years prior to the commencement of this action on December 17, 2009, defendant asserts that plaintiff's claim for an accounting is untimely. This argument fails for several reasons.
Regardless of when defendant first started receiving payments under these contracts, plaintiff's right to an accounting accrued upon dissolution, which occurred by operation of law on June 30, 2008 when he withdrew from the partnership. See N.Y. Partnership Law § 60. (when one partner withdraws from a partnership, dissolution occurs absent agreement between the partners to the contrary). As a general rule, upon dissolution of a partnership, any partner is entitled to an accounting. NY Partnership Law § 74. "Upon notice of dissolution and the demand for an accounting, any partner has a right to an immediate accounting as of the date of dissolution." Scholastic, 259 F.3d at 90 (citation omitted). "A cause of action for an accounting accrues upon dissolution of the partnership and must be commenced within six years of dissolution." 6D Farm Corp. v. Carr, 63 A.D.3d 903, 906, 882 N.Y.S.2d 198, 201 (2d Dep't 2009); see N.Y. Partnership Law § 74. It is thus clear that plaintiff had six years from June 30, 2008 to commence an accounting proceeding, and his claim here is timely.
Defendant's argument to the contrary stems from a misapprehension of the nature of an action for an accounting. He contended at trial that plaintiff's claim for an accounting is moot because during the course of discovery in this action, he produced all of the partnerships books and records to plaintiff. But the cause of action for an accounting is not to be confused with a partner's right of access to the partnership's books and records. See Scholastic, 259 F.3d at 73 ("Even if Scholastic already possesses detailed financial information regarding the joint venture, *22 there is nevertheless still `an absolute right to an accounting.'") (quoting Koppel v. Wien, Lane & Malkin, 125 A.D.2d 230, 234, 509 N.Y.S.2d 327, 330 (1st Dep't 1986) (rejecting defendant's claim that because plaintiffs already had the documents relating to their venture, there was no right to an accounting)). Rather, as noted above, an action for an accounting requires the two step process of determining the existence or absence of a fiduciary relationship, and then, if a fiduciary relationship exists, reconciling the partners' individual accounts based on any partnership agreement or applicable partnership law.
The contrary argument is that since defendant "owed" plaintiff money at the end of 2003 based on the 2003 contracts, plaintiff's causes of action for breach of fiduciary duty and breach of the partnership agreement accrued when defendant first received and retained those moneys. There is some support for this position by virtue of the partnership law provision that a breach of fiduciary duty or of the partnership agreement, if sufficiently severe, can constitute grounds for dissolution, and thus plaintiff arguably could have provoked or initiated a proceeding for dissolution at that time. See generally N.Y. Partnership Law § 63(1)(d) (court can order dissolution when a partner "willfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him ..."). However, although I have found that the FH-ICU and Q-LI Contracts were partnership assets, there is no evidence to support a construction of the parties' arrangement that would have required a year end accounting, or indeed an accounting for any particular period, or distributions to be made at any particular time. The parties' arrangement was that defendant authorized distributions whenever he felt he and plaintiff needed distributions. He regularly distributed a higher percentage of patient billings to plaintiff than he did to himself. Had defendant acknowledged in 2003 that the FH-ICU and Q-LI Contracts were partnership assets, there was still nothing that would have required him to distribute proceeds from those contracts at any time in 2003 as opposed, for example, in early 2004 or any other particular time. There was thus no breach of either the partnership agreement or defendant's fiduciary duty that can be tied to 2003.
Moreover, even if plaintiff had an accrued claim for breach of fiduciary duty or breach of the partnership agreement at some point in 2003, which in turn would have triggered his right to seek dissolution of the partnership and an accounting, nothing obligated plaintiff to do so at that time. The right to seek dissolution is distinct from the occurrence of dissolution by operation of law that takes place when a partner withdraws from the partnership. The mere fact that a plaintiff-partner might have brought an action at law for breach of contract, or an action at law or in equity for breach of fiduciary duty, at some point prior to the dissolution of the partnership, does not "accelerate" the accrual date for bringing his cause of action for an accounting claim that arose when the partnership went into dissolution. This follows from the well established rule that simply because a plaintiff could bring an action at law or some non-accounting claim in equity does not limit his right to proceed instead with an action for an accounting. Koppel v. Wien, Lane & Malkin, 125 A.D.2d 230, 509 N.Y.S.2d 327 (1st Dep't 1986) ("[R]egardless of whether or not all of the relevant facts are already known to plaintiffs, it is clear that whenever there is a fiduciary relationship between the parties, as is the situation here, there is an absolute right to an accounting notwithstanding the existence of an adequate remedy at law."); DiTerlizzi v. DiTerlizzi, *23 92 A.D.2d 604, 459 N.Y.S.2d 797 (2d Dep't 1983) ("Although a party may have a legal remedy, he or she is not precluded from seeking equitable relief by way of an accounting predicated upon the existence of a fiduciary relationship."); cf. Disabled American Veterans v. Phillips, 13 Misc.3d 1210(A), 824 N.Y.S.2d 753 (N.Y.Sup.Co. 2006) (dismissing claims for breach of fiduciary duty and fraud as untimely, but sustaining claim for accounting covering the same conduct).[6]
Only by ignoring plaintiff's right to an accounting upon dissolution could the Court sustain defendant's statute of limitations argument. However, "[a]n action for an accounting examines the entire period of the partnership," Afloat in France, Inc. v. Bancroft Cruises Ltd., No. 03 Civ. 917(SAS), 2003 WL 22400213, *7 (S.D.N.Y. Oct. 21, 2003), to determine what property or profits a fiduciary must return. Thus, plaintiff's claim accrued as of the date of dissolution on June 30, 2008, and is timely.[7]
CONCLUSION
For the reasons set forth above, the Clerk is directed to enter judgment in favor of plaintiff in the amount of $222,300.00.
SO ORDERED.
NOTES
[1] There was also a barrier to plaintiff holding this position because he was subject to an ongoing investigation by Medicare into overbilling, which began in 2004 and continued throughout the partnership.
[2] These exact amounts are taken from the parties' stipulated facts; however, the Court notes that the evidence at trial indicated that the parties each received approximately $10,000 more in 2004. See Pl's Ex. 8, at 1.
[3] Defendant originally contended that plaintiff never became a partner because (1) he never passed his Boards; and (2) he was the subject of the Medicare investigation referred to above, see fn. 1 supra (an investigation that concluded without any charges against plaintiff). Defendant appeared to have abandoned that position by the time of the final pretrial conference. In any event, it is a position that could not be sustained because (1) plaintiff's employment agreement of May 9, 1997, which provided that he would become a partner after five years, contained no such limitations; and (2) defendant's filing of the Patel Sriraman LLP partnership certificate clearly indicated his understanding that plaintiff was a partner.
[4] More specifically, plaintiff contends that the parties agreed that revenues from the Q-LI Contract would be paid directly to plaintiff, so that the Q-LI Contract is plaintiff's, but they did not discuss the Forest Hills contracts, so those should be shared 50/50. With regard to the Q-LI Contract, however, the parties' discussions never addressed the issue of whether the Q-LI payments to plaintiff would be credited against his partnership distributions. As to the Forest Hills contracts, plaintiff concludes they were partnership assets for the very reason that there were no discussions. But as discussed below, this approach begs the question.
[5] As neither party introduced any evidence at trial as to their entitlement to costs and attorneys' fees, and failed to offer a theory as to how pre-judgment interest should be calculated in such a case, their requests for recovery of these elements are denied.
[6] Phillips was an action by a corporation against a former officer for diversion of funds. The court dismissed claims for fraud and breach of fiduciary duty for diversions more than three years prior to the commencement of the action, but held that the plaintiff could recover those same sums through its claim for an accounting. In addition, the court held that diversions more than six years prior to the commencement of the action could not be recovered. Phillips, however, unlike the instant case, did not involve a cause of action for an accounting that accrued upon dissolution because the parties were not partners. Rather, because the accounting claim could accrue only at the same time as the breach of fiduciary duty and fraud, the plaintiff was limited to recoveries occurring no more than six years prior to commencement.
[7] As noted above, since the Court's ruling on the accounting claim resolves all issues between the parties, plaintiff's remaining claims and defendant's counterclaim are dismissed as duplicative. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1610896/ | 540 F. Supp. 928 (1982)
SCHUCHART & ASSOCIATES, PROFESSIONAL ENGINEERS, INC. et al.
v.
SOLO SERVE CORPORATION, et al.
Civ. A. No. SA-81-CA-5.
United States District Court, W. D. Texas, San Antonio Division.
April 21, 1982.
*929 *930 *931 *932 Ted D. Lee, San Antonio, Tex., for plaintiffs.
Donald O. Ferguson, Gardner, Ferguson, Sommers & Dorr, San Antonio, Tex., for Travis-Braun & Associates, Inc.
R. Laurence Macon, Gale R. Peterson, Cox & Smith Inc., San Antonio, Tex., for Ingram Square Ltd., Bernard Lifschutz, Ted McWilliams and Texas Southwest Developers No. 1.
Thomas E. Quirk, Beckmann, Stanard & Olson, P. C., San Antonio, Tex., for Lance, Larcade and Bechtol.
Charles R. Shaddox, Shaddox, Gorham & Good, P. C., San Antonio, Tex., Harvey F. Cohen, Houston, Tex., for Solo Serve Corp.
MEMORANDUM OPINION AND ORDER
SESSIONS, Chief Judge.
This case involves actions for conspiracy to infringe copyright, infringement of copyright, unfair competition, and unjust compensation. Plaintiffs, Schuchart and Associates, Professional Engineers, Inc., and Barry P. Middleman & Associates, Inc., bring this action against Defendants Solo Serve Corporation, Ingram Square Ltd., Bernard Lifschutz and Ted McWilliams, Individually and d/b/a Texas Southwest Developers No. 1, Lance, Larcade and Bechtol, and Travis-Braun & Associates, Inc. All Defendants have been served with summons and complaint and have filed answers in this cause. The Pre-Trial Order was entered by the United States Magistrate on March 12, 1982, and the parties are ready to proceed to trial pending the Court's ruling on Motions for Summary Judgment. The *933 following motions are before the Court and are the subject of this Memorandum Opinion and Order: (1) the Motion of Defendants Ingram Square, Ltd., Bernard Lifschutz and Ted McWilliams, Individually and d/b/a Texas Southwest Developers No. 1 to Dismiss or for Summary Judgment against Plaintiffs, Schuchart & Associates, Professional Engineers, Inc., and Barry P. Middleman & Associates, Inc.; (2) the Motion of Defendants Ingram Square Ltd., Bernard Lifschutz and Ted McWilliams, Individually and d/b/a Texas Southwest Developers No. 1 to Dismiss or for Summary Judgment against cross-claimants Travis-Braun & Associates, Inc.; and (3) the Motion of Lance, Larcade and Bechtol for Partial Summary Judgment against Plaintiffs Schuchart & Associates, Professional Engineers, Inc., and Barry P. Middleman & Associates, Inc. After careful consideration of the parties' motions and responses and the record in this case, the Court now enters the following Memorandum Opinion and Order disposing of the parties' motions.
THE FACTUAL SETTING
The pleadings, depositions, affidavits, and answers to interrogatories on file in this cause establish the following. Defendant Solo Serve Corporation (Solo Serve) operates a number of department stores in the San Antonio, Texas area. In late 1979 or early 1980, Solo Serve entered into an agreement with Walzem Plaza Shopping Center Ltd. for the construction and leasing of a Solo Serve store in the Walzem Plaza Shopping Center (Walzem store). In connection with that agreement, Plaintiffs Schuchart & Associates, Professional Engineers, Inc. (Schuchart & Associates) and Barry P. Middleman & Associates, Inc. (Middleman & Associates) prepared original drawings and specifications for mechanical and electrical work and original architectural drawings and specifications. Schuchart & Associates, a professional engineering firm, prepared the "Walzem Plaza, Solo Serve architectural drawings and specifications for mechanical and electrical work" (mechanical and electrical drawings and specifications), for which Schuchart & Associates obtained copyright registration on September 2, 1980. Middleman & Associates prepared "Middleman architectural drawings and specifications for Walzem Plaza-Solo Serve Retail Store" (architectural drawings and specifications) for which Middleman obtained copyright registration on or about January 8, 1981.[1]
Subsequent to Solo Serve's involvement in the Walzem store project, Solo Serve entered into negotiations for the construction and lease of a Solo Serve store in the Ingram Square Shopping Center. On or about February 1980, Solo Serve began discussions with Ingram Square Ltd., a limited partnership, about the feasibility of including a Solo Serve store in the Ingram Square Shopping Center. At the time Solo Serve began discussions with Ingram Square Ltd., the partnership had already signed to the project two substantial tenants, Firestone Tire & Rubber Company and the General Cinema Corporation. Preliminary architectural drawings were already under way when Solo Serve and Ingram Square Ltd. began their feasibility discussions.
Ingram Square Ltd., a limited partnership is comprised of Texas Southwest Developers No. 1, the general partner, Kathleen Friesenhahn, and several individuals named Carr. The general partner, Texas Southwest Developers No. 1, is a partnership comprised of Defendants Bernard Lifschutz and Ted McWilliams, and a third individual named LaConney.[2] Texas Southwest Developers No. 1 has served as the developer and part-owner of the Ingram Square Shopping Center Project. Ingram Square Ltd. hired the architectural firm of Lance, Larcade & Bechtol to prepare the architectural drawings and specifications *934 for the Ingram Square Shopping Center Project. Travis-Braun & Associates (Travis-Braun) has served as the engineering firm on the project, developing the electrical and mechanical plans and specifications for the project.
Plaintiffs' Second Amended Complaint alleges three causes of action. First, in Count I, Plaintiffs charge infringement of copyright, alleging upon information belief that "Defendants have conspired to and have infringed said copyright by having copied, imitated or transcribed in whole or in part" Plaintiffs' drawings for the Solo Serve store in Walzem Plaza Shopping Center. (Second Amended Complaint, paragraph 19). Additionally, Plaintiffs charge that "after said copying, imitation, or transcription of the aforementioned drawings and specifications, Defendants have knowingly and willfully been continuing to copy, distribute and otherwise use the protected drawings and specifications and have thereby infringed the said copyrights of Plaintiffs Schuchart and Middleman." (Plaintiffs' Second Amended Complaint, paragraph 20). Second, in Count II, Plaintiffs charge unfair competition, alleging that "Defendants, through their agent or employees, in the course of conspiracy with other defendants, willfully and deceptively engaged in unfair competition practices in that the Defendants did not independently create, produce or distribute said architectural and engineering drawings and specifications, but sought to reap where they had not sown by deceptively and fraudulently utilizing the work product of Plaintiffs." (Plaintiffs' Second Amended Complaint, paragraph 26). Third, in Count III Plaintiffs charge that Defendants have been unjustly enriched by their wrongful copying, imitation, transcription and use of Plaintiffs' architectural drawings and specifications and electrical and mechanical drawings and specifications.
The depositions and answers to interrogatories on file establish the following history of the development of the Ingram Square Project. Sometime in 1978, the partnership of Texas Southwest Developers No. 1 approached the architectural firm of Lance, Larcade & Bechtol to provide architectural services on the development of the Ingram Square Shopping Center. Texas Southwest Developers No. 1 reached an oral agreement with Mike Lance of the Lance, Larcade & Bechtol architectural firm to provide basic architectural services at a cost of fifty-five cents ($.55) per square foot of gross, leasable area in the project. Lance hired the engineering firm of Travis-Braun to perform the engineering services on the project.
By late 1978, Ingram Square Ltd. had obtained executed leases for space in the project from two major tenants, Firestone Tire & Rubber Company and General Cinema Corporation. In early 1980, Defendant Ted McWilliams began preliminary discussions with Robert Grimm, president of Solo Serve, about Solo Serve's participation in the Ingram Square Project. Solo Serve expressed an interest in acquiring lease space in the shopping center for a department store of approximately thirty-six thousand (36,000) square feet. Several meetings were held in late February and early March of 1980 at which Ted McWilliams, Robert Grimm and Mike Lance were present. At the initial meeting, the participants discussed the feasibility of Solo Serve's inclusion in the project, since the project was already well under way. Following one of those meetings, in early March 1980, Robert Grimm delivered to architect Lance certain of the drawings prepared by Plaintiffs for Solo Serve's Walzem store. Grimm expressed to Lance Solo Serve's requirement that the layout, quality and construction of the Ingram Square store be substantially similar to the layout, quality, and construction of the Walzem Plaza store. The Walzem Plaza store drawings were to serve as a guideset in the preparation of drawings for the Ingram Square store. The deposition testimony of Mike Lance, Ted McWilliams, Bernard Lifschutz, and Robert Grimm establishes that neither McWilliams or Lifschutz were present when Grimm delivered the Walzem store plans to architect Lance. Moreover, there is no indication that Defendants Ingram Square Ltd., Texas Southwest Developers No. 1, McWilliams or Lifschutz participated in any discussions about *935 the details or preparation of the drawings or specifications for the Solo Serve store in the Ingram Square project.
Shortly after the series of initial meetings between Lance, Grimm and McWilliams, Lance prepared a preliminary sketch of the Ingram Square Solo Serve store. Solo Serve rejected the preliminary sketch as not sufficiently similar to the Walzem Store and Solo Serve's other existing stores.
Using the Schuchart and Middleman drawings provided by Grimm, which Grimm identified as drawings of Solo Serve's "standard store," and also relying on visits to the other existing Solo Serve stores, Lance prepared architectural drawings for the Ingram Square Solo Serve store that more closely approximated the design of the Walzem store. Sometime during the spring of 1980, before June 3, Lance furnished to the engineering firm of Travis-Braun & Associates, the engineering drawings and specifications drafted by Schuchart & Associates for the Walzem store. Travis-Braun was to prepare the electrical/mechanical drawings and specifications for the Ingram Square Store.
On April 15, 1980, Solo Serve Corporation executed a lease agreement with Texas Southwest Developers No. 1 for lease space in the Ingram Square Solo Serve Store. Sometime during the summer of 1980, before architect Lance formally issued the drawings for the Solo Serve store in Ingram Square on August 19, 1980, Solo Serve retained Middleman & Associates to review the plans and specifications for the Ingram Square store to assure that Solo Serve received the same quality and construction on both projects. Middleman & Associates served as a consultant to Solo Serve with respect to the drawings and specifications for the Ingram Square store. On or about August 1, 1980, an employee of Middleman & Associates showed the Ingram Square plans to Schuchart & Associates, at which time all Plaintiffs became aware that Plaintiffs' plans had been used.
Architect Lance conceded in his deposition that he had used Plaintiffs' drawings as a guide and that he photocopied approximately twenty (20) pages from Plaintiffs' plans in preparing the drawings for the Ingram Square Solo Serve store. At the time Lance so utilized the drawings, only one set of the documents that are the subject of this suit carried a notice of copyright. Of the four sets of documents, Schuchart's electrical/mechanical drawings, Schuchart's electrical/mechanical specifications, Middleman's architectural drawings, and Middleman's architectural specifications, only Schuchart's electrical/mechanical drawings carried a notice of copyright. On September 2, 1980, after Lance issued the drawings and specifications for the Ingram Square Solo Serve store, Plaintiff Schuchart & Associates obtained registration of copyright on the electrical/mechanical drawings and specifications. On January 8, 1982, two days after Plaintiffs filed their Original Complaint in this cause, Middleman obtained copyright registration on the architectural drawings and specifications.
MOTION OF DEFENDANTS INGRAM SQUARE LTD., BERNARD LIFSCHUTZ AND TED McWILLIAMS, INDIVIDUALLY AND d/b/a TEXAS SOUTHWEST DEVELOPERS NO. 1 TO DISMISS OR FOR SUMMARY JUDGMENT
Defendants Ingram Square Ltd., Bernard Lifschutz and Ted McWilliams, Individually and d/b/a Texas Southwest Developers No. 1 (the Ingram Square Group) move to dismiss Plaintiffs' action against them pursuant to Rule 12(b)(6), Federal Rules of Civil Procedure, for failure to state a claim against Defendant upon which relief can be granted, or in the alternative, move for the entry of Summary Judgment, pursuant to Rule 56, Federal Rules of Civil Procedure, because there exists no genuine issue of material fact with respect to Plaintiffs' claims against Defendants. Because the parties have submitted and the Court has considered matters outside the pleadings, the Court shall treat Defendants' Motion as one for summary judgment pursuant to Rule 56, as required by Rule 12(b).
Technically, Defendants' Motion is before the Court for review of Defendants' objections to the Magistrate's denial of this Motion. *936 The Court must make a de novo review of only those portions of the Magistrate's report to which Defendants object. 28 U.S.C. § 636(b)(1). However, as a practical matter, the Court must make a de novo review of Defendant's Motion in its entirety since the Magistrate summarily denied Defendants' Motion without discussion by Order of February 22, 1982. Because the Magistrate stated no reasons for his recommendation of denial, Defendants resubmitted as objections their Memorandum in Support of their Original Motion, thereby raising for the Court's consideration all of the grounds raised in their original motion.
The Ingram Square Group Defendants raise four grounds in support of their Motion for Summary Judgment. First, Defendants assert that the pleadings, depositions and answers to interrogatories on file, together with the various affidavits submitted by the parties on this Motion, show that there is no genuine issue as to any material fact, and that Defendants are entitled to judgment as a matter of law. In connection with this ground, Defendants assert that Plaintiffs have not properly pleaded a cause of action for civil conspiracy, and so cannot rely upon factual disputes relevant to a conspiracy claim in order to defeat Defendants' Motion for Summary Judgment. Also, Defendants argue that on the facts before the Court, Plaintiffs knew of the alleged infringement as early as August 1, 1980, prior to the issuance of drawings and specifications for the Ingram Square Solo Serve store, but took no action at that time to enforce their rights to copyright in the drawings and specifications. Accordingly, Defendants suggest that Plaintiffs are estopped as a matter of law from bringing this infringement action. As the second ground for Summary Judgment Defendants argue that 17 U.S.C. §§ 405(b) and 412 bar Plaintiffs' recovery of actual or statutory damages or of attorneys fees. Defendants urge that § 405(b) bars recovery because the architectural and electrical/mechanical drawings and specifications did not bear copyright notices. And even if Defendants committed any infringement of copyright, Defendants argue that no award of statutory damages or of attorney fees can be made under § 412, because any infringement was of copyright in an unpublished work commenced before the effective date of its registration. Third, Defendants argue that Plaintiffs' cause of action for unfair competition is simply a common-law cause of action for misappropriation, which action has been preempted by the Copyright Act of 1976, 17 U.S.C. § 301. Finally, Defendants argue that Plaintiffs' cause of action for unjust enrichment is preempted by Section 301 and is not directed against the Defendants comprising the Ingram Square Group.
Defendants assert in their first ground in support of motion for summary judgment, that there exists no genuine issue of material fact with respect to Plaintiffs' allegation that the Ingram Square Group infringed any copyright Plaintiffs may have had in their drawings and specifications. Despite evidence that someone copied Plaintiffs' drawings or plans, there is no evidence in the record indicating that the Ingram Square Group Defendants committed any act of infringement.
Plaintiffs respond that there exist at least three genuine issues of fact material to Plaintiffs' conspiracy and infringement claims making summary judgment inappropriate. Plaintiffs first argue that the record in this case establishes a genuine issue of fact as to whether the Ingram Square Group Defendants conspired to infringe copyrights, unfairly compete, and to gain unjust enrichment to the detriment of Plaintiffs. Pointing out that proof of conspiracy must often be made by circumstantial evidence, Plaintiffs argue that a conspiracy can be inferred from Solo Serve's late entry into the Ingram Square project, the meetings between McWilliams, Grimm, and Lance at which drawings were exchanged, the conditioning of Solo Serve's participation upon the approval of plans on or before July 1, 1980, and the overall swiftness with which Solo Serve was integrated into a project that was already substantially in progress.
Second, Plaintiffs assert that there exists a genuine issue of material fact as to whether the Ingram Square Group had knowledge that Plaintiffs' plans and specifications *937 were being utilized. Plaintiffs point to the deposition testimony of engineer Lon Travis that at a meeting in June of 1980, he commented to architect Lance that it was unusual to see a copyright notice marking on a set of plans.[3] Third, Plaintiffs argue that there exist genuine issues of fact as to whether the Ingram Square Group Defendants copied or caused to be copied Plaintiffs' works. Plaintiffs assert that this fact issue arises from the similarity between the Walzem store drawings and specifications, and the Ingram Square store drawings and specifications and Defendants' access to both drawings.
As an initial matter, Defendants argue that the existence of any genuine issue of fact as to whether Defendants conspired to infringe copyrights is not an issue of material fact because Plaintiffs have not properly pleaded a cause of action for civil conspiracy. A cause of action for civil conspiracy to infringe copyright is not created by the Copyright Act, but rather is a state-created cause of action. See Griese-Taylor Corp. v. First National Bank of Birmingham, 572 F.2d 1039 (5th Cir. 1978). Under Texas law, an actionable civil conspiracy "is defined as `a combination by two or more persons to accomplish an unlawful purpose or to accomplish a lawful purpose by unlawful means,' and it is said that `the gist of a civil conspiracy is the damage resulting from commission of a wrong which injures another and not the conspiracy itself.'" Whedon v. Cravens, 460 S.W.2d 278, 279 (Tex.Civ.App.Dallas 1970, writ ref'd n. r. e.) (quoting Schlumberger Well Surveying Corp. v. Nortex Oil & Gas Corp., 435 S.W.2d 854, 856 (Tex.1968)); International Bankers Life Insurance Company v. Holloway, 368 S.W.2d 567, 581 (Tex.1963). Proof of civil conspiracy under Texas law may be made by circumstantial evidence, but facts establishing a conspiracy may not be proved by unreasonable inferences from other facts and circumstances. Schlumberger Well Surveying Corp. v. Nortex Oil & Gas Corp., 435 S.W.2d at 858.
Rule 8(a), Federal Rules of Civil Procedure, provides that a pleading setting forth a claim for relief shall contain "(1) a short and plain statement of the grounds upon which the Court's jurisdiction depends ... (2) a short and plain statement of the claim showing that the pleader is entitled to relief, and (3) a demand for judgment for the relief to which he deems himself entitled." The purpose of the rule is to "give the opposing party fair notice of the nature and basis or grounds of the claim and a general indication of the type of litigation involved; the discovery process bears the burden of filling in the details." 5 Wright & Miller, Federal Practice and Procedure, § 1215, at pp. 109-112. The rule requires no more than that pleadings be simple, concise, and direct. Rule 8(e)(1).
It appears to the Court that Plaintiffs' complaint for conspiracy is defective for several reasons. First, if Plaintiffs have intended to allege a state-created cause of action for civil conspiracy, they have done so by lumping that claim together with their federal claim for infringement of copyright into Count I of their Second Amended Complaint. In a single sentence in Count I, Plaintiffs charge that "Defendants have conspired to and have infringed said copyright...." Although Rule 8 requires no technical forms of pleading, different causes of action should be set forth in separate counts so as to adequately notify the opposing party of the nature of the lawsuit. See Merrin Jewelry Co. v. St. Paul Fire and Marine Insurance Co., 301 F. Supp. 479, 481-82 (S.D.N.Y.1969); Moffett v. Commerce Trust Co., 75 F. Supp. 303, 305 (W.D.Mo.1947). See also Rule 10(b), Fed.R. Civ.P. The gravamen of Plaintiffs' action is infringement of copyright. Indeed, Plaintiffs have characterized their claim as an action for infringement of copyright, not as an action for conspiracy, entitling Count I "Copyright Infringement."[4] Plaintiffs have carefully separated their different causes of action against multiple defendants *938 in this case into separate counts, putting Defendants on notice of claims for copyright infringement, unfair competition and unjust enrichment.[5] There is nothing inherent in these causes of action that would place Defendants on notice that Plaintiffs also intended to proceed against them under a civil conspiracy theory. The Court cannot conclude from the structure of Plaintiffs' Second Amended Complaint that Defendants were adequately placed on notice of Plaintiffs' conspiracy claims.
Second, Rule 8(f) requires that all pleadings shall be so construed as to do substantial justice. As Defendants point out in their reply to Plaintiffs' Opposition to Summary Judgment, Plaintiffs indicated for the first time in their response to motion for summary judgment, after the close of discovery, that they seek to hold the Ingram Square Group Defendants liable for a civil conspiracy. To the extent that Plaintiffs' defective pleadings might have been cured during the course of discovery, Plaintiffs' minimal responses to Defendants' Interrogatories seeking clarification of the specific acts committed by each Defendant failed to effect such cure.[6] Nor did the subsequent deposition discovery reveal to Defendants Plaintiffs' conspiracy theory. In the interest of substantial justice, Plaintiffs' inadequate pleadings combined with the failure of discovery to disclose the conspiracy claim prevent this Court from concluding that Defendants were adequately placed on notice of Plaintiffs' conspiracy theory.[7]
Notwithstanding the Court's conclusion that Plaintiffs have not adequately alleged a cause of action for civil conspiracy under the law of the State of Texas, the Court finds on the record presented by the parties on Summary Judgment no genuine issue of fact material to Plaintiffs' conspiracy claim. Plaintiffs seek to establish the existence of an issue of fact relevant to their theory of conspiracy to infringe copyright from the following: architect Lance, Grimm of Solo Serve and McWilliams met in February or March of 1980 to discuss the feasibility of including Solo Serve in the Ingram Square project. Shortly after that meeting Grimm delivered to Lance drawings and specifications prepared by Plaintiffs for the Walzem store; Defendants signed a lease with Solo Serve on April 15, 1980, conditioning their agreement upon the final approval of plans before July 1, 1980; at a meeting in June of 1980, engineer Travis remarked to architect Lance that it was unusual to see a notice of copyright on *939 building plans; the total architectural and engineering package was completed by August of 1980, no more than seven months after Solo Serve first began discussions with Defendants. Plaintiffs argue that the above facts create an inference that Defendants Ingram Square Ltd., Texas Southwest Developers No. 1, Bernard Lifschutz and Ted McWilliams conspired with Solo Serve, the architectural firm, and the engineering firm to infringe Plaintiffs' drawing and specifications by copying them.
Rule 56(c) requires the Court to render judgment forthwith "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." In considering a motion for summary judgment, the Court must resolve all doubt as to the existence of a genuine issue of material fact against the moving party. The Court may not assess the probative value of any of the evidence. Gross v. Southern Railway Co., 414 F.2d 292, 297 (5th Cir. 1969). However, the party opposing summary judgment may not rest upon the mere allegations or denials of his pleading, but must set forth specific facts, by affidavits or otherwise, showing that there is no genuine issue for trial. Rule 56(e). Moreover, "[a] pretended issue, one that no substantial evidence can be offered to maintain, is not genuine." Southern Distributing Company, Inc. v. Southdown, Inc., 574 F.2d 824, 826 (5th Cir. 1978) (quoting Firemen's Mutual Insurance Co. v. Aponaug Manufacturing Company, 149 F.2d 359, 362 (5th Cir. 1945)).
Relying on Alabama Farm Bureau Mutual Casualty Co. Inc. v. American Fidelity Life Insurance Co., 606 F.2d 602 (5th Cir. 1979), Plaintiffs argue that summary judgment is improper in this case because even if the basic facts are undisputed, the parties disagree about the permissible inferences that can be drawn from the basic facts. However, the inference for which Plaintiffs argue cannot permissibly be drawn from the facts they state in support of that inference.
The facts cited by Plaintiffs do not permit an inference that the Ingram Square Group Defendants reached an agreement or understanding with the other Defendants to intentionally commit the act of infringing Plaintiffs' copyrights. Indeed the deposition testimony cited by both parties uniformly reveals that Defendants Lifschutz and McWilliams were not present when Grimm delivered drawings to Lance, did not participate in discussions between Solo Serve, the architects and engineers, and did not participate in decisions relative to the development of drawings or specifications. Although there is evidence in the record that certain parties did in fact copy portions of Plaintiffs' drawings and specifications, there is no substantial evidence in the record sufficient to raise a genuine issue of material fact with respect to Plaintiffs' allegation of conspiracy against the Ingram Square Group. Thus, Defendants are entitled to judgment as a matter of law on Plaintiffs' allegation of conspiracy.
The second disputed fact issue asserted by Plaintiffs in opposition to summary judgment concerns Defendants' knowledge that Solo Serve, Lance and Travis-Braun copied Plaintiffs' drawings and specifications for use in the Ingram Square store. In support of the existence of this issue, Plaintiffs point to the deposition testimony of engineer Travis that at a meeting in June 1980, attended by McWilliams and Lifschutz, Travis remarked to the architect Lance that it was unusual to see a notice of copyright on a set of plans. However, Travis further testified that he never made further inquiry about the plans and never asked who owned them.[8] The testimony *940 cited by Plaintiffs, while it may raise a question of fact about Travis' knowledge that he was using copyrighted plans, does not create an issue of fact with respect to Lifschutz' and McWilliams' knowledge that the Plaintiffs' plans were being utilized. Although the issue of the knowledge by Defendants Ingram Square, Lifschutz and McWilliams that Plaintiffs' drawings and specifications were being used in the Ingram Square project might be material to the issues of conspiracy and actual or contributory infringement, the deposition testimony cited by Plaintiffs does not raise a genuine issue of fact with respect to their knowledge.
The third genuine issue of material fact posited by Plaintiffs in opposition to summary judgment is whether Defendants copied or caused to be copied Plaintiffs' drawings and specifications. Section 106 of the Copyright Act of 1976, 17 U.S.C. § 106, accords to the owner of a copyright the exclusive right to reproduce the copyrighted work in copies, to prepare derivative works based on the copyrighted work, and to distribute copies of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease or lending. Section 501(a) provides that anyone who violates any of the exclusive rights of the copyright owner, as provided in Section 106, is an infringer of the copyright.
In order to establish copyright infringement, a Plaintiff must prove (1) his ownership of a copyright and (2) that the Defendant "copied" Plaintiffs' work. Ferguson v. National Broadcasting Company, Inc., 584 F.2d 111, 113 (5th Cir. 1978) (citing 3 M. Nimmer, Copyright §§ 13.01 and 13.02(A) (1978)). Additionally, a Defendant may be held liable as a contributory infringer if he acts with knowledge of copyright infringing activity to induce, cause, or materially contribute to the infringing conduct of another. Gershwin Publishing Corp. v. Columbia Artists Management, Inc., 443 F.2d 1159, 1162 (2nd Cir. 1971). See Universal City Studios, Inc. v. Sony Corporation of America, 659 F.2d 963, 975 (9th Cir. 1981).
Because there is ordinarily little or no direct evidence of copying, a plaintiff may prove this element by showing that the defendant had access to the copyrighted work and that the defendant's work is substantially similar to the plaintiff's work. Ferguson v. National Broadcasting Company, Inc., 584 F.2d at 113 (citing 3 M. Nimmer, Copyright § 13.01[B] (1978)). Plaintiffs argue that the record in the case at bar shows that Defendants McWilliams and Lifschutz had access to Plaintiffs' plans and specifications, that the plans and specifications created by Lance, Larcade and Bechtol and Travis-Braun are substantially *941 similar to the plans and specifications of Plaintiffs, and that therefore there exists a genuine issue of fact with respect to infringing activity by Defendants, Lifschutz, McWilliams, Ingram Square Ltd. and Texas Southwest Developers No. 1.
The Court finds missing a significant step in the logical progression of Plaintiffs' argument. Although copying may be established by proof of similarity and access by a defendant, this presumption applies only to works created by the defendant. There is no suggestion anywhere in the record in this case that Defendants McWilliams, Lifschutz, Ingram Square Ltd. or Texas Southwest Developers No. 1 created any plans or specifications for the Solo Serve store in Ingram Square Shopping Center. While this presumption may apply at trial to Defendants Lance, Larcade & Bechtol and Travis-Braun & Associates, it cannot be used to establish liability for infringement by the Ingram Square Group Defendants. Additionally, even if the Ingram Square Group Defendants can be charged with using plans that infringed the copyrights of Plaintiffs, the use of such plans cannot form the basis of infringement liability. Copyrighted architectural plans do not clothe their author with the exclusive right to construct the structure depicted in the drawings. Imperial Homes Corp. v. Lamont, 458 F.2d 895, 899 (5th Cir. 1972); DeSilva Construction Corp. v. Herrald, 213 F. Supp. 184, 196 (M.D.Fla.1962). Accordingly, the Court finds no genuine issues of material fact in dispute relevant to Plaintiffs' claims of conspiracy to infringe or infringement of copyright.
Defendants additionally argue that because as early as August 1, 1980, Plaintiffs were aware that Solo Serve, Lance, Larcade, and Bechtol, and Travis-Braun were utilizing Plaintiffs' drawings to prepare drawings and specifications for the Ingram Square store, Plaintiffs are now estopped from bringing this action for infringement because they did not immediately act upon their knowledge. Although Defendants have properly pleaded the affirmative defenses of latches and estoppel in accordance with Rule 8(c), Federal Rules of Civil Procedure, the estoppel defense provides no support to Defendants in their motion for summary judgment.
Defendants suggest that the infringement may have been avoided had Plaintiffs promptly acted on August 1, 1980, to enforce their copyright rights. Instead, Plaintiffs waited approximately five (5) months before bringing this lawsuit. In order to establish the estoppel defense to an action for infringement of copyright, Defendants must establish that Plaintiffs had knowledge of Defendants' infringing conduct and acted in a manner on which Defendants could reasonably rely in the course of their conduct. Also, Defendants must be ignorant of the true facts and must rely on Plaintiffs' conduct to their detriment. Hampton v. Paramount Pictures Corp., 279 F.2d 100, 104 (9th Cir.) cert. denied, 364 U.S. 882, 81 S. Ct. 170, 5 L. Ed. 2d 103 (1960); Lottie Joplin Thomas Trust v. Crown Publishers, 456 F. Supp. 531, 535 (S.D.N.Y.1977), aff'd, 592 F.2d 651 (2nd Cir. 1978). As Plaintiffs point out, the estoppel defense is not available to Defendants under the circumstances of this case because any infringement had already occurred by the time Plaintiffs became aware of such infringement; prior to that time there had been no conduct by Plaintiffs upon which Defendants could rely.
Turning to Defendants' second ground in support of motion for summary judgment, Defendants argue that they cannot be held liable for actual or statutory damages or for attorney's fees under Sections 405(b) and 412(1). Because Defendants' second ground in support of summary judgment would not dispose of all relief requested by Plaintiffs, it is in the nature of a request for partial summary judgment. Because the Court has concluded that Defendants are entitled to summary judgment with respect to Plaintiffs' claims for conspiracy and infringement, the Court need not address at length Defendants' claims under Sections 405 and 412.
In their third ground in support of motion for summary judgment, the Ingram Square Group Defendants assert that the cause of action alleged in Count II of the *942 Second Amended Complaint for unfair competition has been preempted by the Copyright Act of 1976. Defendants alternatively assert that the cause of action is not directed at any conduct committed by the Ingram Square Group Defendants and that the conspiracy theory cannot be used to extend liability to the Ingram Square Group Defendants on the basis of conduct committed by other defendants.
Count II of Plaintiffs' Second Amended Complaint, entitled "Unfair Competition," charges that certain defendants conspired with and solicited from certain other defendants contracts for the creation, production, and distribution of architectural and engineering plans and specifications for the Ingram Square Solo Serve retail store. Plaintiffs further charge that "Defendants, through their agents or employees in the course of conspiracy with other Defendants, willfully and deceptively engaged in unfair competition practices in that the Defendants did not independently create, produce or distribute said architectural and engineering drawings and specifications, but sought to reap where they had not sown by deceptively and fraudulently utilizing the work product of Plaintiffs." (Second Amended Complaint, paragraph 26). Defendants argue that the cause of action set forth in Count II of Plaintiffs' Second Amended Complaint charges the common law action of "misappropriation," first recognized in federal common-law in International News Service v. Associated Press, 248 U.S. 215, 39 S. Ct. 68, 63 L. Ed. 211 (1918). In INS v. AP, the Supreme Court found that a gatherer of news possessed a protectable property interest in fresh news items and could prevent a competitor from taking the gatherer's news items and redistributing them after rewriting. The Court found that although the copyright laws did not afford protection to the content of news items, the federal common-law did afford such protection for as long as the information remained newsworthy.[9]
Section 301 of the Copyright Act of 1976 provides that federal copyright law exclusively governs works of authorship that are within the subject matter of copyright and all legal or equitable rights that are equivalent to the exclusive rights within the scope of the federal copyright law. By the express terms of Section 301(a), the Copyright Act of 1976 preempts the common-law or statutes of any state.[10]
As one court has observed, the law of preemption prior to the enactment of the Copyright Act of 1976 "was in a state of disarray." Orth-O-Vision, Inc. v. Home Box Office, 474 F. Supp. 672, 683 n. 11 (S.D. N.Y.1979). The enactment of Section 301 has to a certain extent simplified the preemption analysis under copyright law. Section 301 establishes a two-pronged analysis for preemption under the 1976 Copyright Act: (1) whether the nature of the work at issue is within the subject matter of copyright as defined in Sections 102 and 103, and (2) whether the rights granted under state law are equivalent to any of the exclusive rights within the general scope of *943 copyright as specified by Section 106. 17 U.S.C. § 301(b)(1) & (3). See Harper & Row Publishers, Inc. v. Nation Enterprises, 501 F. Supp. 848, 850 (S.D.N.Y.1980); Mitchell v. Penton/Industrial Publishing Co., Inc., 486 F. Supp. 22 (N.D.Ohio 1979); Orth-O-Vision, Inc. v. Home Box Office, 474 F. Supp. 672, 682-84 (S.D.N.Y.1979). The legislative history of the Copyright Act of 1976, H.R. Rep. No. 94-1476, 94th Cong., 2d Sess., reprinted in [1976] U.S.Code Cong. & Admin. News 5659, indicates an express Congressional intent to "preempt and abolish any rights under the common-law or statutes of a State that are equivalent to copyright and that extend to works coming within the scope of the Federal copyright law." However, consistent with the decisions in Sears Roebuck and Co. v. Stiffel Co., 376 U.S. 225, 84 S. Ct. 784, 11 L. Ed. 2d 661 (1964) and Compco Corp. v. Day-Brite Lighting, Inc., 376 U.S. 234, 84 S. Ct. 779, 11 L. Ed. 2d 669 (1964), "preemption does not extend to causes of action or subject matter outside the scope of the revised Copyright Statute." The Committee report further states that Section 301 is not intended to preempt all causes of action for "unfair competition," including the action for misappropriation. "`Misappropriation' is not necessarily synonymous with copyright infringement, and thus a cause of action labeled as misappropriation is not preempted if it is [in] fact based neither on a right within the general scope of copyright as specified by Section 106 ... nor on a right equivalent thereto. For example, state law should have the flexibility to afford a remedy (under traditional principles of equity) against a consistent pattern of unauthorized appropriation by a competitor of the facts, (i.e., not the literary expression) constituting "hot" news, whether in the traditional mode of International News Service v. Associated Press, 248 U.S. 215, 39 S. Ct. 68, 63 L. Ed. 211 (1918) or in the newer form of data updates from scientific, business or financial data bases." [1976] U.S.Code Cong. & Admin. News at p. 5748.
The first prong of the analysis under Section 301, the subject matter of copyright, is clearly satisfied in this case. Section 102 extends copyright protection to "original works of authorship fixed in any tangible medium of expression," including literary works, and pictorial, graphic, and sculptural works. 17 U.S.C. § 102(a)(1) & (5). Architectural and engineering drawings fall within the subject matter of copyright. See Imperial Homes Corp. v. Lamont, 458 F.2d 895 (5th Cir. 1972); DeSilva Construction Corp. v. Herrald, 213 F. Supp. 184 (M.D.Florida, 1962).
The second prong of the preemption analysis contained in Section 301 requires the Court to determine whether the rights sought to be enforced under state law are "equivalent to any of the exclusive rights within the general scope of copyright as specified by Section 106." 17 U.S.C. § 301(b)(3). Section 106 provides that an author has exclusive rights to do and to authorize (1) the reproduction of copyrighted work (to make copies), (2) the preparation of derivative works based on his copyrighted work, and (3) the distribution of copies of the copyrighted work to the public by sale or other transfer of ownership.
Under this prong, Section 301 requires preemption when state law rights are not "different in kind" from the rights protected under the Copyright Act.
In assessing whether a cause of action under state law is "equivalent" to a claim of copyright infringement, the Court must compare the rights sought to be protected under the federal and state laws. The fact that the state cause of action is composed of fewer elements of proof than a copyright infringement claim is not in itself dispositive. The state cause of action must protect rights under the facts of a particular case which are qualitatively different from the rights of reproduction, performance, distribution, or display.
Harper & Row Publishers, Inc. v. Nation Enterprises, 501 F. Supp. 848, 852 (S.D.N.Y. 1980). Accord Orth-O-Vision v. Home Box Office, 474 F. Supp. 672, 682 (S.D.N.Y.1979).
The general elements of the unfair competition cause of action for misappropriation are: (1) the Plaintiff created his product through extensive time, labor, skill, or *944 money; (2) the Defendant used Plaintiff's product in competition with Plaintiff, gaining a special advantage (a free ride) because the Defendant bore little or no burden of the expense of development; and (3) that Defendant's use of Plaintiff's product caused commercial damage to Plaintiff. Synercom Technology, Inc. v. University Computing Co., 474 F. Supp. 37, 29 (N.D. Tex.1979). See International News Service v. Associated Press, 248 U.S. 215, 39 S. Ct. 68, 63 L. Ed. 211 (1918). The Texas Courts have not expressly embraced a cause of action for misappropriation, although at least one court has implicitly recognized an action for misappropriation.[11]
Assuming that the Texas courts recognize a cause of action for misappropriation, the issue before the Court is whether the rights Plaintiffs seek to protect under state law are equivalent to the rights enumerated in Section 106 of the Copyright Act. It appears to the Court from a reading of Count II of Plaintiffs' Second Amended Complaint and from the facts established on motion for summary judgment that Plaintiffs seek to enforce rights that are substantially equivalent to, if not identical to, the exclusive rights of copyright to reproduce and distribute their architectural and mechanical drawings and specifications. In order to establish copyright infringement, Plaintiffs must prove that Defendants copied Plaintiffs' work. Ferguson v. National Broadcasting Co., Inc., 584 F.2d 111, 113 (5th Cir. 1978). In order to establish their action for misappropriation, Plaintiffs must establish the same factsthat is, that Defendants copied Plaintiffs' work. That the cause of action for misappropriation also includes the elements of Defendants' use of Plaintiffs' product in competition with Plaintiffs to the commercial damage of Plaintiffs, does not render "different in kind" the rights under state and federal law. Indeed, Plaintiffs charge that "Defendants did not independently create, produce, or distribute said architectural and engineering drawings and specifications," which is the same conduct forming the basis of Plaintiffs' cause of action for copyright infringement.
Comparing the essence of Plaintiffs' claims for copyright infringement and unfair competition, and comparing the elements of the two causes of action in the context of the specific facts in the case at bar, the Court concludes that Plaintiffs seek to enforce in their unfair competition claim rights that are substantially equivalent to the exclusive rights within the general scope of copyright. That an action for unfair competition might under different facts protect different rights,[12] does not answer the directive of Section 301. Accordingly, the Court finds that summary judgment in behalf of the Ingram Square Group Defendants is appropriate with respect to Plaintiffs' claim of unfair competition for the reason that said claim is preempted by *945 the Copyright Act of 1976. Notwithstanding the conclusion of preemption, however, the Court further believes that Plaintiffs' claim of unfair competition raises no genuine issue of material fact with respect to the Ingram Square Group Defendants. As indicated above, Plaintiffs cannot use the general allegations of conspiracy to extend the liability of other Defendants to the Ingram Square Group Defendants. Additionally, there exists no genuine issue of fact concerning copying or "misappropriation" of Plaintiffs' drawings and specifications by the Ingram Square Group Defendants, requiring entry of summary judgment on behalf of the Ingram Square Group Defendants on Plaintiffs' claim of unfair competition.
As their final ground in support of entry of summary judgment, the Ingram Square Group Defendants assert that Plaintiffs' cause of action alleging unjust enrichment is preempted by the Copyright Act of 1976. Alternatively, Defendants argue that the action for unjust enrichment is directed against other Defendants.
The Court finds that Defendants' preemption argument with respect to the action for unjust enrichment is not well taken. Unlike Plaintiffs' action for misappropriation, the action for unjust enrichment, or quantum meruit, involves rights that do not fall within the scope of copyright. The Texas courts have recognized the right to recover on quantum meruit, basing recovery upon the promise implied by law to pay for beneficial services rendered and knowingly accepted. Davidson v. Clearman, 391 S.W.2d 48, 50 (Tex.1965); Black Lake Pipeline Co. v. Union Construction Co., 538 S.W.2d, 80, 86 (Tex.1976); Patterson v. Hatfield-Holcomb, Inc., 582 S.W.2d 899, 901 (Tex.Civ.App.Waco 1979, no writ). The cause of action for quantum meruit "is founded upon the principle that it is inequitable for one to refuse to pay for benefits received or work performed and accepted with his knowledge and consent by a person who should expect remuneration therefor from him." Simon v. L. D. Brinkman & Co., 449 S.W.2d 90, 92 (Tex.Civ.App.Waco 1969), reversed on other grounds, 459 S.W.2d 190 (Tex.1970).
The essential elements for recovery under quantum meruit are: (1) valuable services were rendered or materials furnished, (2) to the person sought to be charged, (3) which services and materials were accepted by the person sought to be charged, used and enjoyed by him, (4) under such circumstances as reasonably notified the person sought to be charged that the Plaintiff, in performing such services was expecting to be paid by the person sought to be charged. Montes v. Naismith and Trevino Construction Co., 459 S.W.2d 691, 694 (Tex.Civ.App.Corpus Christi 1970, writ ref'd n. r. e.).
The rights Plaintiffs seek to enforce in their action for quantum meruit are not equivalent to the exclusive rights of the Copyright Act. By their action for unjust enrichment, Plaintiffs seek to recover the value of the architectural and mechanical services rendered to Defendants by Defendants' acceptance and use of Plaintiffs' drawings and specifications. The rights Plaintiffs seek to enforce are fundamentally different in kind from the exclusive rights in copyrighted works to reproduce a copyrighted work, to prepare a derivative work or to distribute copies of copyrighted work. Plaintiffs seek not to enforce their rights to copy and distribute their plans and drawings. Nor do Plaintiffs seek to recover damages analogous to the actual damages provided by § 504(b).[13] Rather, Plaintiffs seek to recover under quantum meruit theory the value of the services rendered by Defendants' use of the plans and specifications prepared by Plaintiffs. Thus, both the rights Plaintiffs seek to enforce and the measure of damages under the unjust enrichment theory differ from those under copyright law. Section 301 has not preempted Plaintiffs' cause of action for unjust enrichment.
*946 While Section 301 has partially simplified the preemption analysis under the copyright laws, the section has not entirely superseded the analysis of the prior case law. The preemption analysis established by Section 301 preempts state-created actions that enforce rights that are the equivalent of the exclusive rights of copyright contained in Section 106. The statute, therefore, expressly preempts those state-created actions that are redundant of copyright protections. In a line of cases beginning in 1964 involving patent and copyright statutes, the Supreme Court has recognized an independent basis for preemption, holding that state laws are preempted when their scheme of protection "clashes with the objectives of the federal patent [or copyright] laws." Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 231, 84 S. Ct. 784, 789, 11 L. Ed. 2d 661 (1964).
In Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 84 S. Ct. 784, 11 L. Ed. 2d 661 (1964) and Compco Corp. v. Day-Brite Lighting, Inc., 376 U.S. 234, 84 S. Ct. 779, 11 L. Ed. 2d 669 (1964), the Court first considered the preemptive effect of the patent laws on state laws offering similar protections. Both Sears and Compco involved the copying of lighting fixtures for which design patents had been held invalid. In both cases, the lower courts had applied state laws of unfair competition to accord patent-like protection to articles that did not qualify for protection under the federal patent laws. The Court held in both cases that state law could not be used to extend patent protection where such protection would interfere with the system of laws passed by Congress to balance the promotion of invention and authorship while preserving free competition. The Court stated:
Obviously a State could not, consistently with the Supremacy Clause of the Constitution, extend the life of a patent beyond its expiration date or give a patent on an article which lacked the level of invention required for federal patents. To do either would run counter to the policy of Congress of granting patents only to true inventions, and then for only a limited time. Just as a State cannot encroach upon the federal patent laws directly, it cannot, under some other law, such as that forbidding unfair competition, give protection of a kind that clashes with the objectives of the federal patent laws."
Sears, 84 S.Ct. at 788-89. The Court concluded that because the lighting fixtures at issue were not entitled to patent protection, their design was in the public domain and could be used by anyone choosing to do so. "`Sharing in the goodwill of an article unprotected by patent or trade-mark is the exercise of a right possessed by alland in the free exercise of which the consuming public is deeply interested.'" Sears, 84 S.Ct. at 789 (quoting Kellogg v. National Biscuit Co., 305 U.S. 111, 122, 59 S. Ct. 109, 115, 83 L. Ed. 73 (1938)).
Although the language in Sears and Compco was broad, the Court recognized in Compco that the patent and copyright laws did not prevent a state from imposing liability on persons seeking to wrongfully trade on the goodwill of the original manufacturer or producer. "A state of course has power to impose liability upon those who, knowing that the public is relying upon an original manufacturer's reputation for quality and integrity, deceived the public by palming off their copies as the original." Compco, 84 S.Ct. at 782.
In Goldstein v. California, 412 U.S. 546, 93 S. Ct. 2303, 37 L. Ed. 2d 163 (1973), the Court again considered preemption analysis, this time in the context of the copyright laws. At issue in Goldstein was the power of the state to make unlawful the piracy of musical recordings that were not the subject matter of copyright. The court in Goldstein restated the preemption question as follows: "Our primary function is to determine whether, under the circumstances of this particular case, [the State] law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." 93 S.Ct. at 2312 (quoting Hines v. Davidowitz, 312 U.S. 52, 67, 61 S. Ct. 399, 404, 85 L. Ed. 581 (1941)). Declining to find preemption of the state law prohibiting the piracy of recordings, the Court reasoned in Goldstein that Sears and Compco did not apply. Unlike the law of *947 patent, in which Congress expressly determined which mechanical configurations it wished to protect and which it did not wish to protect, the Court could not conclude that Congress drew a similar balance with respect to all "writings." Because Congress drew no balance indicating that recordings were not entitled to protection, the states could offer protection to such "writings" without contradicting or obstructing the accomplishment and execution of the purposes and objectives of Congress.
The Court extended its preemption analysis in Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 94 S. Ct. 1879, 40 L. Ed. 2d 315 (1974). The Court in Kewanee considered the preemptive effect of the patent laws on the law of the State of Ohio protecting trade secrets, and concluded that federal law did not preempt the state law. Kewanee involved an invention subject to the reach of patent, a seventeen inch crystal useful in the detection of ionizing radiation, but not sufficiently novel to enjoy patent protection. The Court determined that federal law did not preempt state law.
Reiterating the preemption analysis developed in Sears, Compco, and Goldstein, the Court stated, "The only limitation on the States is that in regulating the area of patents and copyright, they do not conflict with the operation of the laws in this area passed by Congress ...." 94 S.Ct. at 1885. To determine whether the scheme of protection developed by the state law of trade secrets "clashe[d] with the objectives of the federal patent laws," the Court examined the objectives of both the patent and trade secret laws to determine the effect of the enforcement of state law on the twin purposes of patent law.[14] The Court examined three categories of trade secrets, distinguished by differing degrees of certainty about their patentability,[15] to determine whether trade secret protection was inconsistent with the purposes of patent law. With respect to the first policy of patent, to encourage invention, the Court had little difficulty. "Certainly the patent policy of encouraging invention is not disturbed by the existence of another form of incentive to invention." 94 S.Ct. at 1887.
With the patent policy of encouraging full disclosure of inventive ideas the Court encountered some difficulty. However, the Court concluded that for all three categories of invention, non-patentable, doubtfully patentable, and clearly patentable, enforcement of state trade secret law would not clash with the purposes of patent law. For non-patentable and doubtfully patentable inventions, trade secret law would not inhibit full disclosure, since disclosure would not be required by the patent laws in any event. Moreover, the state had a legitimate interest in taking action to prevent industrial espionage. For clearly patentable inventions, the Court recognized that a potential existed for a conflict with state law, but concluded such conflict was made unlikely by the broader protection afforded by patent law. Additionally, adoption of a doctrine of partial preemption would create serious problems for state courts in the administration of trade secret law, which result was not justified by the minimal effect of the state law on patent law.
The purposes of copyright protection are not unlike the purposes of patent law. "The objective [of copyright law] is to promote the progress of science and the arts.... To accomplish [this] purpose, Congress may grant to authors the exclusive right to the fruits of their respective works.... In other words, to encourage people to devote themselves to intellectual and artistic creation, Congress may guarantee *948 to authors and inventors a reward in the form of control over the sale or commercial use of copies of their works." Goldstein v. California, 412 U.S. 546, 555, 93 S. Ct. 2303, 2309, 37 L. Ed. 2d 163 (1973). In effecting this purpose, federal copyright law protects an author's expression, but does not protect the ideas underlying that expression. Mazer v. Stein, 347 U.S. 201, 74 S. Ct. 460, 98 L. Ed. 630 (1954); Baker v. Selden, 101 U.S. 99, 25 L. Ed. 841 (1879); Imperial Homes Corp. v. Lamont, 458 F.2d 895 (5th Cir. 1972).
Plaintiffs' action for unjust enrichment in this case will not conflict unacceptably with federal copyright policy. Plaintiffs seek to recover from Defendants the value of the architectural and engineering services Plaintiffs rendered to Defendants by their use of Plaintiffs' plans in developing architectural and electrical/mechanical drawings for the Ingram Square Solo Serve store. To the extent that the state law of unjust enrichment protects and promotes intellectual endeavor, enforcement of the action does not conflict with the congressional purpose of encouraging intellectual and artistic creation. See Kewanee Oil Co. v. Bicron Corp., 94 S.Ct. at 1887.
It could be argued that enforcement of Plaintiffs' action for quantum meruit conflicts with the policy of copyright law to protect only expression and not to protect ideas or concepts. The state may not restrain the use of an idea or concept. Goldstein v. California, 93 S.Ct. at 2317. Copyright protects an architect's drawings, but does not grant him the exclusive right to use the idea or concept contained in the drawings or represented by a structure when completed. Imperial Homes Corp. v. Lamont, 458 F.2d 895 (5th Cir. 1972).
However, the Texas law of quantum meruit would not restrain Defendants from merely using an architectural idea or concept identical to the idea contained in Plaintiffs' drawings. Similarly, in Kewanee the trade secrets law of Ohio would not prevent others from growing a crystal using the Plaintiffs' method, where the others had developed the method independently or had worked backward from the Plaintiffs' crystal to "discover" the method. Rather, Texas law will protect Schuchart & Associates and Middleman & Associates only to the extent that they can establish that the law should imply from the facts developed at trial a promise by Defendants to pay for beneficial services rendered and knowingly accepted as such. Davidson v. Clearman, 391 S.W.2d 48, 50 (Tex.1965). The Texas law of quantum meruit affords Plaintiffs no protection simply because Defendants used Plaintiffs' ideas. Because Plaintiffs may recover under quantum meruit theory only if Defendants used Plaintiffs' plans under such circumstances that the Court may find that Defendants "accepted" the plans and were placed on reasonable notice that Plaintiffs expected payment therefor, Plaintiffs' action does not seek to improperly protect the use of an idea or concept. See Werlin v. Reader's Digest Ass'n, Inc., 528 F. Supp. 451 (S.D.N.Y., 1981). Accordingly, Plaintiffs' action does not unreasonably interfere or conflict with federal copyright policy. Plaintiffs' action for unjust enrichment is not preempted by the Copyright Act of 1976.
Although the Ingram Square Group Defendants are not entitled to summary judgment on Plaintiffs' cause of action for unjust enrichment on the basis of preemption, it appears to the Court that Plaintiffs' third count raises no genuine issue of material fact with respect to these Defendants. In order to establish a right to recover on quantum meruit, Plaintiffs must establish that the Ingram Square Group Defendants received valuable services under such circumstances as would reasonably notify Defendants that Plaintiffs were expecting to be paid. The depositions, answers to interrogatories, and affidavits on file in this cause establish that Plaintiffs' architectural and engineering plans and specifications were never delivered to the Ingram Square Group Defendants. (See pages 934-935, supra). Indeed, the Court has found that there does not even exist a genuine issue of fact as to the Ingram Square Group Defendants' knowledge that architect Lance or engineer Travis were making use of Plaintiffs' drawings and specifications. *949 (See pages 939-940, supra). Even if the Ingram Square Group Defendants indirectly benefitted from the use by other Defendants of Plaintiffs' drawings and specifications, there exists no factual issue concerning the conduct of the Ingram Square Group Defendants that is material to Plaintiffs' action for unjust enrichment. Accordingly, the Court concludes that entry of summary judgment in favor of the Ingram Square Group Defendants on Plaintiffs' action for unjust enrichment is appropriate.[16]
In conclusion, the Court finds that Defendants Ingram Square Limited, Bernard Lifschutz and Ted McWilliams, individually, and d/b/a Texas Southwest Developers No. 1 are entitled as a matter of law to entry of summary judgment against Plaintiffs Schuchart & Associates, Professional Engineers, Inc., and Barry P. Middleman & Associates, Inc. Judgment shall be entered for Defendants accordingly.
MOTION OF DEFENDANTS, INGRAM SQUARE LTD., BERNARD LIFSHUTZ AND TED McWILLIAMS, INDIVIDUALLY AND D/B/A TEXAS SOUTHWEST DEVELOPERS NO. 1, FOR JUDGMENT ON THE PLEADINGS, OR TO DISMISS, OR FOR SUMMARY JUDGMENT UNDER RULES 12 AND 56, FEDERAL RULES OF CIVIL PROCEDURE AGAINST CROSS-CLAIMANTS TRAVIS-BRAUN & ASSOCIATES, INC.
On January 7, 1982, Defendant Travis-Braun & Associates, Inc., the engineering firm hired by Lance, Larcade & Bechtol for the Ingram Square Project, filed a crossclaim against Defendants Solo Serve Corporation, Lance, Larcade & Bechtol, Ingram Square Ltd., Bernard Lifschutz and Ted McWilliams, individually and d/b/a Texas Southwest Developers No. 1. Travis-Braun alleges that it was employed by Lance, Larcade & Bechtol, acting individually and as agent for the owner, Ingram Square Ltd., Bernard Lifschutz and Ted McWilliams, individually and d/b/a Texas Southwest Developers No. 1, to adapt a set of lessee engineering plans and specifications on the Ingram Square Project. In the event Defendant Travis-Braun is held liable to Plaintiffs for copyright infringement, unfair competition, or unjust enrichment, Travis-Braun seeks contribution or indemnity for any liability to Plaintiffs, as well as reasonable and necessary costs and attorneys' fees.
The Ingram Square Group Defendants, Ingram Square Ltd., Bernard Lifschutz and Ted McWilliams, individually and d/b/a Texas Southwest Developers No. 1 move for judgment on the pleadings, or alternatively to dismiss or alternatively for summary judgment against cross-claimants Travis-Braun & Associates, Inc.[17] Because this Court has favorably ruled upon the Ingram Square Group Defendants' Motion for Summary Judgment against Plaintiffs Schuchart & Associates and Middleman & Associates, it appears that the Ingram Square Group Defendants are entitled to judgment as a matter of law on Travis-Braun & Associates' cross-claim for contribution and indemnity.
It is well established by the courts of the State of Texas that neither contribution nor indemnity can be recovered from a party against whom the injured party has no cause of action. Hunter v. Fort Worth Capital Corp., 620 S.W.2d 547, 552-53 (Tex.1981); Safway Scaffold Co. v. Safway Steel Products, Inc., 570 S.W.2d 225, 228-29 (Tex.Civ.App.Houston [1st Dist.] 1978, writ ref'd n. r. e.); Grove Manufacturing Co. v. Cardinal Construction Co., 534 S.W.2d 153, 154 (Tex.Civ.App.Houston [14th Dist.] 1976, writ ref'd n. r. e.), City of Houston v. Watson, 376 S.W.2d 23, 33 *950 (Tex.Civ.App.Houston 1964, writ ref'd n. r. e.). Moreover, this rule applies to cases in which the injured party's cause of action is extinguished by an adverse judgment to the injured party. American Medicorp Inc. v. Lord, 578 S.W.2d 837, 839-40 (Tex.Civ. App.Beaumont 1979, no writ). See Safway Scaffold Co. v. Safway Steel Products, Inc., 570 S.W.2d 225 (Tex.Civ.App.Houston [1st Dist.] 1978, writ ref'd n. r. e.). Because Plaintiffs Schuchart & Associates and Middleman & Associates have no cause of action against the Ingram Square Group Defendants by virtue of the Court's entry of summary judgment on behalf of Defendants, it follows as a matter of law that Travis-Braun & Associates cannot recover either contribution or indemnity from the Ingram Square Group Defendants. Accordingly, the motion of Defendants Ingram Square Ltd., Bernard Lifschutz and Ted McWilliams, individually and d/b/a Texas Southwest Developers No. 1 for summary judgment against cross-claimant Travis-Braun & Associates, Inc., shall be granted and judgment shall be entered accordingly.
MOTION OF DEFENDANT LANCE, LARCADE & BECHTOL FOR PARTIAL SUMMARY JUDGMENT
The final motion pending for consideration is the motion of Defendant Lance, Larcade & Bechtol for Partial Summary Judgment against Plaintiffs, Schuchart & Associates and Middleman & Associates. Defendant Lance, Larcade & Bechtol moves for partial summary judgment with respect to the causes of action for unfair competition and for unjust enrichment on the ground that said causes of action are preempted by Section 301 of the Copyright Act of 1976. The Court has considered at length the issues raised by the motion for partial summary judgment by Lance, Larcade & Bechtol in connection with the motion of the Ingram Square Group Defendants' Motion for Summary Judgment. For the reasons set forth at pages 941-945 of this memorandum opinion and order, the Court finds that the motion of Defendant Lance, Larcade & Bechtol for Partial Summary Judgment is well taken with respect to Plaintiffs' claim of unfair competition. A state-created cause of action for unfair competition under the facts of this case is preempted by Section 301 of the Copyright Act of 1976. However, for the reasons set forth at pages 944-949 of this opinion, the Court believes that the rights protected by a state-created action for unjust enrichment are not the equivalent of the exclusive rights within the scope of protections set forth in the Copyright Act, 17 U.S.C. § 106. Plaintiffs' cause of action for unjust enrichment is not preempted by Section 301 and Defendant Lance, Larcade & Bechtol is not entitled to summary judgment on Count III of Plaintiffs' Second Amended Complaint. Accordingly, the Court shall grant Defendants' Motion for Partial Summary Judgment with respect to the complaint of unfair competition contained in Count II, and shall deny partial summary judgment with respect to the complaint for unjust enrichment contained in Count III of Plaintiffs' Second Amended Complaint. Therefore,
IT IS HEREBY ORDERED that the Motion of Ingram Square Ltd., Bernard Lifschutz and Ted McWilliams, individually and d/b/a Texas Southwest Developers No. 1 for summary judgment against Schuchart & Associates, Professional Engineers, Inc. and Barry P. Middleman & Associates, Inc., is granted in its entirety. Judgment shall be entered in favor of Defendants accordingly.
IT IS FURTHER ORDERED that the Motion of Ingram Square Limited, Bernard Lifschutz and Ted McWilliams, individually and d/b/a Texas Southwest Developers No. 1 for summary judgment against cross-claimant Travis-Braun & Associates, Inc., is granted in its entirety. Judgment in favor of Defendants against cross-claimant shall be entered accordingly.
IT IS FURTHER ORDERED that the Motion of Lance, Larcade & Bechtol for Partial Summary Judgment against Plaintiffs Schuchart & Associates, Professional Engineers, Inc., and Barry P. Middleman & Associates, Inc., is granted in part and denied in part. Summary Judgment shall be entered in favor of Defendant of Lance, Larcade & Bechtol with respect to Plaintiffs' *951 cause of action for unfair competition, contained in Count II of Plaintiffs' Second Amended Complaint. Summary Judgment in behalf of Defendant shall be denied with respect to Plaintiffs' cause of action for unjust enrichment, contained in Count III of Plaintiffs' Second Amended Complaint.
NOTES
[1] There are four different categories of documents at issue in this suit:
(1) Architectural drawings prepared by Middleman & Associates;
(2) Architectural specifications prepared by Middleman & Associates;
(3) Electrical/mechanical drawings prepared by Schuchart & Associates; and
(4) Electrical/mechanical specifications prepared by Schuchart & Associates.
[2] Neither LaConney, Friesenhahn, nor the Carrs are parties to this action.
[3] A notice of copyright appeared only upon electrical/mechanical drawings prepared by Schuchart & Associates. No other drawings or specifications bore copyright notice.
[4] "In determining the nature of the claim plaintiff is asserting, plaintiff's characterization of his action normally will be acceptable to the Court." 5 Wright & Miller, Federal Practice and Procedure § 1324 at p. 469.
[5] Plaintiffs have entitled the three counts in their Second Amended Complaint as "Copyright Infringement," "Unfair Competition," and "Unjust Enrichment."
[6] That Defendants were not fully aware of Plaintiffs' conspiracy claims is evident in the interrogatories propounded by Ingram Square Ltd. and Texas Southwest Developers No. 1. The interrogatories were propounded to Schuchart & Associates and Middleman & Associates before Plaintiffs amended their complaint to allege a cause of action for unjust enrichment. Defendants propounded to both Plaintiffs interrogatories calling for enumeration of the specific acts of each defendant of copyright infringement and of unfair competition. Defendants asked no questions about conspiracy allegations. In response to Defendants' interrogatories, Plaintiff Middleman & Associates responded that it objected to the interrogatory as premature, stating "What specific acts each Defendant committed will be further revealed during Plaintiffs' discovery." Middleman & Associates further stated that Barry P. Middleman had seen documents bearing the architectural seal of Lance, Larcade & Bechtol, which documents were substantial copies of Middleman & Associates' drawings. Middleman & Associates has never supplemented its response to those interrogatories. Plaintiff Schuchart & Associates tendered substantially similar responses to Defendants' interrogatories calling for specific acts.
[7] In further support of this conclusion, there is authority for the proposition that complaints alleging conspiracy must include more detail than is demanded of other pleadings. See 5 Wright & Miller, Federal Practice and Procedure, § 1233 at p. 179. As indicated above, Plaintiffs' allegation of conspiracy is lumped together in the same sentence with the allegation of infringement of copyright as part of Plaintiffs' Count One entitled Copyright Infringement. If Plaintiffs' pleading of conspiracy does not meet ordinary requirements of pleading, then a fortiori it does not satisfy any heightened standard that may be applicable to complaints alleging conspiracy.
[8] Engineer Travis testified as follows:
[Mr. Lee] Now, I notice there's a copyright symbol on [the electrical/mechanical drawings]. Was that copyright symbol on there at the time that you received [the drawings]?
[Mr. Travis] Yes.
Q. Did you ever make any inquiry as to whether or not [the drawings were] copyrighted?
A. Only a comment to the architect that it was unusual to see such a marking on a set of plans.
Q. You made that comment to the architect?
A. That's right.
Q. And who did you make that comment to?
A. That would have been probably to Mr. Mike Lance.
Q. And when would you have made that?
A. The time we received the documents.
Q. And approximately when would that have been?
A. It would have been somewhere approximately June of 1980. I don't have an exact date. I would have to establish that from the files.
Q. Would it have been at the first meeting with Mr. Mike Lance?
A. On this particular phase of the project, yes.
Q. Where would that meeting have physically taken place?
A. Mr. Lance's office.
Q. And who would have been present?
A. Again, I am going from memory. Mr. Lance was there. I believe Mr. Bechtol was there. I believe possibly Mr. McWilliams, Mr. Grimm, Mr. Lifschutz, and I believe at that time I had probably Mr. Goodwin and Mr. Walker with me. Again, I am going from memory. There was one meeting that they all were present at. I believe it was at this particular meeting.
Q. And that would have been the meeting where you were furnished with [Schuchart & Associates' electrical/mechanical drawings]?
A. Yes.
Q. Did you ever make any further inquiry concerning [the drawings]?
A. No.
Q. Did you ever ask who owned them?
A. No.
Q. Did you ever talk to Mr. Schuchart or anyone in his organization?
A. No.
[9] INS v. AP was a creature of the federal common-law adopted prior to the ruling in Erie Railroad Company v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938). While the federal common-law no longer provides the source for the action of misappropriation, state law can provide the basis for such protection.
[10] Section 301 of Title 17 of the United States Code provides in pertinent part:
(a) On or after January 1, 1978, all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by Section 106 in works of authorship that are fixed in a tangible medium of expression and come within the subject matter of copyright as specified by Sections 102 and 103, whether created for or after that date and whether published or unpublished, are governed exclusively by this title. Thereafter, no person is entitled to any such right or equivalent right in any work under the common law or statutes of any State.
(b) Nothing in this title annuls or limits any rights or remedies under the common-law or statutes of any State with respect to
(1) Subject matter that does not come within the subject matter of copyright as specified by Sections 102 and 103, including works of authorship not fixed in any tangible medium of expression; or ...
(3) Activities violating legal or equitable rights that are not equivalent to any of the exclusive rights within the general scope of copyright as specified by Section 106.
[11] In Wissman v. Boucher, 150 Tex. 326, 240 S.W.2d 278 (1951), the Court assumed the existence of an action for misappropriation, but found that the evidence did not show unfair competition. However, in Loeb v. Turner, 257 S.W.2d 800 (Tex.Civ.App.Dallas 1953, no writ history), the Court expressly denied a cause of action by an Arizona broadcaster to enjoin a Texas radio station from broadcasting accounts of automobile races held in Arizona. The Court rejected the proposition of INS v. AP, that a news-gathering agency held a quasi-property right in fresh news items. In at least one other case, Furr's, Inc. v. United Specialty Advertising Co., 338 S.W.2d 762 (Tex.Civ.App. El Paso 1960 writ ref'd n. r. e.), the Court suggested that the misappropriation must be of a trade secret or in violation of a confidence.
[12] Plaintiffs suggest that unfair competition includes a cause of action similar to that provided by Section 43(a) of the Landam Trademark Act, 15 U.S.C. § 1125(a). That action, in turn, is similar to the tort of unfair competition involving palming off. This type of unfair competition imposes liability upon the Defendant passing off his goods as the goods of Plaintiff, creating a likelihood of confusion on the part of consumers about the source or origin of the products. Boston Professional Hockey Association v. Dallas Cap & Emblem Manufacturing Inc., 510 F.2d 1004 (5th Cir. 1975), cert. denied, 423 U.S. 868, 96 S. Ct. 132, 46 L. Ed. 2d 98; Volkswagenwerk Aktiengesellschaft v. Rickard, 492 F.2d 474 (5th Cir. 1974). Although the law of unfair competition obviously extends beyond the action for misappropriation, Section 301 requires the Court to determine preemption on the basis of the state-created rights Plaintiffs seek to enforce in the case at bar, and not hypothetical rights that may truly differ from the exclusive rights of copyright.
[13] Section 504(b) provides in part:
The copyright owner is entitled to recover the actual damages suffered by him or her as a result of the infringement, and any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages.
[14] The Court recognized two purposes underlying the patent laws: (1) to "promote the Progress of Science and useful Arts" by offering a limited period of exclusion as an incentive to inventors, and (2) to insure full and adequate disclosure of the invention so that following the 17 year period of patent protection, the knowledge of the invention enured to the benefit of the public generally. Kewanee, 94 S.Ct. at 1885-86.
[15] The Court considered the following categories of trade secrets:
"`(1) the trade secret believed by its owner to constitute a validly patentable invention; (2) the trade secret known to its owner not to be so patentable; and (3) the trade secret whose valid patentability is considered dubious.'"
94 S.Ct. at 1887 (quoting Painton & Co., v. Bourns, Inc., 442 F.2d 216, 224 (2d Cir. 1971)).
[16] Again, Plaintiffs' invocation of conspiracy theory does not create a genuine factual issue with respect to the Ingram Square Group Defendants. (See pages 937-938, supra).
[17] The Motion of the Ingram Square Group Defendants for judgment against Travis-Braun & Associates and the Motion of Lance, Larcade & Bechtol for Partial Summary Judgment (discussed at pp. 950-951, infra) are before the Court following denial by the Magistrate. The Court has made a de novo review of Defendants' motions. See pages 935-936, supra. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1613963/ | 497 F. Supp. 1262 (1980)
Maurice SHACKET and Sylvia Shacket, Plaintiffs,
v.
ROGER SMITH AIRCRAFT SALES, INC. et al., Defendants.
PHILKO AVIATION, INC., Counter-Plaintiffs,
v.
Maurice SHACKET et al., Counter-Defendants.
SANDWICH STATE BANK, Counter-Plaintiff,
v.
Maurice SHACKET et al., Counter-Defendants.
No. 78 C 4284.
United States District Court, N. D. Illinois, E. D.
September 22, 1980.
*1263 James C. Murray, Jr., Katten, Muchin, Gitles, Zavis, Pearl & Galler, Chicago, Ill., for plaintiffs.
John N. Dore, Leslie R. Bishop, Bishop & Crawford, Oak Brook, Ill., for defendants.
MEMORANDUM OPINION AND ORDER
SHADUR, District Judge.
This action involves a dispute over the ownership of a Piper Navajo airplane sold twice by defendants Roger Smith ("Smith") and Roger Smith Aircraft Sales, Inc. ("Smith Aircraft").[1] Plaintiffs Maurice and Sylvia Shacket ("Shackets"[2]) are in possession of the plane and have asked this Court in Count I for a declaratory judgment that they own the plane free of any claims of defendants. Defendant Philko Aviation Company ("Philko") has counterclaimed asserting its ownership of the plane. Defendant Bank has claimed a lien if the plane is owned by Philko. Shackets have also alleged in Complaint Count II that Philko aided Smiths in seeking to defraud Shackets of their interest in the plane and that all defendants have engaged in fraudulent conversion. Counterclaims have been filed by Philko and Bank.
Shackets and Philko have filed cross-motions for summary judgment on Count I, and Philko and defendant Edward McArdle ("McArdle"), its president and principal shareholder (through a holding company), have moved for summary judgment on Count II. For the reasons stated in this memorandum opinion and order, Shackets' motion for summary judgment as to Count I is granted (and Philko's is denied), and the Philko-McArdle motion for summary judgment as to Count II is also granted.
*1264 Facts
1. The First Sale.
Shacket, a private pilot and owner of aircraft for many years, contracted with Smith Aircraft in 1977 to buy a custom-built Piper Navajo plane for $126,000 plus the trade-in of a plane currently owned by Shacket, the wholesale value of which was $120,000. Shacket paid $20,000 down on the purchase price upon signing the contract with Smith Aircraft. Smith Aircraft in turn contracted to acquire the plane from Clark Aviation, Inc. ("Clark," the Piper franchisee for the area), an arrangement of which Shacket was aware. Before the closing of Shacket's purchase of the plane, Smith located a customer for his resale of the trade-in aircraft, and Shacket turned over possession of the trade-in aircraft for delivery to Smith's customer. After completion of the necessary work on the Piper Navajo to meet Shacket's specifications, the closing was set for April 18, 1978.
As of the closing date Smith Aircraft had not been able to pay Clark for the plane to be sold to Shacket,[3] but that did not prevent the closing from taking place on April 19. Closing involved a meeting at an airport attended by Shacket, Smith and Clark's president and principal shareholder, Kenneth Rittenhouse ("Rittenhouse"). Rittenhouse had previously told Shacket of financial problems Clark had encountered with Smith Aircraft (the delivery of one, or perhaps two, NSF checks). As a special request Rittenhouse had told Shacket that he wanted to be present at the closing and that Shacket should not pay Smith Aircraft for the plane unless Rittenhouse were there.
At the closing Shacket asked Rittenhouse whether it was all right to close the purchase of the plane and Rittenhouse said it was. Shacket then endorsed two cashiers' checks aggregating $106,000 in favor of Smith Aircraft. Rittenhouse and Smith showed Shacket the plane, turned over to Shacket various manuals and the certificate of airworthiness and handed the keys to Shacket. Shacket flew the plane to Detroit and has had possession ever since.
Essentially the problem in this case has been generated by Smith's failure at the closing to give Shacket all the proper bills of sale reflecting the chain of title to the plane. Smith did give Shacket the buyer's copy of the bill of sale from Smith Aircraft to Shacket, together with photocopies of the bills of sale covering prior transfers of the plane, and told Shacket that Smith would "take care of the paperwork." Shacket understood that to include an undertaking by Smith to record the bills of sale as part of the "paperwork."
There is a central registration system for aircraft conveyances under the Federal Aviation Act (the "Act"). Such registration requires the original bill or bills of sale covering the chain of title. After the closing Shacket made several attempts to get the prior bills of sale from Smith but was unsuccessful. Thus Shacket was unable to register his purchase with the Federal Aviation Administration (the "FAA").
2. The Second Sale.
Before the events described in the prior section, McArdle had been pressuring Smith to repay the remaining balance of $60,000 on Philko's $80,000 loan made to Smith Aircraft in December 1977. On April 18, 1978, the same day that Shacket arrived in Aurora for his closing the following day, Smith came to McArdle and represented that he had contracted with Clark to purchase a plane (which was in fact the same plane about to be paid for by and delivered to Shacket) for resale to a third party, Krueger Aviation. Smith claimed to have tried to borrow $152,000 from Bank on the plane but to have been refused because that would have exceeded his line of credit with Bank.
*1265 After McArdle and Bank had examined the original prior bills of sale that Smith exhibited, McArdle agreed that Philko would take title to the plane from Smith Aircraft, enabling it to obtain the same $152,000 loan from Bank to be secured by that title, and then to complete Smith Aircraft's previously committed sale to Krueger Aviation. All the proceeds of the Krueger sale would be credited to Smith Aircraft (with $152,000 of those proceeds being contemporaneously repaid to Bank, $60,000 being applied in payment of the prior Philko loan to Smith Aircraft, and the balance belonging to Smith Aircraft).
On April 22, 1978, just two days after the Shacket transaction, Philko executed its note for $152,000 to Bank, which in turn issued its cashier's check for that amount to Clark. Bank showed the remitter on the cashier's check as "Roger Smith Aircraft Sales, Inc. (Philko Aviation, Inc.)." On April 24, 1978 Smith Aircraft executed a bill of sale to Philko (the same date appears on all of Bank's security documents other than the Philko note to Bank, which was dated April 22).
At that point Bank had all of the original bills of sale establishing the paper chain of title in its possession (a series of bills of sale running from Piper Aviation to North States Aviation [the Piper distributor for the area] to Clark to Smith Aviation to Philko). All those documents were then transmitted by Bank to the Federal Aviation Administration for recording. Bank delayed that transmittal for a period of time. Its reason for delay was that where another sale of an aircraft is expected to be made, the administrative delay in recording earlier bills of sale can cause problems in implementing the subsequent sale. In any case, the present situation is that Shacket has the physical possession of, while Philko has the FAA registered title to, the plane.[4]
3. Prior Relationships Among the Defendants.
McArdle, the owner of a large number of corporations through his holding company McArdle, Ltd., first met Smith in 1976 or 1977 when McArdle was contemplating the purchase of corporate aircraft. In about April 1977 Smith, who wanted to acquire a new base of operations, learned about the availability for sale of the corporation that was lessee of the Aurora Airport from the City of Aurora. Because he didn't have funds to make the deal himself but regarded it as a good buy, Smith approached McArdle as a possible financial backer. Smith proposed that McArdle purchase the operation and lease it to Smith Aircraft on terms that would make it a good investment.
McArdle investigated Smith Aircraft's financial viability (including having an audit performed). He found that Smith Aircraft did a large volume of business but lacked operating capital and needed added credit to carry on its purchases of planes. Having satisfied himself on that score, McArdle caused one of his own corporations to purchase the Airport lessee (which became Philko by corporate merger) and caused Philko contemporaneously to sublease the Airport to Smith Aircraft for a five year term.
Smith Aircraft became more than a sublessee of Philko as a result of the April 1977 transaction, although the document the parties executed was termed a "Lease Agreement." In its sublessee capacity, Smith Aircraft agreed to make all the rental payments to the City of Aurora, and to perform all other obligations imposed on Philko as lessee, under the leases from the City; that much of course represented a conventional lessor-lessee relationship. But the parties also contracted for Smith Aircraft to conduct several related businesses in Philko's name, to be carried out by Smith Aircraft's own personnel:
1. the purchase and sale of aviation fuel and lubrication oils;
2. the operation of the flight school at the airport;
*1266 3. rendering of maintenance services; and
4. sales of new Piper aircraft.
Smith Aircraft was "permitted to do business in its own name as a purchaser and seller of used aircraft." For a period of approximately 1½ years thereafter Philko purchased aircraft for its corporate use from Smith Aircraft (which purchased such aircraft for its own account and resold them to Philko), and Smith Aircraft also carried out the sale of Philko's aircraft inventory in the same manner (it was not paid a commission as though it were a broker). During the same period McArdle also entered into two major financing transactions to assist Smith Aircraft (in addition to the April 1978 transaction discussed above in "The Second Sale"):
1. the guaranty of $100,000 of Smith Aircraft's $500,000 line of credit with Commercial Credit Equipment Corporation entered into at the same time as the April 1977 lease and other arrangements; and
2. the loan of $80,000 in December 1977, secured by the personal guaranties of Smith and his wife and by their pledge of the stock of Smith Aircraft.
Indeed, one portion of the April 1977 "Lease Agreement" was (taken in the light most favorable to Philko) still another financing of that is, an extension of credit to Smith Aircraft's operations. This was the provision under which Smith Aircraft was (1) to "provide its personnel for the operation of [Philko's] sale of aviation fuel and lubrication oils, which operation shall be conducted only in the name of [Philko] as provided below," and (2) to remit to Philko, within ten days after the end of the month of sale of such materials, the cost of all such materials purchased in Philko's name plus the amounts due to the City of Aurora by reason of such sales.
In still another aspect of the Smith-McArdle relationships, McArdle proposed in December 1977 to purchase the stock of Smith Aircraft, and Philko made a payment of $5,000 as an advance toward such possible purchase. That transaction was not consummated and the $5,000 was repaid early in 1978, so that at the time of the April 1978 transactions Smith still owned the stock of Smith Aircraft subject to the pledge to Philko.
As for the Bank-Smiths relationship, Smith Aircraft had established a floor plan arrangement with Bank beginning in 1974. As already stated, Smith's capital investment in Smith Aircraft has always been small, and Smith Aircraft experienced intermittent cash shortages from 1972 through 1978. Smith Aircraft's out-of-trust sale of aircraft financed by Bank has also been referred to earlier. Bank itself was experienced in airplane financing transactions, having handled about 100 since 1974 and having carried on two floor plan arrangements since 1974 involving substantial numbers of aircraft.
We turn then to the parties' respective motions in light of the facts as just summarized.
Shackets' Status as Good Faith Purchasers
Ordinarily the law applicable to the sale of goods is the UCC (the Illinois version, Ill.Rev.Stat. ch. 26, §§ 1-101 ff., is hereinafter cited to the UCC section numbers). Here however the threshold question is whether the registration provisions of the federal Act for aircraft conveyances preempt the UCC for purposes of determining title questions relating to aircraft. From its inception in 1938 the Act was intended to unify title registration for airplanes and eliminate the confusing array of state statutes (a purpose especially appropriate in light of the great mobility of the subject matter). In dealing with priorities between claimants under successive transactions involving the same aircraft, courts have reached differing results as to the precise effect of the Act. Professor Gilmore has said that its provisions "obviously amount to a good deal more than a recording system *1267 . . . but are still a good deal less than a comprehensive coverage of security interests in aircraft...." 1 Gilmore, Security Interests in Personal Property 546-48 (1st ed. 1965).
But as between the parties to a transaction themselves, there appears to be no question that state law governs to determine the validity of the transfer from Smith Aircraft to Shackets.[5] We therefore turn to the UCC.
In that respect the first question is whether the sale to Shackets was valid in view of the fact that Smith Aircraft had never paid for the airplane built by Clark. On the record as presented to the Court, the conveyancing instruments bringing title to the plane up to Clark were in existence and copies were exhibited to Shackets at the closing. In those circumstances the Smith Aircraft-Shackets transaction can be validated under the UCC either on a theory of voidable title or entrustment.
Although the general rule is that a transferor can give no better title than he has himself, UCC § 2-403 provides several exceptions. Under Section 2-403(1)(c) a purchaser acquires voidable title "When goods have been delivered under a transaction of purchase . . . even though . . (c) it was agreed that the transaction was to be a cash sale . . ." As stated in J. Fonseca and A. Squillante, Williston on Sales § 23-13 (4th ed.):
The basic rule of the cash sale is that the transferor purchaser from the true owner has the ability to transfer a good title to a good faith purchaser for value even though that transferor purchaser never in fact paid for the goods.
Alternatively UCC § 2-403(2) states, "Any entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in the ordinary course of business." Williston on Sales § 23-14 summarizes the principles involved:
Entrusting has four essential elements. First, there must be an actual entrustment of the goods by the delivery of possession of those goods to a merchant. Second, the party who receives the entrustment of those goods must be a merchant who deals in goods of that kind. Third, that merchant who deals in goods of that kind must make a sale of those goods. Fourth, the sale which the entrusted merchant makes must be to a buyer in the ordinary course of business.[6]
On the day of the closing, President Rittenhouse of Clark flew the Piper Navajo to the airport where the closing took place. It is undisputed that Shacket asked Rittenhouse at the closing whether it was all right to pay the money to Smith Aircraft and Rittenhouse responded affirmatively. Clearly Clark, through Rittenhouse, either entrusted the goods or gave voidable title to Smith Aircraft (which was equally clearly a merchant dealing in aircraft).
Doctrines of voidable title and entrustment do not protect all purchasers. To secure good title from a party who has only voidable title, one must be a good faith purchaser for value. Similarly, to secure good title from a party who has been entrusted with goods, one must be a buyer in the ordinary course of business. UCC § 1-201(9) defines a buyer in the ordinary course of business as one who buys "in good faith and without knowledge that the sale to him is in violation of the ownership rights or security interest of a third party . . .." Thus to be protected by either *1268 the voidable title or the entrustment doctrine, Shackets were required to have been purchasers in good faith.
Defendants first assert that Smith Aircraft was an agent of Shackets authorized to purchase an airplane from Clark. But an agency relationship is a consensual agreement whereby a principal authorizes an agent to bind him to a contractual relationship; in the context of this action if Smith Aircraft were acting as an agent and not as a principal for its own account, the purchase transaction with Clark, including the price of the aircraft as negotiated by Smith, would have had to be for the direct benefit of Shacket. To support their argument defendants offer only a copy of a December 2, 1977 letter from Smith Aircraft to Shacket enclosing, as "the specifications for your 1978 C/R Navajo," a copy of a two-page Clark-Smith Aircraft document captioned "Agreement To Purchase." However, mere knowledge on the part of Shacket that Smith Aircraft had to purchase the plane to be sold to Shackets does not create an inference of an agency relationship. There was no disclosure to Shacket of Smith Aircraft's purchase price from Clark, and the financial dealings between Shacket and Smith Aircraft were wholly buyer-seller in nature. Defendants have failed to offer any evidence that, even together with reasonable inferences, might raise a material factual question as to the existence of an agency relationship.
Defendants also allege a lack of good faith on the part of Shacket. UCC § 1-201(19) defines good faith as "honesty in fact in the conduct [of] transaction concerned." This language has been universally interpreted as mandating a subjective test based on what the party actually believed. Walter E. Heller & Co. v. Convalescent Home, 49 Ill.App.3d 213, 8 Ill. Dec. 823, 365 N.E.2d 1285 (5th Dist. 1977).[7]
Shackets assert that good faith has been proved by the following facts: Shacket paid $126,000 in cash to Smith and delivered his own former airplane as a trade-in (these factors of course also go to establish Shackets' status as purchasers); and at the closing Shacket specifically asked Rittenhouse whether it was all right to close the purchase and was told that it was (Rittenhouse said nothing about Shacket's not doing so because Smith Aircraft had not paid Clark for the plane). Defendants charge bad faith on the basis of the following facts: Shacket refused to deliver the bill of sale on the trade-in plane (defendants argue that this shows Shacket's doubts about Smith's ability to convey title); Shacket tried several times after the closing to get the bill of sale from Smith; Shacket had long been aware of the registration requirement and its importance; Shacket tried after the closing to get new bills of sale from Rittenhouse; and Shacket was aware before the closing that Smith Aircraft was having trouble paying for the plane.
All of defendants' arguments based on post-closing events (Shacket's efforts to get the bill of sale from Smith or new bills of sale from Rittenhouse, and Shacket's non-delivery of a bill of sale on the trade-in plane) do not raise a genuine issue of material fact as to Shacket's good faith at the closing. Whether or not a purchaser was in good faith at the time of purchase, his inability to get the title documents needed for recording would have elicited exactly the same efforts. And the same is true of the trade-in transaction.[8] As for Shacket's *1269 awareness of Smith Aircraft's financial problems, Shacket had no obligation to monitor Smith Aircraft's financial arrangements with Clark (a matter between those two parties), and Shacket's failure to do so does not bear on the issue of his good faith. Instead, Rittenhouse's response to Shacket at the closing that it was all right to proceedafter Rittenhouse had specifically asked to be presentconclusively rejects any lack of good faith, which the parties agree is the material fact on this issue (citing Tumber v. Automation Design & Mfg. Co., 130 N.J.Super. 5, 324 A.2d 602 (1974)).
Accordingly the Court finds that there is no genuine issue of any material fact regarding Shackets' good faith in purchasing the plane. Shackets are held to have been bona fide purchasers of the plane for value and in the ordinary course of business, and therefore to have secured good title to the plane from Smith Aircraft.
Philko's Status as a "Purchaser"
Shacket's status as a good faith purchaser does not end the matter. Defendants' motion for summary judgment argues that Philko is the sole owner of the plane (subject to the lien in favor of the Bank) even if Shacket acted in good faith. They assert that Shacket's failure to record the transaction with the FAA rendered the sale void as to third parties. Shackets, on the other hand, interpret the Act as also requiring the use of state law in determining the priorities between the two "purchasers" from Smith Aircraft. Because title to goods generally passes on transfer of possession, Shackets argue that they acquired good title to the plane and Smith Aircraft therefore had nothing left to convey to Philko.
In the Court's view, it is not necessary to resolve this dispute over the legal effect of recording or non-recording under the Act as between purchasers from the same party. That issue need not be reached because, based on McArdle's own statements, Philko is not a "purchaser" at all.[9]
Both parties have glossed over (perhaps understandably in the case of defendants' counsel) the full statement of the key fact acknowledged by McArdle, that the entire economic benefit of the Krueger Aviation purchase (not just the $60,000 used to pay off Smith Aircraft's debt to Philko) was going to go to Smith Aircraft not Philko. McArdle clearly stated in his deposition that all the funds from the sale, after paying the $152,000 bank loan entered into to obtain the aircraft from Clark, would inure to Smith Aircraft: $60,000 to pay off the loan from Philko, and the very substantial balance (perhaps $68,000 to $78,000) to Smith Aircraft directly.
In his deposition, McArdle said that Smith had called him to ask for a meeting. At the meeting (emphasis added):
[Smith said] that he had sold an airplane to Krueger Aviation ... for $280 or $290 [thousand dollars] ... [Smith] said that he wantedhe had gone to the bank and requested financing for the balance of the purchase of $152,000. And the bank told him that if they loaned him $150,000 it would be beyond his line of credit, words to that effect .... and he said that if I purchased this airplane, when this buyer, Krueger Aviation, was going to purchasewould purchase the thing *1270 from me, witnessed the fact that I had a contract here signed by Krueger, I would receive my $152,000 or whatever it was plus the $60,000 from the proceeds of the sale. And of course the differenceit would be profit to him and Krueger, I guess.
When in response to the last statement McArdle was asked "Profit to him and Krueger?" he responded:
Well, profit to him [Smith]. And Krueger was a dealer and he was selling it to somebody subsequent to that.... I said that the papers all appear to be in order, etc., that I would sign the note and borrow the money to complete this transaction and take title to the airplane.
McArdle testified that he then called the Bank:
I think that I verified that Roger Smith couldn't borrow the money because it would exceed his credit or something like that.... I think that I called from my office saying to Mr. Andrews [of the Bank] that Roger Smith was bringing out a series of documents and a note signed by me; you follow? For him to check over the documents and so forth to find out if he had all the items that he needed for to make this loan.
Thus it is plain from his own testimony McArdle had no interest in the sale price to be paid by Krueger Aviation, except to make sure it was adequate to pay the bank loan and the $60,000 balance owed to Philko. That is the conclusive hallmark of a credit transaction not a purchase.
Philko was taking title with the anticipated quick re-transfer to Krueger Aviation[10] only because Bank required a credit-worthy borrower as a condition to making its loan. Philko was acting to accommodate Smith Aircraft (though its purpose of course was the legitimate one of obtaining repayment of its existing debt), not to take the risks of profit and loss that are the essence of a true purchase.[11] This situation is no different from the frequent disputes stemming from a lender's taking absolute title to property, which the courts uniformly treat as an equitable mortgage as a matter of law. Philko's acquisition of title to the plane was by way of security. It cannot shift to Shackets the consequences of the noncompletion of the Krueger transaction that Philko had relied on in agreeing to accommodate Smith.
Under UCC § 1-201(9) "buying" specifically does not include a transfer as security. Thus Philko cannot be a buyer in the ordinary course of business or a good faith purchaser under the UCC; it can only be a secured party. This case then presents a conflict between a bona fide purchaser, who failed to record a transaction, and the holder of a subsequently recorded security interest. It appears that only one case under the Act has dealt specifically with this issue, and the case enforced the subsequent lien. Marsden v. Southern Flight Service, Inc., 227 F. Supp. 411 (D.C.N.C.1961). Although there have not been any subsequent cases that have dealt with this precise issue, the weight of subsequent authority (particularly since Section 1406 was added to the Act in 1964) has undermined the reasoning of that opinion.
Nearly all of the courts agree that a bona fide purchaser takes title free of a prior recorded security interest. Bitzer-Croft Motors, Inc. v. Pioneer Bank & Trust Co., 82 Ill.App.3d 1, 37 Ill. Dec. 247, 401 N.E.2d 1340 (5th Dist. 1980); Sanders v. M.D. Aircraft Sales, Inc., 575 F.2d 1086 (3d Cir. 1978); Haynes v. General Electric Corp., 432 F. Supp. 763 (W.D.Va.1977), aff'd per curiam, 582 F.2d 869 (4th Cir. 1978); Northern *1271 Illinois Corp. v. Bishop Distributing Co., 284 F. Supp. 121 (W.D.Mich.1968); Texas National Bank of Houston v. Aufdeheide, 235 F. Supp. 599 (E.D.Ark.1964); contra, Dowell v. Beech Acceptance Corp., 3 Cal. 3d 544, 91 Cal. Rptr. 1, 476 P.2d 401 (1970), cert. denied, 404 U.S. 823, 92 S. Ct. 45, 30 L. Ed. 2d 50 (1971). These courts have reasoned that while the Act pre-empts all state aircraft registration systems, it does not override basic state law principles governing priorities among conflicting interests. If a bona fide purchaser takes title free of a prior recorded security interest, it would follow a fortiori that the holder of a subsequently recorded security interest can not challenge the title of a bona fide purchaser.[12]
Under the circumstances of this case, then, there is also no genuine issue of material fact on the issue of whether Philko was a good faith purchaser or otherwise entitled to priority as against Shackets. It was not, as a matter of law.
Count II of the Complaint
Shacket alleges in Complaint Count II that Smith and McArdle were business partners; that Smith had some interest in Philko; that Philko and McArdle were aware that the Shackets owned the plane when Smith Aircraft executed the bill of sale to Philko; that Philko aided and abetted Smith and Smith Aircraft in attempting to defraud the Shackets; and that Philko and McArdle joined Smith and Smith Aircraft in the illegal and fraudulent conversion of the Shackets' property. Except for the issue of conversion, which is a matter of law and follows from the matters already discussed in this opinion, there is no evidence in support of the allegations in Count II.[13] Certainly there is no showing of fraud or a knowing interference with the Shackets' rights by Philko or McArdle.
Defendants' memorandum in support of the McArdle-Philko cross-motion for summary judgment regarding Count II was not responded to by Shackets. Accordingly the Court finds there is no genuine issue of any material fact regarding the subject matter of Count II.
Conclusion
This Court finds that there is no genuine issue as to any material fact in this action, that plaintiffs are entitled to judgment as a matter of law with respect to Count I and that defendants Philko and McArdle are entitled to judgment as a matter of law with respect to Count II. Counsel are directed to submit a form of final judgment for entry by the Court on or before September 29, 1980.
NOTES
[1] Throughout the transactions involved in the case Smith was the president and principal shareholder of Smith Aircraft, whose business was the buying and selling of aircraft. It was thinly capitalized and heavily financed. It had in late 1977 and early 1978 sold three other aircraft out of trust, a matter discovered by defendant Sandwich State Bank ("Bank") in May 1978 when it made a floor plan check on the five aircraft (including the three that proved to have been improperly sold) it was currently financing for Smith. For convenience, Smith and Smith Aircraft are sometimes collectively referred to in this memorandum opinion as "Smiths."
[2] Maurice Shacket ("Shacket") was involved in all of the negotiations and closed the transaction on behalf of plaintiffs.
[3] There is a dispute as to whether Smith paid any money at all to Clark. Shackets allege that $3,000 was paid, with all subsequent checks being returned for insufficient funds. Defendants claim that all of the checks from Smith to Clark were returned for insufficient funds. That dispute does not raise any issue as to a material fact.
[4] From the facts stated by the parties, it is the Court's understanding that the Krueger Aviation transaction promised by Smith never proceeded, but that fact is not critical to decision of the pending motions.
[5] Section 1403(c) of the Act provides that no conveyance or instrument whose recording is provided for "shall be valid in respect of such aircraft . . . against any person other than the person by whom the conveyance or other instrument is made or given . . ." (emphasis added). It may be noted, though the issue is not the same, that Section 1406 provides that the validity of recordable instruments is to be governed by state law.
[6] In the analogous area of automobile sales, it is well settled that a sale will be upheld even though the certificate of title has not been transferred. See for example Humphrey Cadillac & Oldsmobile Co. v. Sinard, 85 Ill.App.2d 64, 229 N.E.2d 365 (1st Dist. 1967); Wood Chevrolet Co., Inc. v. Bank of the Southeast, 352 So. 2d 1350 (Ala.1977).
[7] Defendants' citation of Hollywood National Bank v. International Business Machines Corp., 38 Cal. App. 3d 607, 113 Cal. Rptr. 494 (2d Dist. 1974), construing the critically different California version of the UCC, is entirely inapropos.
[8] Shacket actually surrendered possession of his trade-in plane for delivery to Smith Aircraft's customer before the closing. It was after the closing, when Shacket could not obtain the documents on the Smith Aircraft plane, that he withheld the bill of sale on the trade-in aircraft. Defendants prove too much when they seek to draw inferences as to Shacket's good faith from the fact that the delivery of an aircraft, or the payment for a purchased aircraft, is not made contemporaneously with delivery of the conveyancing document covering the aircraft. As noted in the factual summary contained in this opinion, Philko itself turned over $152,000 to Smith Aircraft on April 22 but the bill of sale from Smith Aircraft was dated April 24 (as were the Bank's security documents other than the $152,000 note). Do defendants contend that this demonstrates Philko's lack of good faith as a purchaser or that if Smith had unlawfully sold the plane a third time, Philko's inability to obtain the Smith Aircraft bill of sale on April 24 would have shown that it was in bad faith at the time it made payment on April 22?
[9] Shackets make a related contention based on the fact that "buying" under UCC § 1-201(9) "does not include a transfer ... in total or partial satisfaction of a money debt." But the Philko-Smith Aircraft transaction wasn't simply "in total or partial satisfaction of a money debt" the $60,000 owed to Philko. That provision literally applies where no new consideration, no fresh money, is advanced by the buyer. If the Philko-Smith Aircraft transaction were in fact a purchase, the fact that in addition to the satisfaction of debt another $152,000 was paid in cash would give Philko the status of a "buyer."
[10] This anticipation is confirmed by Andrews' statement as to the reason he did not immediately send the chain of title documents to the FAA.
[11] This Court does not accept Shackets' argument that the numerous relationships between McArdle and Philko on the one hand and Smith and Smith Aircraft on the other were such as to negate Philko's good faith purchaser status as a matter of law. But the other transactions in which McArdle and Philko directly provided Smith and Smith Aircraft with, or assisted them in obtaining, credit are clearly relevant to support the uncontradicted evidence from McArdle himself that this transaction was another extension of credit.
[12] On the issue of bona fides, it should be noted that McArdle, though intimately aware of Smith Aircraft's undercapitalization and major financial difficulties (indeed, it was due to the overdue $60,000 loan, on which McArdle had been pressing for payment, that Smith came to McArdle with the proposal regarding the plane), simply accepted without any effort at verification the story that Smith Aircraft had its equity already invested in the plane. It should be remembered that Smith Aircraft lacked possession of the plane at that time as well. Had McArdle made the single inquiry of Rittenhouse as to either the story regarding the equity investment or the plane's whereabouts, the Shackets' rights would have been disclosed immediately (unless Rittenhouse were to choose to conspire in Smith's fraudulent conduct). This Court's decision does not, however, rest on any adverse inferences from those facts (which could properly be taken if only defendants had moved for summary judgment).
[13] At the Shacket-Smith Aircraft closing, Rittenhouse told Shacket that Smith had a partner named Philko. Sometime after both "sales," McArdle told Shacket there was money owed on the plane. Neither of those facts creates an issue of fact supporting the allegations of Count II. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1820579/ | 450 F. Supp. 338 (1978)
RHODE ISLAND CHAPTER, ASSOCIATED GENERAL CONTRACTORS OF AMERICA, INC., Plaintiff,
v.
Juanita KREPS, in her capacity as Secretary of Commerce of the United States, the City of Pawtucket, the City of Warwick, the City of Newport, the City of East Providence, the City of Cranston, the City of Woonsocket, the Town of North Kingstown, the Town of Coventry, the Town of Johnston, the Town of North Providence, and the Pawtucket Redevelopment Agency, Defendants.
Civ. A. No. 77-0676.
United States District Court, D. Rhode Island.
February 6, 1978.
*339 *340 *341 *342 *343 Peter Lawson Kennedy, Providence, R. I., for plaintiff.
Everett C. Sammartino, Asst. U. S. Atty., Providence, R. I., for Juanita Kreps.
Moses Kando, City Sol., Pawtucket, R. I., for City of Pawtucket.
William J. Toohey, City Sol., Warwick, R. I., for City of Warwick.
James S. O'Brien, Frederick W. Faerber, Jr., Newport, R. I., for City of Newport.
Orlando A. Andreoni, Providence, R. I., Nathaniel J. Rendine, East Providence, R. I., for City of East Providence.
John F. Sherlock, Jr., Maryfrances McGinn, Providence, R. I., for Pawtucket Redevelopment Agency.
Girard Visconti, Providence, R. I., for R. I. Subcontractors.
Jeremiah S. Jeremiah, Jr., City Sol., Cranston, R. I., for City of Cranston.
Gerald M. Brenner, Asst. City Sol., Woonsocket, R. I., for City of Woonsocket.
Bernard F. McSally, Providence, R. I., for Town of North Kingstown.
Frank J. Williams, Providence, R. I., for Town of Coventry.
William H. Corrente, Asst. Town Sol., Johnston, R. I., for Town of Johnston.
Robert D. Ciresi, Town Sol., North Providence, R. I., for Town of North Providence.
OPINION
PETTINE, Chief Judge.
Plaintiff, the Rhode Island Chapter, Associated General Contractors of America, Inc., challenges whether Congress can, consistent with the Fifth Amendment, pinpoint a percentage of government public works contracts for minority businesses, upon a finding that such businesses do not successfully compete because of past and present discrimination.
Congress authorized the Secretary of Commerce to make grants to state and local governmental entities for use in public works projects in the Local Public Works Capital Development and Investment Act *344 of 1976, 42 U.S.C. §§ 6701-10 (1976) which is Title I of the Public Works Employment Act of 1976, Pub.L. 94-369, 90 Stat. 999 (July 22, 1976). Congress required the Secretary, in allocating grants, to take into consideration the duration and severity of unemployment and underemployment in the localities to be funded, particularly the degree of unemployment in the construction and construction-related industries, and the extent to which proposed public works projects would reduce that unemployment, 42 U.S.C. §§ 6706, 6707.
Congress so acted to "alleviate the problem of national unemployment and . . to stimulate the national economy," H.R. Rep. 94-1077, 94th Cong., 2d Sess. reprinted in (1976) U.S.Code Cong. & Admin.News 1746, 1747, after finding that
For the past two-and-a-half years, the United States has experienced its most severe recession since the Great Depression of the 1930's. . . . (T)he 1974-1975 recession has left an aftermath of high unemployment which will remain high throughout the remainder of this decade. . . .
The construction industry has been a major victim of the current recession. Id. at 1746.
In 1977, Congress increased the original appropriation of two billion dollars for this Act to six billion through December, 1978. Act of May 13, 1977, Pub.L. 95-29, Title I, Ch. III, 91 Stat. 122.
Congress also imposed new conditions upon the making of these grants in the Public Works Employment Act of 1977, Pub.L. 95-28, Title I, 91 Stat. 116 (May 13, 1977), which amended the earlier Act. Congress required that state and local governments award construction contracts to private businesses
. . . by competitive bidding, unless the Secretary shall affirmatively find that, under the circumstances relating to such project, some other method is in the public interest. Contracts for the construction of each project shall be awarded only on the basis of the lowest responsive bid submitted by a bidder meeting established criteria of responsibility. . . . 42 U.S.C. § 6705(e)(1) (1977).
Congress further provided, and this is the nub of the present controversy, that ten percent of the amount of each grant must go to minority businesses:
Except to the extent that the Secretary determines otherwise, no grant shall be made under this chapter for any local public works project unless the applicant gives satisfactory assurance to the Secretary that at least 10 per centum of the amount of each grant shall be expended for minority business enterprises. For purposes of this paragraph, the term "minority business enterprise" means a business at least 50 per centum of which is owned by minority group members or, in case of a publicly owned business, at least 51 per centum of the stock of which is owned by minority group members. For the purposes of the preceding sentence, minority group members are citizens of the United States who are Negroes, Spanish-speaking, Orientals, Indians, Eskimos, and Aleuts.
42 U.S.C. § 6705(f)(2) (1977).
This minority business enterprise (MBE) provision, introduced by Representative Mitchell of Maryland and amended by Representative Roe, was added to the legislation during the floor debate in the House of Representatives (123 Cong.Rec. H1441, daily ed. Feb. 24, 1977). Brief House and Senate debates[1] furnish the only legislative history. The sponsor, Representative Mitchell, explained the provision in debate, as follows:
. . . All this amendment attempts to do is to provide that those who are in minority businesses get a fair share of the action from this public works legislation.
. . . . .
*345 Let me tell the Members how ridiculous it is not to target for minority enterprises. We spend a great deal of Federal money under the SBA program creating, strengthening and supporting minority businesses and yet when it comes down to giving those minority businesses a piece of the action, the Federal Government is absolutely remiss. . . . The average percentage of minority contracts, of all Government contracts, in any given fiscal year, is 1 percent. . . .
In the present legislation before us it seems to me that we have an excellent opportunity to begin to remedy this situation. . . .
. . . . .
. . . Many States and many local subdivisions have moved into the process of setting aside contracts for minorities. That is because that is the only way we are going to get the minority enterprises into our system.
. . . We cannot continue to hand out survival support programs for the poor in this country. We cannot continue that forever. The only way we can put an end to that kind of a program is through building a viable minority business system. So I am deadly serious about it.
The other objection that will be raised is the objection that everybody else is going to go on a competitive bid basis; why should not the minority enterprise people go on a competitive bid basis? The answer is very simple: we cannot. We are so new on the scene, we are so relatively small that every time we go out for a competitive bid, the larger, older, more established companies are always going to be successful in underbidding us.
Id. at 1436-37.
Pursuant to her authority under the Act, the Secretary of Commerce promulgated regulations on May 27, 1977 which provide:
(b) . . . (1) No grant shall be made under this part for any project unless at least ten percent of the amount of such grant will be expended for contracts with and/or supplies from minority business enterprises. (2) The restriction contained in paragraph 1 of this subsection will not apply to any grant for which the Assistant Secretary makes a determination that the ten percent set-aside cannot be filled by minority businesses located within a reasonable trade area determined in relation to the nature of the services or supplies intended to be procured.
13 C.F.R. 317.19(b) (1977).
According to interpretive guidelines issued by the Department of Commerce, an applicant/grantee, for example a municipality, must assure that the 10 percent requirement for minority businesses will be met. In the alternative, the grantee can apply for a partial or total waiver either before or after initial bidding or subsequent to project approval. Among the factors considered for a waiver are the size of the minority population in the project area, the availability of minority enterprises and the efforts made to enlist minority firms. Guidelines For Round II of the Local Public Works Program, Sec. VIII B.1, at 30-31 (June 6, 1977). Various government agencies will assist grantees and prime contractors to locate qualified minority businesses in the area. Guidelines for 10% Minority Business Participation in LPW Grants, at 4-6, 16 (August, 1977). If noncompliance occurs following project approval, termination of the project may be effected unless both the grantee and the prime contractor are blameless. Id. at 6-7.
The Facts of the Case
Pursuant to this Act and regulations, various Rhode Island Island municipalities applied for and received grants, totalling $17,876,000.00 for twenty public works projects. The City of Pawtucket invited bids and indicated that a responsive bid must agree to commit at least 10 percent of the contract sum to minority businesses, in compliance with the statute. In response, several of plaintiff Association's contractor members submitted bids. One member was awarded the contract as the lowest responsive bidder. However, two other members *346 submitted bids of a lower dollar amount but failed to comply with the 10 percent requirement; their bids were therefore deemed unresponsive.
Claiming on behalf of itself and its members, the Rhode Island Chapter alleges economic injury and violation of the right not to be discriminated against on the basis of race. Plaintiff asserts that the use of the 10 percent quota is a racial classification that is inherently suspect and requires the most rigid scrutiny from this Court. Loving v. Virginia, 388 U.S. 1, 11, 87 S. Ct. 1817, 18 L. Ed. 2d 1010 (1967); McLaughlin v. Florida, 379 U.S. 184, 191-92, 85 S. Ct. 283, 13 L. Ed. 2d 222 (1964); Bolling v. Sharpe, 347 U.S. 497, 499, 74 S. Ct. 693, 98 L. Ed. 884 (1954); Korematsu v. U. S., 323 U.S. 214, 216, 65 S. Ct. 193, 89 L. Ed. 194 (1944); Hirabayashi v. U. S., 320 U.S. 81, 100, 63 S. Ct. 1375, 87 L. Ed. 1774 (1943). Plaintiff claims that as a consequence of this classification, the minority business enterprise provision violates the equal protection guarantee of the Fifth Amendment, Bolling v. Sharpe, 347 U.S. at 499, 74 S. Ct. 693; Washington v. Davis, 426 U.S. 229, 239, 96 S. Ct. 2040, 48 L. Ed. 2d 597 (1976); U. S. Dept. of Agriculture v. Moreno, 413 U.S. 528, 538, 93 S. Ct. 2821, 37 L. Ed. 2d 782 (1973); Schneider v. Rusk, 377 U.S. 163, 168, 84 S. Ct. 1187, 12 L. Ed. 2d 218 (1964). Plaintiff seeks permanent injunctive and declaratory relief against the Secretary of Commerce and the municipal grantees from enforcement of the minority business enterprise requirements.
The Rhode Island Subcontractors Association has intervened as a plaintiff and the City of Providence Human Relations Commission has submitted a brief in support of the statute's constitutionality, as amicus curiae. This Court held a hearing on November 18, 1977. No temporary restraining order or preliminary injunction has issued. By agreement of the parties, this matter is presently before the Court for final injunctive relief on the merits.
To date, a number of federal district courts have considered preliminary injunctive relief in similar suits. Only two have granted contractor associations relief. One court has reached the merits and upheld the constitutionality of the statute.[2]
Conclusions of Law
This Court has given the closest consideration to this most serious problem which implicates the rights and the hopes of minority persons of reaching the same economic opportunity and self-sufficiency as others. It implicates the interests of white persons who wish to enjoy the opportunities which they have struggled to achieve. Further, it implicates the interest we all have in the preservation of those values at the core of the guarantee of equal protection of the laws.
This Court concludes[3] that Congress has three independent sources of constitutional *347 authority which permit the use of a non-stigmatizing, benign racial classification for the distribution of monies in aid of those who are subject to racial and economic discrimination. These sources are:
1) The spending power, Art. I, § 8, cl. 1 which permits the spending of federal funds for the common benefit.
2) Power under the Fourteenth Amendment § 5 to prevent the implication of federal, state and local governments in the discriminatory practices of private persons as these practices affect the workings of the market-place.
3) Power under the Thirteenth Amendment § 2 to eliminate the badges and incidents of slavery.
After reviewing the source and scope of authority under the spending clause and the Fourteenth Amendment § 5, this Court will subject the means adopted by Congress a racial quota to the close scrutiny required by the Fifth Amendment equal protection guarantee. However, we *348 subject the exercise of Thirteenth Amendment power to a scrutiny which takes into account the unique historical relationship of that Amendment to race.[4]
The Spending Power
Congress drew power to enact the Public Works Employment Act of 1976 and 1977 from its spending power, Art. I, § 8, cl. 1. That power is "limited only by the requirement that it shall be exercised for the common benefit," U. S. v. Gerlach Live Stock Co., 339 U.S. 725, 738, 70 S. Ct. 955, 962, 94 L. Ed. 1231 (1950).
The basic principle that must govern an assessment of any constitutional challenge to a law providing for governmental payments of monetary benefits is well established. Governmental decisions to spend money to improve the general public welfare in one way and not another are "not confided to the courts. The discretion belongs to Congress, unless the choice is clearly wrong, a display of arbitrary power, not an exercise of judgment." Helvering v. Davis, 301 U.S. 619, 640, 57 S. Ct. 904, 81 L. Ed. 1307.
Mathews v. deCastro, 429 U.S. 181, 185, 97 S. Ct. 431, 434, 50 L. Ed. 2d 389 (1976).
See Buckley v. Valeo, 424 U.S. 1, 90-91, 96 S. Ct. 612, 46 L. Ed. 2d 659 (1976); Richardson v. Belcher, 404 U.S. 78, 84, 92 S. Ct. 254, 30 L. Ed. 2d 231 (1971); Flemming v. Nestor, 363 U.S. 603, 611, 80 S. Ct. 1367, 4 L. Ed. 2d 1435 (1960). Further, the power of the United States to establish the conditions in contracts, such as those implicated in this case, is plenary and generally unrestricted. See Perkins v. Lukens Steel Co., 310 U.S. 113, 127, 60 S. Ct. 869, 84 L. Ed. 1108 (1940); *349 U. S. v. New Orleans Public Services, 553 F.2d 459, 469 (5th Cir. 1977), U.S.App.Pending.
It, of course, needs no repetition that the relief of unemployment redounds to the common benefit, Chas. C. Steward Mach. Co. v. Davis, 301 U.S. 548, 586-87, 57 S. Ct. 883, 81 L. Ed. 1279 (1937); Helvering v. Davis, 301 U.S. 619, 641, 57 S. Ct. 904, 81 L. Ed. 1307 (1937). Nor is there any doubt that Congress may pin-point spending in various localities of intense unemployment and underemployment or that it may choose to concentrate on urban poverty or rural poverty or that it may attack certain sources of poverty without challenging others. Nor is there any doubt that Congress may, for the common benefit, remedy economic disparity which has resulted from discrimination, see Califano v. Webster, 430 U.S. 313, 317, 97 S. Ct. 1192, 51 L. Ed. 2d 360 (1977) (per curiam). Congress also may pass protectionist legislation which reasonably aids some types of businesses but not others. See Williamson v. Lee Optical Co., 348 U.S. 483, 75 S. Ct. 461, 99 L. Ed. 563 (1955).
There would be no doubt as to Congress's power to enact this legislation were it not that Congress has employed a racial classification to pin-point funds for those in our country who are especially discriminated against, especially subject to unemployment and especially in need of aid in their efforts to become economically competitive.
We find that this classification survives constitutional challenge based on the equal protection guarantee because it is benign in fact, justified by the compelling interest of remedying inequality pursuant to a congressional finding of past discriminations and closely tailored to achieve its purpose. For an extended analysis, see "Scrutiny of the Racial Classification," infra.
Section Five of the Fourteenth Amendment
A second locus of power for this congressional action is the enforcement provision, section five,[5] of the Fourteenth Amendment. In enacting the minority business enterprise requirement, Congress has sought to end past, present and future government involvement in the racial discrimination practiced by the private construction industry. Congress could rationally conclude that, given the widespread discrimination in the construction industry, discussed infra, and the low percentage (1 percent) of federal contract dollars that go to minority businesses, there is a substantial possibility that state and local governments have awarded or will award contracts involving federal monies to firms which discriminate against minorities. Although there is no indication that state and local governments have purposefully and willfully discriminated in the award of contracts, the fact of pervasive private discrimination supports a finding that frequently the state and local governments have made or will make such awards with notice, actual or constructive, of discriminatory practices by private firms. See Gilmore v. City of Montgomery, 417 U.S. 556, 582, 94 S. Ct. 2416, 41 L. Ed. 2d 304 (1974) (White, J., concurring). Moreover, the award of government contracts based solely on neutral, competitive bidding inevitably locks in and even exacerbates the effects of past discrimination, namely the present dearth of minority business enterprises and the inability of those small minority operations that do exist to offer competitive bids. See discussion infra. Pursuant to its section five powers, Congress can adopt appropriate remedial and prophylactic measures that address this government involvement. See generally Oregon v. Mitchell, 400 U.S. 112, 91 S. Ct. 260, 27 L. Ed. 2d 272 (1970); Katzenbach v. Morgan, 384 U.S. 641, 86 S. Ct. 1717, 16 L. Ed. 2d 828 (1966); Cox, The Role of Congress in Constitutional Determinations, 40 U.Cinn.L.Rev. 199 (1971).
*350 Government participation in the discrimination practiced by private contractors is clearly within the reach of Congress' enforcement powers under section five. When a state or local government awards a public works contract to a discriminatory construction firm with notice of the firm's discriminatory practice, the government agency has established a relationship with the contractor that makes the agency a "joint participant" in the private discrimination. Burton v. Wilmington Parking Authority, 365 U.S. 715, 725, 81 S. Ct. 856, 6 L. Ed. 45 (1961); see Wright v. City of Brighton, Alabama, 441 F.2d 447 (5th Cir. 1971) cert. denied 404 U.S. 915, 92 S. Ct. 228, 30 L. Ed. 2d 190 (sale of city property to segregated private school). Such government involvement has been condemned as state action in violation of section one of the Fourteenth Amendment. In Burton v. Wilmington Parking Authority, supra, for example, a municipal parking authority leased premises in the municipal garage to a restaurant that refused to serve blacks. Based on the leasing relationship and the mutual benefits conferred, the parking authority had become a "joint participant" in the discrimination. By its inaction, the government had "elected to place its power, prestige and property" behind the discrimination. Id. 365 U.S. at 725, 81 S. Ct. 856.[6]
No less government involvement exists when a government agency awards an emergency public works contract to a firm that does not deal with minority subcontractors or employees. For the duration of the contract, the firm accomplishes the specific government objective of building needed public facilities. At the same time, the federal government pours billions of dollars in aid into the construction industry with the specific purpose of rescuing the construction industry from its depressed economic condition and resuscitating it. Such a "symbiotic relationship," to use a phrase of Burton, with the federal government providing the resources implicates the government in the industry's discrimination. See, e. g., Ginn v. Matthews, 533 F.2d 477 (9th Cir. 1976) (privately operated Headstart Program involves state action); McQueen v. Druker, 438 F.2d 781, 784 (1st Cir. 1971) (private developer of low-income housing under federal incentive program involves state action); see, State Action: Theories for Applying Constitutional Restrictions to Private Activity, 74 Colum.L. Rev. 656, 685 (1974).
*351 Moreover, any discrimination in subcontracting or hiring by a government contractor engaged in a public works project will have high visibility in the surrounding community, see Associated General Contractors of Mass., Inc. v. Altshuler, 490 F.2d 9, 18 (1st Cir. 1973) cert. denied 416 U.S. 957, 94 S. Ct. 1971, 40 L. Ed. 2d 307. The visibility is increased and the nexus greater because the construction occurs on government property, Gilmore v. City of Montgomery, 417 U.S. at 573, 94 S. Ct. 2416. For example, the Town of Coventry, Rhode Island is contracting for a town hall and public library to be built. The selection of a discriminatory contractor in preference over a non-discriminatory bidder will doubtless encourage the continuation of the discriminatory practices of the former and lock-in the effects of prior discrimination. Even if purely financial advantage motivates the government agency's choice, the total effect of its action is to place the government's imprimatur on the discriminatory practice in the minds of the community. See Gilmore v. City of Montgomery, 417 U.S. at 582, 94 S. Ct. 2416 (White, J., concurring); Burton v. Wilmington Parking Authority, supra.
Beyond even the government's imprimatur, an award provides direct, federal financial aid to the discriminatory construction firm. See Norwood v. Harrison, 413 U.S. 455, 467, 93 S. Ct. 2804, 37 L. Ed. 2d 723 (1973). A government contract is a particularly valuable asset when the industry as a whole is depressed and the federal funding limited. See Gilmore v. City of Montgomery, 417 U.S. at 574, 94 S. Ct. 2416 (decisions about "rationed" state resources more likely to involve state action problems). Not only can Congress act pursuant to section five to assure that no federal monies reach firms that discriminate, Congress and government agencies may even have affirmative duties to take reasonable steps to assure the non-discriminatory use of federal funds under the Fifth and Fourteenth Amendments. See United States v. City of Chicago, 395 F. Supp. 329, 342-43 (N.D.Ill.1975), aff'd 525 F.2d 695 (7th Cir. 1975); N.A.A.C.P. Western Region v. Brennan, 360 F. Supp. 1006, 1012 (D.D.C.1973) (federal "affirmative duty to police the operations of and prevent such discrimination by State or local agencies funded by them."); Gautreaux v. Romney, 448 F.2d 731, 739-40 (7th Cir. 1971); cf. Green v. Kennedy, 309 F. Supp. 1127, 1136-37 (D.D.C.1970), app. dis'd 398 U.S. 956, 90 S. Ct. 2169, 26 L. Ed. 2d 539 and 330 F. Supp. 1150, 1164-65 (D.D.C.1971), aff'd sub nom. Coit v. Green, 404 U.S. 997, 92 S. Ct. 564, 30 L. Ed. 2d 550 (1971). These duties may include investigation of the successful competitive bidder when past history places the government on notice of potential discriminatory practices. McNeal v. Tate County School Dist., 460 F.2d 568 (5th Cir. 1972), cert. denied 413 U.S. 922, 93 S. Ct. 3049, 37 L. Ed. 2d 1044 (1972); United States v. Mississippi, 499 F.2d 425 (5th Cir. 1974).
It cannot be overemphasized that Congress has addressed in the statute at bar only government involvement in private discrimination, not the private discrimination itself. Today's conclusion that the government involvement may be sufficient to permit Congress to exercise its section five powers is not intended to suggest that the discriminatory practices of the government contractor constitute state action in violation of section one of the Fourteenth Amendment. See Gilmore v. City of Montgomery, 417 U.S. at 573, 94 S. Ct. 2416; Wright v. City of Brighton, Alabama, 441 F.2d at 450. In addition, this Court need not and does not decide whether Congress can, under its section five powers, reach and limit state discriminatory involvement which does not rise to a violation of section one. Cf. United States v. Guest, 383 U.S. 745, 775-84, 86 S. Ct. 1170, 16 L. Ed. 2d 239 (1966) (Brennan, J., joined by Warren, C. J. and Douglas, J., concurring). Without doubt, however, Congress has the power to enact broad prophylactic remedies to prevent state and local involvement in discrimination. This power is even more firmly established when the remedy affects only the manner of spending federal funds and does not regulate typical state and local governmental activities nor private activities traditionally within those governments' control.
*352 Scrutiny of the Racial Quota
Congress has the power under both the spending clause and section five of the Fourteenth Amendment to enact the challenged legislation. It remains to be decided whether such legislation, because it employs a racial quota, passes constitutional muster under the Fifth Amendment guarantee of equal protection. Because Congress has employed a racial quota[7] to remedy racial imbalance presently existing in the award of government contracts, this Court will give careful scrutiny to: one, whether the purpose and effect of the racial classification is truly benign; two, whether a compelling need to remedy past discrimination exists; and, three, whether the means adopted were carefully tailored to accomplish the remedial goal.
1) Preliminarily, the Court concludes that the minority business enterprise requirement was enacted solely with the intent to remedy racial discrimination and not to malign either minorities or non-minorities. See Brest, Foreword: In Defense of the Antidiscrimination Principle, 90 Harv.L.Rev. 1, 15-22 (1976). Obviously, if Congress intended to discriminate against either group, the statute would be invalid. United Jewish Organizations v. Carey, 430 U.S. 144, at 165, 97 S. Ct. 996, 51 L. Ed. 2d 229 (White, J.), at 179, 97 S. Ct. 996 (Stewart, J., concurring) (1977). All remarks on the floor of the House and Senate are directed solely to the plight of the minority business. "No racial slur or stigma," id. at 165, 97 S. Ct. 996, is cast upon either non-minority or minority contractors by the legislators[8] or by the legislation itself.[9] The failure of minority businesses to obtain more federal contracts was attributed solely to past discrimination and not to any racial stereotype of incompetence. In fact, the guidelines promulgated pursuant to the statute make clear that only qualified minority contractors must be employed. Only inexperience, generally due to past discrimination, is to be excused. Guidelines (Aug. 1977) supra, at 3. Thus, the statute's legitimate purpose is not overshadowed by a stigmatizing effect or purpose, or an outmoded stereotype, cf. Califano v. Webster, 430 U.S. at 317, 97 S. Ct. 1192, nor is an invidious purpose or *353 effect merely "cloaked in preferential garb." United Jewish Organizations v. Carey, 430 U.S. at 173, 97 S. Ct. 996 (Brennan, J., concurring).
2) The second question is whether an interest sufficiently compelling to justify use of a racial quota exists. Plaintiff concedes, as indeed it must in light of the First Circuit's decision in Associated General Contractors of Mass., Inc. v. Altshuler, 490 F.2d 9 (1973), cert. denied 416 U.S. 957, 94 S. Ct. 1971, 40 L. Ed. 2d 307 (1974), that remedying past discrimination constitutes a compelling interest. Cf. Califano v. Webster, 430 U.S. at 317, 97 S. Ct. 1192.[10] In Altshuler, a "compelling need" to remedy the present under-utilization of minorities in the construction industry caused by past discrimination in the building trade unions justified the state's insistence on 20 percent minority employment in the performance of state contracts.[11]Id. at 18.
Plaintiff nevertheless disputes whether Congress has made adequate findings of past or present discrimination to establish a need sufficiently compelling to justify the use of a racial quota. Plaintiff contends that, absent judicial-like findings of specific discrimination by the construction industry in the United States, no "compelling need" is established. Plaintiff goes further and suggests that the statute loses its remedial character without such findings and that a racial quota can only be used as a specific remedy for past discrimination. In effect, plaintiff's argument makes Congress' powers under section five co-extensive with the court's power to employ racial quotas, as for example, to remedy violations of Title VII or the equal protection clause. This Court disagrees, see United Jewish Organizations v. Carey, 430 U.S. at 161, 97 S. Ct. 996 (White, J.); cf. Katzenbach v. Morgan, 384 U.S. 641 at 648, 86 S. Ct. 1717, 16 L. Ed. 2d 828.
Notably, for many years, courts have fashioned broad-based, race-conscious remedies to undo the effects of specific past acts of discrimination. See, e. g., Franks v. Bowman Transportation Co., Inc., 424 U.S. 747, 96 S. Ct. 1251, 47 L. Ed. 2d 444 (1976) (retroactive seniority); Swann v. Charlotte-Mecklenburg, 402 U.S. 1, 91 S. Ct. 1267, 28 L. Ed. 2d 554 (1971) (school assignment); Boston Chapter NAACP, Inc. v. Beecher, 504 F.2d 1017 (1st Cir. 1974) cert. denied 421 U.S. 910, 95 S. Ct. 1561, 43 L. Ed. 2d 775; Castro v. Beecher, 459 F.2d 725 (1st Cir. 1972) (preferential hiring).[12] Court-ordered remedial racial preferences are constitutionally permissible even though they necessarily burden non-minorities who may not have been guilty of discrimination. Franks v. Bowman Transportation Co., Inc., 424 U.S. at 773-79, 96 S. Ct. 1251. The scope of Congress' power to enact race-conscious remedies that burden innocent members of non-minorities is not only equal to the judicial branch's but extends significantly beyond. *354 See Swann v. Charlotte-Mecklenburg, 402 U.S. at 16, 91 S. Ct. 1267, cited in Altshuler, 490 F.2d at 17. In the past, Congress has enacted broad remedial measures that purposely skirt the case-by-case approach characteristic of adjudication. South Carolina v. Katzenbach, 383 U.S. 301, 328, 86 S. Ct. 803, 15 L. Ed. 2d 769 (1966).[13]See Brest, supra, at 30, 32. Congress can enact remedies without first making judicial-like findings of past discrimination and the remedies can be designed to ameliorate lingering effects of past discrimination or prevent remote future discrimination. E. g., Oregon v. Mitchell, discussed in note 11 supra; Brest, supra, at 32, 47; see Germann v. Kipp, 429 F. Supp. 1323 (W.D.Mo.1977); cf. Frontiero v. Richardson, 411 U.S. 677, 689 n.22, 93 S. Ct. 1764, 36 L. Ed. 2d 583 (1972).
This power derives from the essential difference between the judicial and the legislative forum. Congress necessarily acts on a level of generality, both in its fact-finding and the scope of its remedies, far beyond that appropriate to a court limited to the case or controversy at bar. Thus, it would be inappropriate, in fact impossible, to require Congress to make judicial-like findings of discrimination before it could enact remedies that employ racial quotas. Ohio Contractors Assoc. v. Economic Development Administration, No. 77-619, Slip op. at 18 (S.D.Ohio 1977); United Jewish Organizations v. Carey, 430 U.S. at 161, 97 S. Ct. 996; The Supreme Court, 1976 Term, 91 Harv.L.Rev. 284, 290-91.[14]
Consequently, Congress need not make a finding of discrimination in each trade in each state before it may take action. Based on evidence of racial imbalance and a long catalogue of judicial findings of discrimination in the building trades, Congress could reasonably infer that the effects of past discrimination persistently continue. The inference of discrimination can rationally *355 be drawn from the evidence of racial imbalance, since Congress could not possibly engage in an examination of discriminatory intent nor, indeed, need Congress condition remedial action upon such a finding.[15] Similar inferences, based solely on statistical evidence and affidavits respecting the underrepresentation of minorities in construction employment, satisfied the test of a "compelling need" in Altshuler, 361 F.Supp. at 1298, aff'd, 490 F.2d at 18 n.15.
Our survey of the factual support for Congress' conclusion that the effects of past discrimination persist is not limited to the record before Congress. But see Associated General Contractors of California v. Secretary of Commerce, 441 F.Supp. at 964-965, No. 77-3738 (C.D.Cal. 1977). Judicial review takes into account any facts, not necessarily those actually considered by Congress, that underlie and support the congressional assumption that the effects of past discrimination continue, particularly when those facts are so well known and have been exhaustively documented in congressional reports, presidential commissions and countless other proceedings over the past two decades. See Weber v. Kaiser Aluminum & Chemical Corp., 563 F.2d 216, 235 n.18 (Wisdom, dissenting). Ohio Contractors Assoc. v. E. D. A., supra, at 18-19; see also Lindsley v. Natural Carbonic Gas Co., 220 U.S. 61, 78-9, 31 S. Ct. 337, 55 L. Ed. 369 (1911). Moreover, the traditional judicial deference to congressional fact-finding is properly exercised with respect to findings of racial imbalance and past discrimination. Oregon v. Mitchell, 400 U.S. at 247-49, 91 S. Ct. 260 (Brennan, J.); Katzenbach v. Morgan, 384 U.S. at 668, 86 S. Ct. 1717 (Harlan, J., dissenting); see Cox, supra.
Although minorities comprise 17 percent of the population, they control only about 4 percent of the businesses. Minority business enterprises account for less than one percent of the national gross business receipts. U. S. Dept. of Commerce, Office of Minority Business Enterprise, Minority Business Opportunity Committee Handbook, at I-1 (August, 1976) ("Handbook"); Office of Management and Budget, Interagency Report on the Federal Minority Business Development Programs, at 24 (March, 1976) ("Interagency Report"). Despite voluntary programs to encourage award of government contracts to minority businesses, these businesses still receive less than 1 percent of federal, state and local government contracts. U. S. Commission on Civil Rights, Minorities and Women as Government Contractors, at 2, 86 (May, 1975) ("Report").
This imbalance can be traced to past discrimination by construction firms, see Note, Minority Construction Contractors, 12 Harv.Civ.Rt.Civ.Lib.L.Rev., 692, 692 n.3 (1977), by building trade unions, and by financial institutions. Cases of discrimination in the skilled unions, particularly in the building trades, are legion. See, e. g., Rios v. Enterprise Ass'n Steamfitters Local 638 of U. A., 501 F.2d 622 (2d Cir. 1974); United States v. Wood, Wire and Metal Lathers International Union, Local 46, 471 F.2d 408 (2d Cir.), cert. denied, 412 U.S. 939, 93 S. Ct. 2773, 37 L. Ed. 2d 398 (1973); Associated Gen. Contractors of Mass., Inc. v. Altshuler, 361 F. Supp. 1293 (D.Mass.), aff'd, 490 F.2d 9 (1st Cir. 1973), cert. denied, 416 U.S. 957, 94 S. Ct. 1971, 40 L. Ed. 2d 307 (1974); Contractors Ass'n of Eastern Pa. v. Secretary of Labor, 442 F.2d 159 (3d Cir.), cert. denied, 404 U.S. 854, 92 S. Ct. 98, 30 L. Ed. 2d 95 (1971); Local 53 Asbestos Workers v. Vogler, 407 F.2d 1047 (5th Cir. 1969); United States v. Local 212, IBEW, 472 F.2d 634 (6th Cir. 1973); United States v. IBEW Local 38, 428 F.2d 144 (6th Cir.), cert. denied, *356 400 U.S. 943, 91 S. Ct. 245, 27 L. Ed. 2d 248; United States v. Carpenters Local 169, 457 F.2d 210 (7th Cir.), cert. denied, 409 U.S. 851, 93 S. Ct. 63, 34 L. Ed. 2d 94 (1972); United States v. Sheet Metal Workers International Ass'n, Local No. 36, 416 F.2d 123 (8th Cir. 1969); United States v. Ironworkers Local 86, 443 F.2d 544 (9th Cir.), cert. denied, 404 U.S. 984, 92 S. Ct. 447, 30 L. Ed. 2d 367 (1971).
That racial imbalance in employment on construction projects is a national phenomenon is evidenced by the large number of affirmative action plans, both voluntary and mandatory, adopted on the state and local level pursuant to Executive Order 11246 to combat local underutilization of minorities in construction work. See, e. g., Rossetti Contracting Co., Inc. v. Brennan, 508 F.2d 1039 (7th Cir. 1975) (Chicago); Rios v. Enterprise Ass'n Steamfitters Local 638 of U. A., 501 F.2d at 625 (New York); Altshuler, supra (Boston); Northeast Construction Co. v. Romney, 157 U.S.App.D.C. 381, 485 F.2d 752 (1973) (Washington, D. C.); Contractors Assoc. of Eastern Pa. v. Sec. of Labor, supra (Philadelphia); Joyce v. McCrane, 320 F. Supp. 1284 (N.D.J.1970) (Newark); Weiner v. Cuyahoga Community College District, 19 Ohio St. 2d 35, 249 N.E.2d 907 (1969), cert. denied, 396 U.S. 1004, 90 S. Ct. 554, 24 L. Ed. 2d 495 (1970) (Cleveland); Affidavit of T. Michael Turner, Executive Director of plaintiff Association (Rhode Island). See generally Report, supra at 90; Note Employment Discrimination and Title VII of the Civil Rights Act of 1964, 84 Harv.L.Rev. 1109, 1275-1304 (1971). Those plans whose constitutionality have been reviewed, have received judicial approval. E. g., United States v. New Orleans Public Service, Inc., 553 F.2d 459, 468 (5th Cir. 1977), petition for cert. filed 45 U.S.L.W. 3243 (1977); Southern Illinois Builders Assoc. v. Ogilvie, 471 F.2d 680 (7th Cir. 1972); Altshuler, supra; Contractors Assoc. of Eastern Pa. v. Sec. of Labor, supra.
Under the widespread referral system, discrimination in union halls is directly responsible for the limited job opportunities for minorities on construction projects. Id. at 173; see Weber v. Kraiser Aluminum & Chemical Corp., 563 F.2d 216, 237 (5th Cir. 1977) (Wisdom, dissenting). Barriers to work on construction projects, in turn, may well decrease the number of minorities sufficiently experienced to begin their own construction firms. Congress could reasonably infer that the lack of minority business enterprises was caused in part by the past discrimination in related unions documented in case after case.
In 1976, the House Committee on Small Business found that past discrimination, both on the part of lending institutions and surety bonding firms, had inhibited the growth of minority businesses. In addition, present business practices, racially neutral on their face, perpetuate the effects of past discrimination. Summary of Activities, 94th Cong., 2d Sess. (Comm.Print.1976) at 182. According to testimony before the Committee, surety firms practice "redlining" against minority businesses with devastating results, since all federal contracts require surety bonding. Id. at 183. Past discrimination has a particularly long-lasting effect when its remedy calls upon financial institutions to risk very large sums on inexperienced firms. Inexperience and lack of financial backing make it difficult for minority businesses to become competitive in bidding with the larger, more established firms. 123 Cong.Rec. H. 1437 (daily ed. Feb. 24, 1977) (comments of Rep. Mitchell); see Report at 9.
Taking all these factors into consideration, Congress could rationally conclude that some adjustment in the bidding requirements was necessary to ameliorate the effects of past and present discrimination.
Although the specific goal of the 1977 amendment was to remedy racial imbalance in contract awards, the goals of the original 1976 Act were to alleviate unemployment and stimulate the national economy by making grants to state and local governments to fund public works projects in the areas hardest hit by the current recession. H.R.Rep.No. 94-1077, 94th Cong.,2d Sess., reprinted in [1976] U.S.Code *357 Cong.& Admin.News 1747. The Act is particularly designed to stimulate employment in the construction industry, the "major victim of the current crisis" in unemployment, id. at 1746. In fact, Congress found that the unemployment figures in the construction industry were three times that of the general economy. H.R.Rep.No. 95-20, 95th Cong.,1st Sess., reprinted in [1977] U.S.Code Cong.& Admin.News 716. To assure that "pockets of poverty" would be reached, id. at 721, the 1976 Act also provided for grants to be targeted to neighborhoods of especially high unemployment. 42 U.S.C. § 6707(e) (1976). The figures of minority unemployment in the national economy generally (13.1 percent), and in the construction industry (20.3 percent), for 1976 are staggering. The fact that minority unemployment is dramatically worse than its nonminority counterpart (6.4, 11.9 percent respectively[16]) suggests an inference that past discrimination in education[17] and employment[18] against minorities still takes its toll. In companies with bona fide seniority systems and construction unions that base referrals for jobs on seniority, minorities with only recent experience will be the first to receive lay-off notices and the last to get job referrals. Consistent with the 1976 Act's design of targeting funds to the industry and locations with the worst unemployment, one purpose of the 1977 amendment is to target funds to that portion of the population, classified by race, suffering the worst unemployment. See 123 Cong. Rec.S. 3910 (daily ed. March 10, 1977) (comments of Sen. Brooke); 123 Cong.Rec.H. 1440 (daily ed. Feb. 24, 1977) (comments of Rep. Biaggi). That purpose, in combination with the goal of remedying the present racial imbalance in the award of government contracts, establishes a "compelling need."
3) To pass constitutional muster, the statute must survive a final, searching scrutiny of the means selected by Congress. All courts that have to date reviewed the constitutionality of this statute have applied the strictest scrutiny appropriate to any statute that establishes a suspect, racial classification. The majority of these courts have concluded that the statute satisfies both aspects of strict scrutiny that a compelling interest justify the statute and that the racial quota be the least drastic alternative available to Congress, Dunn v. Blumstein, 405 U.S. 330, 337, 92 S. Ct. 995, 31 L. Ed. 2d 274 (1972); Loving v. Virginia, 388 U.S. 1, 11, 87 S. Ct. 1817, 18 L. Ed. 2d 1010 (1967). This Court joins the majority of district courts in both conclusions.
However, we also conclude that scrutiny of the means adopted need not be as strict in the context of a benign racial classification as in the context of an invidious racial classification. We have already established, one, that the statute does not stigmatize any race nor mask an invidious purpose behind a benign one, and, two, that a compelling need to remedy past discrimination exists. Once a statute has satisified both these tests, some adjustment down in the scrutiny of the means selected by Congress is warranted, at least when, as here, the racial quota does not burden another discrete, insular minority, United States v. Carolene Products Co., 304 U.S. 144, 152 n. 4, 58 S. Ct. 778, 82 L. Ed. 1234 (1938), nor the *358 exercise of a constitutional right, see, e. g., Linmark Associates, Inc. v. Township of Willingboro, 431 U.S. 85, 97 S. Ct. 1614, 52 L. Ed. 2d 155 (1977); Germann v. Kipp, 429 F.Supp. at 133; Brest, supra, at 21.
This is the very approach followed by the First Circuit in Altshuler in reviewing a quota for minority employment. Satisfied that a "compelling need" to correct racial imbalance existed, the First Circuit required only that the racial quota be "reasonably related" to achieving that end, 490 F.2d at 18. Although no explanation of why the Court declined to apply the least drastic means component of the compelling interest test was forthcoming, the justification must turn on the benign character of the racial classification. Examination of the actual review of the means undertaken by the Altshuler Court[19] suggests that a level of scrutiny is commanded which is less than that accorded invidious racial classifications and which is more than the standard minimum rationality test appropriate for racially neutral legislation, see, e. g., Katzenbach v. Morgan, 384 U.S. at 650-51, 86 S. Ct. 1717, quoting McCulloch v. Maryland, 4 Wheat. 316, 421, 4 L. Ed. 579 (1819); cf. Craig v. Boren, 429 U.S. 190, 197, 97 S. Ct. 451, 50 L. Ed. 2d 397 (Court), 211-12, 97 S. Ct. 451 (Stevens, J., concurring). See generally, Gunther, Foreword: In Search of Evolving Doctrine on a Changing Court: A Model for a Newer Equal Protection, 86 Harv.L. Rev. 1 (1972).
The remedy selected by Congress is clearly "reasonably related" to the objectives of correcting racial imbalance in government contract awards, stimulating the growth of minority businesses generally, and alleviating dramatically higher unemployment among minorities. Awarding government contracts has a multiple effect way beyond the actual work opportunity provided by a single award. The opportunity for a new contracting firm to demonstrate on-the-job competence and gain experience will open new doors at lending institutions, surety firms and private contractors and employers. Handbook, supra, at 1-2. The success and growth of existing minority businesses will in turn stimulate new minority enterprises. Lastly, providing work for minority contractors is directly related to improving opportunities for minority employment generally. Congress could reasonably conclude that a minority business would at the very least not discriminate against minority workers. Moreover, geographical location and racial identity of minority businesses are likely to attract more minority workers. See 123 Cong.Rec.S. 3910 (daily ed. March 10, 1977) (comments of Sen. Brooke).
The 10 percent requirement is reasonable as a national average. Although all legislative line-drawing is arbitrary, 10 percent is not an unrealistic goal since minorities constitute 17 percent of the population. Reasonable overoptimism is permissible. Altshuler, 490 F.2d at 19. Although a requirement based on a ratio to the project area minority population might be the most closely tailored remedy, Congress has chosen to shift the burden of demonstrating that the 10 percent quota is impracticable upon the local grantee. A grantee may request a complete or partial waiver after all feasible efforts to use qualified minority business enterprises have been exhausted and based on the minority population and business pool in the project area. 42 Fed.Reg. 27, 434-35 (1977) (to be codified in 13 C.F.R. sec. 317.99) promulgated by the Secretary of Commerce pursuant to 42 U.S.C. § 6706, interpreted in Guidelines (June, 1977) supra, at 30-31.[20] In *359 light of the industry's past recalcitrance, the failure of voluntary programs, and the need to quickly inject the project funds into the economy, Congress could reasonably shift the burden onto the industry. See South Carolina v. Katzenbach, 383 U.S. at 328, 86 S. Ct. 803. The 10 percent requirement is tailored with respect to time as well, since it will terminate in December, 1978 when the appropriations run out. Obviously, if a compelling need for remedying racial imbalance should cease to exist at the time of congressional reenactment, an unlikely event indeed, the extension of a racial quota could not be sustained. See Altshuler, 490 F.2d at 18 n. 16. Lastly, the statute does not impose an unreasonable burden upon the contractor to hire unqualified minority businesses, Guidelines (Aug.1977), supra, at 3, nor to hire beyond the "reasonable trade area," 13 C.F.R. 317.19(b)(2). See Altshuler, 490 F.2d at 18. In sum, because the 10 percent requirement is both realistic and flexible, this Court concludes that the remedy is reasonably and substantially related to the goal of correcting racial imbalance.
Even if the 10 percent requirement is subject to the strictest scrutiny, the remedy selected represents the least drastic alternative available to Congress. The majority of courts have agreed, based on substantial evidence, that other, less restrictive means have actually been tried and failed. E. g., Ohio Contractors Assoc. v. E. D. A., supra, at 20. Congress need not exhaust every conceivable option before adopting an approach likely to be the most effective. Since March, 1969, fostering minority businesses has been a national policy, Executive Order 11458. To further that policy, programs providing loans and assistance in other forms to minority businesses, and programs imposing obligations upon government contractors to use their "best efforts" to obtain minority subcontractors have all been implemented.[21] Although the list of programs is impressive, the low percentage of minority business enterprises obtaining government contracts persists.[22] Several government studies have observed that voluntary goals of minority subcontracting have not been adequately enforced and, as a consequence, have been totally ineffective. Report, supra, at 91; see Department of Defense Program to Help Minority-run Businesses Get Subcontracts Not Working Well, Report of the Comptroller General of the U.S., at 19 (February, 1977). Pursuant to Executive Order 11246, as of 1975, sixty-two voluntary "hometown" plans for the hiring of minorities had been adopted by local contractors associations. However, in seven instances, mandatory plans were imposed by the Secretary of Labor because of the ineffectiveness or inadequacy of the voluntary plan. Report, supra, at 90. See, e. g., Rossetti Contracting Co., Inc. v. Brennan, 508 F.2d 1039, 1044 (7th Cir. 1975); see Employment Discrimination, supra, 84 Harv.L.Rev. at 1295. To be effective, any remedy must require the prime contractor to provide subcontracting opportunities to minority businesses. The vast majority of *360 minority businesses are small, specialty contractors with whom government agencies rarely contract directly. Report, supra, at 9. Imposition upon prime contractors of a mandatory minority business enterprise quota with adjustments for local situations through the waiver provision is the only effective means available to Congress.
The Thirteenth Amendment
The Thirteenth Amendment[23] "(b)y its own unaided force and effect . . . abolished slavery, and established universal freedom . . ." and "clothes congress with power to pass all laws necessary and proper for abolishing all badges and incidents of slavery in the United States . . .." Civil Rights Cases, 109 U.S. 3, 20, 3 S. Ct. 18, 28, 27 L. Ed. 835 (1883).
At the end of the Civil War, Congress undertook to protect the newly freed slaves from discrimination by the state and private persons and to eliminate the badges and the incidents of slavery through the enactment of the Civil Rights Acts of 1866, ch. 31, 14 Stat. 27-30; 1870, ch. 114, 16 Stat. 140-46; 1871, ch. 22, 17 Stat. 13-15; and 1875, ch. 114, 18 Stat. 335-37. It undertook in other legislation to aid black persons through the provision of relief, social services and education. See Freedman's Bureau Act, ch. 200, 14 Stat. 173-77 (1866). While the goal, held by some Republicans, of "40 acres and a mule" for freed slaves was not achieved, the Government attempted to establish the self-sufficiency of some freed slaves by the distribution and sale of land for homesteads.[24]
The Court in the Civil Rights Cases reasonably concluded that a time must come when the last vestiges of slavery will have been eliminated. The Court wrote,
When a man has emerged from slavery, and by the aid of beneficent legislation has shaken off the inseparable concommitants of that state, there must be some stage . . . when . . . his rights as a citizen . . . are to be protected in the ordinary modes by which other men's rights are protected. Civil Rights Cases, 109 U.S. at 25, 3 S.Ct. at 31.
This is true. There will be a day when the burdens of prior discrimination have been eased and then erased. The vision of the Thirteenth and the Fourteenth Amendments[25] of a society free of racial inequality, color-blind, in which differences among persons arise from merit alone, will be realized.[26]
*361 That time is not yet come. The power of Congress to legislate to eradicate the vestiges of slavery, its badges and incidents, remains in force today as it did over 100 years ago. Jones v. Alfred Mayer Co., 392 U.S. 409, 88 S. Ct. 2186, 20 L. Ed. 2d 1189 (1968).[27] "The Constitutional imperative to eliminate the badges of slavery has not dimmed in the 114 years since President Lincoln issued the Emancipation Proclamation." Brown v. Dade Christian Schools, Inc., 556 F.2d 310, 324 (5th Cir. 1977) U.S. App.Pend. (Judge Goldberg concurring). The reason for this is that current
racist acts are as related to the incidents of slavery as each roar of the ocean is related to each incoming wave. For slavery was an institution which was sanctioned, sustained, encouraged and perpetuated by federal constitutional doctrine. Today's conditions on [sic] race relations are a sequelae and consequence of the pathology created by this nation's two and a half centuries of slavery.
Commonwealth of Penn. v. Local Union No. 542, Int. U. of Operating Engineers, 347 F. Supp. 268, 299 (E.D.Pa.1972) (Judge Higginbotham).
Current discrimination against black persons is a relic of slavery: "when racial discrimination herds men into ghettos and makes their ability to buy property turn on the color of their skin, then it too is a relic of slavery." Jones v. Alfred Mayer, 392 U.S. at 442-43, 88 S.Ct. at 2205.[28]
*362 When the Supreme Court stated in the Civil Rights Cases that a time must come when every citizen takes his place before the law without governmental awareness or sensitiveness to his race, it was anticipating that the time would soon be reached. How anomalous that it spoke these words when national political alignments were returning control of the South to white interests which had little regard for racial equality.[29] Simultaneously, a system of sharecropping was taking hold which would reimpose the severest restrictions on black peoples' freedom.[30] Only a few years before, Congress had reviewed specific findings of rampant violence and discrimination against black persons and passed protective legislation.[31] Yet, the effect of the Court's decisions in U. S. v. Harris, 106 U.S. 629, 1 S. Ct. 601, 27 L. Ed. 290 (1882) and the Civil Rights Cases, supra, was to put much private racial discrimination beyond the reach of federal law.[32] Soon the Court would turn a blind eye to the state reimposition of white supremacy and, in effect, give its constitutional imprimatur. Plessy v. Ferguson, 163 U.S. 537, 16 S. Ct. 1138, 41 L. Ed. 256 (1896); see Cumming v. County School Board, Richmond County, Ga., 175 U.S. 528, 20 S. Ct. 197, 44 L. Ed. 262 (1899).
The "promise of freedom," Jones v. Alfred Mayer, 392 U.S. at 443, 88 S. Ct. 2186, of the Thirteenth Amendment was not realized then. The consequences of that failure remain and continue to vest in Congress power under the Thirteenth Amendment § 2 not only to ban invidious discrimination but to take affirmative steps to eradicate the last vestiges of the badges and incidents of slavery.
Congress has exercised that power in several important ways. Legislation under the Thirteenth Amendment assures to all: the same right as is enjoyed by white citizens to make and enforce contracts, to sue, and to obtain the full and equal benefit of the laws, 42 U.S.C. § 1981; the same right to "inherit, purchase, lease, sell, hold, and convey real and personal property," 42 U.S.C. § 1982; and the right to be free of conspiracies to deprive them, on the basis of invidious discrimination, of the equal protection of the laws, 42 U.S.C. § 1985(3).[33] Section *363 1981 protects black persons from being discriminated against in the making of contracts, including employment contracts, by private persons as well as by local, state and federal governments. Section 1981 assures not just freedom from overt discrimination with invidious intent but also protects against an inequality of results, for under its Thirteenth Amendment power, Congress created a provision which, to use the Supreme Court's words from another context, outlaws "sophisticated as well as simple-minded modes of discrimination," Lane v. Wilson, 307 U.S. 268, 275, 59 S. Ct. 872, 876, 83 L. Ed. 1281 (1939) (Fifteenth Amendment).
Thus § 1982, the twin of § 1981, see Tillman v. Wheaton-Haven Rec. Ass'n, Inc., 410 U.S. at 439-40, 93 S. Ct. 1090, has been held to forbid more than intentional discrimination. It looks behind a legal and formal equality to guarantee that black persons are in fact receiving equal treatment. In the case of Clark v. Universal Builders, 501 F.2d 324 (7th Cir. 1974), cert. denied, 419 U.S. 1070, 95 S. Ct. 657, 42 L. Ed. 2d 666, the district court found that, as a result of racial prejudice, a dual housing-market existed, which confined blacks to one market, marked by severe shortages and higher prices, and whites to another. The defendant housing developers sold housing to black persons at higher prices and for a higher profit than they obtained from sales to white persons in other parts of the city. The court found that the defendants were not motivated by racially discriminatory purposes but only by the profit motive to charge what the market would bear. This would ordinarily be a legitimate business purpose. Nonetheless, the circuit court found that the defendants' differential pricing violated § 1982 which forbids the exploitation of "a situation created by socioeconomic forces tainted by racial discrimination." Id. at 330. The circuit court endorsed the district court's interpretation of Jones v. Alfred Mayer: "[The Supreme Court] found that the legislative history of the 1866 Act demonstrated the Congressional intent to ensure that the former slaves could participate fully in a national economy. It was the Court's conclusion that the existence of a black market distinct from a white market was the de facto vestige of what the Congress in 1866 intended to abolish as a critical means of making the black man a free man." Contract Buyers League v. F & F Investment, 300 F. Supp. 210, 215 (N.D.Ill.1969); Cf. Ortega v. Merit Ins. Co., 433 F. Supp. 135 (N.D.Ill.1977); Resident Advisory Bd. v. Rizzo, 425 F. Supp. 987, 1031-21, 1026-27 (E.D.Pa.1976); 429 F. Supp. 222 (1977), modified 564 F.2d 126 (3rd Cir. 1977) cert. denied 435 U.S. 908, 98 S. Ct. 1458, 55 L. Ed. 2d 499.
Turning to the legislative action before us today, it is clear that under the Thirteenth Amendment Congress can remedy discrimination in the letting of contracts and the hiring of workers with federal monies; and it can eliminate the vestiges of the badges and incidents of slavery which place black businessmen and workers in disadvantageous positions when they compete for those monies. Congress has already done just that by the private damage action for discrimination, § 1981.
But Congress need not depend on private parties, using § 1981, to police the award of contracts. Congress can take more determined, more concerted action to aid black business persons and workers. Under a remedial theory, Congress can create the conditions under which minority businesses, *364 long hindered by the effects of past discrimination, have an opportunity to become self-supporting and competitive so they too can competitively participate in a national economy. Or it may conclude that present day private discrimination is so pervasive that market competition cannot be depended upon to assure a fair distribution of contracts. Congress may then act directly to assure that black persons get their fairshare of the distribution of federal monies. The 10 percent requirement is an "appropriate" and effective means to achieve these purposes. For the factual bases of this conclusion, see "Scrutiny of the Racial Classification, ¶ 3," supra.
The impact of the 10 percent minority business enterprise requirement on contractors is similar to the impact of the holding in Clark v. Universal Builders, supra, on housing developers. There the developers were prevented from profiting to the full extent market competition would permit, since such success would derive from "a situation created by socioeconomic forces tainted by racial discrimination." Rather, they were forced to give up some of their potential profit for the benefit of minority home-buyers. Here, Congress has declared that white contractors may not reap 100 percent of the benefits of governmental contracts merely because they can outbid minority contractors in a situation also created by socioeconomic forces tainted by racial discrimination.
The Supreme Court has written:
Negro citizens, North and South, who saw in the Thirteenth Amendment a promise of freedom . . . would be left with "a mere paper guarantee" if Congress were powerless to assure that a dollar in the hands of a Negro will purchase the same thing as a dollar in the hands of a white man.
Jones v. Alfred Mayer, 392 U.S. at 443, 88 S.Ct. at 2205 (footnote omitted).
It would be a mere paper guarantee if Congress were powerless to assure the black person[34] an equal chance to earn that dollar.
This is a case of first impression. We rely on the Supreme Court's conclusion that discrimination in the making of various contracts is a badge and incident of slavery. Cf. Jones v. Alfred Mayer, 392 U.S. at 441-43, 88 S. Ct. 2186; Tillman v. Wheaton-Haven Rec. Ass'n, Inc., 410 U.S. at 439-40, 93 S. Ct. 1090. This merely affirmed the determination Congress already made, pursuant to its Thirteenth Amendment power to decide what constitutes a badge and incident. Such a Congressional determination is subject to a judicial review which employs the minimum rationality standard. Jones v. Alfred Mayer, 392 U.S. at 440, 88 S.Ct. at 2203. ("Surely, Congress has the power under the Thirteenth Amendment rationally to determine what are the badges and incidents of slavery . . ..").
*365 The standard for judicial review of the means adopted by Congress to eliminate badges and incidents is given by the Thirteenth Amendment § 2: appropriateness. The Supreme Court appears to treat this standard as one of minimum rationality, similar to the standard enunciated in McCulloch v. Maryland, 4 Wheat. 316, 421, 4 L. Ed. 579 (1819). See Jones v. Alfred Mayer, 392 U.S. at 440-41, 443-44, 88 S.Ct. at 2205. ("Surely, Congress has . . . the authority to translate that determination [of what is a badge and incident] into effective legislation. Nor can we say that the determination Congress has made is an irrational one."); Griffin v. Breckenridge, 403 U.S. at 105, 91 S. Ct. 1790; Brown v. State Realty Co., 304 F. Supp. 1236, 1240 (N.D.Ga. 1969).
Here, however, the means adopted include a racial classification; this requires more searching scrutiny. Because of the historic relationship between the Thirteenth Amendment and race, and because the Fourteenth Amendment, though passed subsequently to the Thirteenth Amendment, was thought to expand, not contract, Congressional power, see tenBroek, Thirteenth Amendment to the Constitution of the United States, 39 Calif.L.Rev. 171, 200-202 (1951), we do not simply subject Congressional use of a racial classification under the Thirteenth Amendment to a heightened equal protection scrutiny. Rather, we necessarily develop the standard of review from the nature of the Thirteenth Amendment itself.
First, the Thirteenth Amendment makes the elimination of a badge or incident of slavery per se a compelling state interest. Second, when it reviews the means adopted in a spending program, this Court does not ask whether those methods are "reasonably related," cf. Altshuler, supra, to remedying the effects of past discrimination only in the sector of society toward which the remedy is aimed; nor does it require a prior factual-finding of discrimination in that sector. For action under the Thirteenth Amendment aims at the elimination of a general, pervasive and historical discrimination resulting from slavery. Thus Congress can seek to attack discrimination in any number of ways, at any number of points in the economy. Congress can adopt a remedy directed toward inequality in one sector of the economy because a remedy so directed might be particularly swift and successful in reaching racial discrimination, without first making a prior finding of particular discrimination in that sector. It is possible, for example, that racial imbalance in a particular sector derives entirely from educational discrimination for which the people in that sector are not directly responsible. All that is required is that the spending program be reasonably and significantly related to eliminating the general and pervasive discrimination arising from slavery.
This Court is duly mindful that today's conclusion sanctions, under the Thirteenth Amendment, the broad use of race-conscious remedies in spending programs. Limitations, both political and constitutional do exist. A white majority controls Congress at present and for the foreseeable future; the danger of any abuse of the power to enact benign racial classifications is therefore not substantial. See Ely, The Constitutionality of Reverse Racial Discrimination, 41 U. of Chi.L.Rev. 723 (1974). Further there are limits as to what constitutes a badge and incident of slavery.[35] Moreover, a racial classification that would burden another discrete and insular minority, United States v. Carolene Products Co., 304 U.S. 144, 152 n.4, 58 S. Ct. 778, 82 L. Ed. 1234 (1938), or burden the exercise of a *366 constitutional right, would run afoul of the equal protection guarantee of the Fifth and Fourteenth Amendments, especially where that classification rationally but only minimally promoted Thirteenth Amendment goals. Cf. Oregon v. Mitchell, 400 U.S. at 128-29, 91 S.Ct. at 267 (Black, J.) (Congress cannot "undercut the amendment's guarantees of personal equality and freedom from discrimination . . ."); Katzenbach v. Morgan, 384 U.S. at 651-52 n.10, 86 S. Ct. 1717; Barrick Realty, Inc. v. City of Gary, Indiana, 491 F.2d 161, 164-65 (7th Cir. 1974); Buchanan, The Quest for Freedom, A Legal History of the Thirteenth Amendment at 161-62.
Conclusion
Congress in its considered judgment determined that it must pin-point its monies in construction contracts to be sure that minority businesspersons and workers do not suffer discrimination. This Court has performed its judicial function by reviewing the constitutionality of the Act, giving due deference to the legislative judgment of Congress. It has found that the Congress permissibly employed a racial classification to further its legitimate purposes under the spending power of remedying inequality and under the Fourteenth Amendment § 5 of preventing governmental involvement in discriminatory practices. The classification employed was benign, in fact, and served the compelling interest of remedying the past and present discrimination which Congress found to exist. The means it adopted survive the strictest scrutiny in that they were found to be the only effective means remaining after others had failed. However, this Court found that only a reasonable relationship in fact between means and ends is required, where a benign classification is employed. In addition, this Court found that the minority business requirement was an "appropriate" exercise of Congress' Thirteenth Amendment § 2 power to remedy badges and incidents of slavery, namely discrimination in the letting of business contracts.[36]
A federal court has special responsibility in safeguarding the strictures of the Civil *367 War Amendments and the Fifth Amendment. In the long-run, it must protect the vision of a color-blind society free of legal divisions based on the color of one's skin and the origin of one's family. But it would be wishful thinking to believe that a color-blind society can be created in a short time.
This country once called a halt in its progression toward a racially equal society. Only twenty years after the Emancipation Proclamation, Justice Bradley wrote, in a Supreme Court decision which put many acts of private discrimination beyond the reach of federal law, that "It would be running the slavery argument into the ground to make it apply to every act of discrimination which a person may see fit to make . . . [in] matters of . . . business." Civil Rights Cases, 109 U.S. at 24-25, 3 S.Ct. at 31. Yet more than eighty years later Congress, in its Civil Rights Acts, and the Supreme Court, in Jones v. Alfred Mayer, concluded that such acts of private discrimination could and should be reached.
It is now but 23 years since Brown v. Board of Education overruled Plessy v. Ferguson. It is too early, far too early, to argue that the legislature may not use racesensitive classifications to remedy past discrimination. For this Court to hold otherwise would be to shut our eyes, like Justice Bradley, to the pervasive racial inequality remaining to be undone.
The plaintiffs' motions for preliminary and permanent injunctive relief are denied and judgment is entered for the defendants. Defendants shall prepare an order according.
NOTES
[1] The minority business enterprise provision was set forth in the Senate on March 10, 1977, (123 Cong.Rec. S3910, daily ed.).
[2] Challenges to this statute have been brought in the following cases: Wright Farms Construction, Inc. v. Kreps, 444 F. Supp. 1023 (D.Vt.1977); Fullilove et al. v. Kreps et al., 443 F. Supp. 253 (S.D.N.Y.1977); Associated General Contractors of Kansas, Inc. v. Secretary of Commerce, et al., No. 77-4218 (Dec. 17, 1977); Ohio Contractors Association v. Economic Development Administration, No. 77-619 (S.D. Ohio Nov. 22, 1977); Montana Contractors Association v. Higgins, 439 F. Supp. 1331 (D.Mont. 1977); Associated General Contractors of Wyoming, Inc. v. Secretary of Commerce, No. 77-222 (D.Wyo. Nov. 4, 1977); Florida East Coast Chapter of the Associated General Contractors of America v. Secretary of Commerce, No. 77-8351 (S.D.Fla. Nov. 3, 1977); Associated General Contractors of California v. Secretary of Commerce, 441 F. Supp. 955, No. 77-3738 (C.D. Calif.1977); Constructors Association of Western Pennsylvania v. Kreps, 441 F. Supp. 936, No. 77-1035 (W.D.Pa.1977). Of these, only two courts, Vermont and California, have enjoined administration of the statute. The New York, Ohio and Pennsylvania courts applied a strict scrutiny test and refused to issue a preliminary injunction against the statute. New York has upheld the constitutionality in a final judgment.
[3] Government defendants assert two preliminary grounds for dismissal: that plaintiff association lacks standing and has failed to exhaust administrative remedies before bringing suit. These challenges are rejected by this Court for essentially the same reasons articulated by the other courts who have reviewed attacks on the statute by contractor associations around the country. Associated General Contractors of Calif., at 961-63; Constructors Association of Western Pa., at 943-46.
An association has standing to bring suit on behalf of its members when:
(a) its members would otherwise have standing to sue in their own rights; (b) the interests it seeks to protect are germane to the organization's purpose; and (c) neither the claim asserted, nor the relief requested, requires the participation of individual members in the lawsuit.
Hunt v. Washington Apple Advertising Comm'n, 432 U.S. 333, 343, 97 S. Ct. 2434, 2441, 53 L. Ed. 2d 383 (1977). Suit by both plaintiff Contractors Association and plaintiff-intervenor Subcontractors Association satisfies these criteria. One, already some contractor members have suffered economic injury in lost bids because of the minority business enterprise requirement. Plaintiff alleges that even the successful bidder reduces his profit by having to subcontract work he could have performed himself. Nonminority members of the Subcontractor Association lose opportunities to compete for work and suffer the cognizable none-conomic injury of discrimination based on race. Two, both organizations are committed to assuring fair, non-discriminatory bidding. Three, plaintiff seeks only declaratory and injunctive relief, not damages, on the grounds that the statute is unconstitutional on its face. No individualized determinations with regard to operative facts or relief are necessary. Although one contractor member was awarded a contract upon satisfaction of the 10 percent requirement, the possible absence of economic injury to him with regard to this one project, out of a possible twenty, does not destroy the Contractor Association's standing to seek generalized relief. In Warth v. Seldin, 422 U.S. 490, 515, 95 S. Ct. 2197, 45 L. Ed. 2d 343 (1975), the discrepancy in injury to different members of a builders' association made their individual participation necessary to the damage claim only. It was the lack of any present injury suffered by even one member, rather than the discrepancy in injury, which destroyed the association's standing to seek declaratory and injunctive relief.
Any conflict among competing Contractor Association members over the Pawtucket project does not affect the standing of the Association to assert the rights of injured members. The Association does not function like a class representative, Fed.R.Civ.P. 23(a)(4), as defendants suggest. It need not adequately represent the interest of the member who won the Pawtucket contract. That member can intervene to represent his own interests pursuant to Fed.R. Civ.P. 24 without the showing of inadequate representation required under Rule 23(d). The suit by the Association has the same effect on this member's rights as would any facial attack brought by a single contractor on his own behalf.
Defendants' claim that plaintiffs' suit must be dismissed for failing to seek a waiver of the 10 percent requirement is also without merit. In fact, two Rhode Island grantees did seek waivers and were denied. Moreover, the language of the Guidelines (June, 1977), supra, suggests that this remedy is available only to grantees and not to individual contractors. But even assuming a contractor could request a waiver, that effort is not necessary. The basis for plaintiffs' challenge is that imposition of the 10 percent requirement is unconstitutional on its face. Part and parcel of the alleged unconstitutional burden is the directive to make all feasible efforts to satisfy the requirement before administratively seeking a waiver. Thus, the claim comes within the exemption from the requirement of exhaustion recognized by the Supreme Court in Public Utilities Comm'n of California v. United States, 355 U.S. 534, 78 S. Ct. 446, 2 L. Ed. 2d 470 (1958). The Court provided:
[W]here the only question is whether it is constitutional to fasten the administrative procedure onto the litigant, the administrative agency may be defied and judicial relief sought as the only effective way of protecting the asserted constitutional right.
Id. at 539-40, 78 S.Ct. at 450.
No factual or legal determination in a waiver proceeding is likely to obviate the necessity for judicial decision of the facial, constitutional challenge to the statute.
[4] Plaintiff also claims that the minority business enterprise requirement, 42 U.S.C. § 6705(f)(2), requires contractors to act in a way inconsistent with 42 U.S.C. § 6727 which both prohibits discrimination on account of race and national origin, among others, by those receiving money under Subtitle II of the Public Works Employment Act, 42 U.S.C. §§ 6721-6735, and authorizes the Secretary of Commerce to enforce Title VI of the Civil Rights Act of 1964, 42 U.S.C. § 2000d et seq., which forbids discrimination in government contracts. Plaintiff also claims that contractors will be subject to liability in private suits under 42 U.S.C. §§ 1981, 1982 by non-minority subcontractors and suppliers if they comply with the statutory requirement to take race into consideration. The plaintiff claims that such inconsistent requirements that compel the contractor to violate federal law and to subject himself to liability constitute a violation of his due process rights under the Fifth Amendment. The plaintiff urges this Court to find that Title VI takes precedence over and negates the minority business requirement. In effect, the Court is urged to conclude that the legislative process followed in enacting the minority business requirement, admittedly summary and without detailed factual findings, was just not as "potent" as that followed in enacting Title VI. Courts just cannot reach such a conclusion. To the contrary, the lack of detailed debate may reflect a sufficient consensus to pass the minority business requirement without major legislative battle. More specifically, Congress has sufficiently familiarized itself over the past decade with the nature of discrimination that it need not repeat lengthy legislative findings of fact.
As the last passed act of Congress, Araya v. McLelland, 525 F.2d 1194, 1196 (5th Cir. 1976); International Union of Electrical, Radio and Machine Workers v. N.L.R.B., 110 U.S.App. D.C. 91, 95, 289 F.2d 757, 761 (1960), and as the most specific of the various relevant statutes, Morton v. Mancari, 417 U.S. 535, 550-51, 94 S. Ct. 2474, 41 L. Ed. 2d 290 (1974); Bulova Watch Co. v. U. S., 365 U.S. 753, 758, 81 S. Ct. 864, 6 L. Ed. 2d 72 (1961); Rodgers v. U. S., 185 U.S. 83, 87-88, 22 S. Ct. 582, 46 L. Ed. 816 (1902), the minority business requirement constitutes a defined exception to whatever liabilities the other statutes might create. Cf. United Jewish Organization v. Carey, 430 U.S. 144, 164-65, 97 S. Ct. 996, 51 L. Ed. 2d 229. It is for a court to reconcile legislation passed by Congress where possible, not to choose among them. Morton v. Mancari, 417 U.S. at 551, 94 S.Ct. at 2483 ("The Courts are not at liberty to pick and choose among congressional enactments, and when two statutes are capable of coexistence, it is the duty of the courts, absent a clearly expressed Congressional intention to the contrary, to regard each as effective."). It is worth noting that the various laws cited consistently strive for the same objective, and that race-sensitive remedies are necessary to enforcing antidiscrimination statutes. In regard to any apparent inconsistency with Title VI, it is also worth noting that regulations implementing Title VI permit affirmative action to correct prior discrimination or limited participation. 15 C.F.R. 8.4(b)(6) (1977); cf. Lau v. Nichols, 414 U.S. 563, 94 S. Ct. 786, 39 L. Ed. 2d 1 (1974).
Thus, the plaintiff is not subjected to inconsistent liabilities.
[5] Section five states: "The Congress shall have power to enforce, by appropriate legislation, the provisions of this article."
[6] Since the Burton decision, the Supreme Court in Jackson v. Metropolitan Edison Co., 419 U.S. 345, 351, 95 S. Ct. 449, 42 L. Ed. 2d 477 (1974) has required, for a finding of state action, a "close nexus" between the government action and the violation of the Fourteenth Amendment. However, the Jackson test is only applicable in the absence of a Burton type relationship between the government and the discriminatory party. Braden v. University of Pittsburgh, 552 F.2d 948, 956-58 (3d Cir. 1977); cf. Jackson, supra, 419 U.S. at 357, 95 S. Ct. 449; Marlboro Corp. v. Association of Independent Colleges, 556 F.2d 78, 79-80 (1st Cir. 1977) (both the Supreme Court and the First Circuit Court still cite Burton as authority). Since a Burton relationship between government agencies and their discriminatory contractors is posited here, we need not inquire into whether there is also a "close nexus." Moreover, a number of courts have suggested that less active government involvement is necessary to constitute state action when the Fourteenth Amendment violation involves racial discrimination. See, e. g., Granfield v. Catholic University of America, 174 U.S.App.D.C. 183, 194, 530 F.2d 1035, 1046 n.29, cert. denied, 429 U.S. 821, 97 S. Ct. 68, 50 L. Ed. 2d 81 (1976); Greco v. Orange Memorial Hospital Corp., 513 F.2d 873, 879 (5th Cir. 1975); Turner v. Impala Motors, 503 F.2d 607, 611 (6th Cir. 1974); Jackson v. Statler Foundation, 496 F.2d 623, 628-29 (2d Cir. 1974); Fletcher v. Rhode Island Hospital Trust National Bank, 496 F.2d 927, 931 (1st Cir.), cert. denied, 419 U.S. 1001, 95 S. Ct. 320, 42 L. Ed. 2d 277 (1974); Adams v. Southern California First National Bank, 492 F.2d 324, 334-35 (9th Cir. 1973), cert. denied, 419 U.S. 1006, 95 S. Ct. 325, 42 L. Ed. 2d 282 (1974); cf. Lucas v. Wisconsin Electric Power Co., 466 F.2d 638, 656 (7th Cir. 1972), cert. denied, 409 U.S. 1114, 93 S. Ct. 928, 34 L. Ed. 2d 696 (1973). Thus, the "close nexus" test applied to the due process claim in Jackson is inapplicable to government involvement in racial discrimination practiced by private parties. The rationale for the double standard derives from the historic relationship of the equal protection clause and race and from the fact that where racial discrimination is concerned, even governmental inaction takes on the appearance of affirmative approval and support. Lefcourt v. Legal Aid Society, 445 F.2d 1150, 1155 n.6 (2d Cir. 1971).
[7] A word must be said about "quotas." Some have taken great semantic strides to avoid the word "quota." This Court is not so wary despite the fact that in the past quotas have been used by those on the "in" to keep out the "outs." So long as they are benign, quotas may be used to remedy past discrimination. The real current problem with a quota, when applied to some institution like a university or corporation, is not that it names a racial group but that it undermines normal admission, hiring and advancement practices and it threatens the system of expectations about entrance and advancement held by those in and about the institution. See Weber v. Kaiser Aluminum & Chem. Corp., 563 F.2d 216, 229-234 (Wisdom, dissenting); Flanagan v. President and Directors of Georgetown College, 417 F. Supp. 377 (D.D.C.1976). Quotas are much more disruptive than goals because they seem to require the substitution of whatever notions of merit prevail at a particular institution with a non-meritorious, indeed suspect, criterion. We need not address that issue here for this case does not involve the disruption of an institution. Nor does it involve divesting those with reasonable expectations for the benefit of others. In the market-place, no such expectations become firm and there is no accrued right to a government contract, especially to funds only recently made available on an emergency basis. No on-going private institutional arrangements are being disrupted by the use of this quota. The market, not a private institution, is the locus of this remedy.
[8] For example, Representative Mitchell who proposed the minority business enterprise requirement, explained the need for preferential treatment thus:
The other objection that will be raised is the objection that everybody else is going to go on a competitive bid basis; why should not the minority enterprise people go on a competitive bid basis? The answer is very simple: we cannot. We are so new on the scene, we are so relatively small that every time we go out for a competitive bid, the larger, older, more established companies are always going to be successful in underbidding us. That is an absolute truism.
123 Cong.Rec. H. 1437 (daily ed. Feb. 24, 1977).
[9] The California court suggests that a stigmatizing label of "discriminatory" is cast upon the white construction industry. Associated General Contractors of California v. Secretary of Commerce, 441 F.Supp. at 966, No. 77-3738 (C.D.Cal.1977). Surely, this is not the kind of label of inferiority the Fourteenth Amendment is intended to protect against.
[10] In Califano, the Supreme Court reached a similar conclusion with regard to a gender-based preference in the Social Security Act. Applying the appropriate standard of review for gender classifications, the Court said:. "Reduction of the disparity in economic condition between men and women caused by a long history of discrimination against women has been recognized as such an important governmental objective." 430 U.S. at 317, 97 S.Ct. at 1194.
[11] Judge Coffin's eloquent statement of the present necessity for race-conscious remedies bears repetition:
The first Justice Harlan's much quoted observation that "the Constitution [is colorblind] . . . [and] does not . . . permit any public authority to know the race of those entitled to be protected in the enjoyment of such rights", Plessy v. Ferguson, 163 U.S. 537, 554, 16 S. Ct. 1138, 1145, 41 L. Ed. 256 (1896) (dissenting opinion) has come to represent a long-term goal. It is by now well understood, however, that our society cannot be completely colorblind in the short term if we are to have a colorblind society in the long term. After centuries of viewing through colored lenses, eyes do not quickly adjust when the lenses are removed. Discrimination has a way of perpetuating itself, albeit unintentionally, because the resulting inequalities make new opportunities less accessible. Preferential treatment is one partial prescription to remedy our society's most intransigent and deeply rooted inequalities. Altshuler, 490 F.2d at 16.
[12] For an extensive list, see Altshuler, 490 F.2d at 16-17.
[13] The pattern of the voting rights legislation is an important example. Initially, Congress banned literacy tests in states with only 50 percent of its eligible voters registered or actually voting. This fixed numerical trigger was based on a general observation of the discriminatory effect of literacy tests instead of actual findings in each state. South Carolina v. Katzenbach, 383 U.S. 301, 86 S. Ct. 803, 15 L. Ed. 2d 769 (1966). This legislative generalization was subsequently extended to ban all literacy tests, despite the fact that, in many states, the test was not used to discriminate and despite the Supreme Court's refusal to find that literacy tests constitute a per se constitutional violation. Oregon v. Mitchell, 400 U.S. 112, 132-34, 146-47, 216-17, 232-36, 282-84, 91 S. Ct. 260, 27 L. Ed. 2d 272 (1970) (all Justices concurring). Similarly, the Court has recently upheld Congress' use of broad classifications in place of individualized determinations in a spending program when administrative ease and prophylactic effect are promoted. Weinberger v. Salfi, 422 U.S. 749, 95 S. Ct. 2457, 45 L. Ed. 2d 522 (1975). Justice Rehnquist wrote:
Under those [equal protection] standards, the question raised is not whether a statutory provision precisely filters out those, and only those, who are in the factual position which generated the congressional concern reflected in the statute. Such a rule would ban all prophylactic provisions . . .. Nor is the question whether the provision filters out a substantial part of the class which caused congressional concern, or whether it filters out more members of the class than non-members. The question is whether Congress, its concern having been reasonably aroused by the possibility of an abuse which it legitimately desired to avoid, could rationally have concluded both that a particular limitation or qualification would protect against its occurrence, and that the expense and other difficulties of individual determinations justified the inherent imprecision of a prophylactic rule.
Id. at 777, 95 S.Ct. at 2472.
See Brest, supra, at 32-33. Cf. Califano v. Jobst, 434 U.S. 47, 98 S. Ct. 95, 54 L. Ed. 2d 228 (1977).
[14] Whatever ultimate conclusion the Supreme Court reaches about the capacity of state executive agencies, Bakke v. Regents of University of California, 18 Cal. 3d 34, 132 Cal. Rptr. 680, 553 P.2d 1152 (1976), cert. granted, 434 U.S. 963, 98 S. Ct. 500, 54 L. Ed. 2d 448 (1977) or state legislatures or private parties, Weber v. Kraiser Aluminim & Chemical Corp., 563 F.2d 216 (5th Cir. 1977), to make findings of discrimination or to implement affirmative action remedies without specific findings of discrimination, it is beyond doubt that Congress has that power. Both Bakke and Weber involve voluntary programs adopted without congressional mandate. Indeed, Weber holds that Congress mandated in Title VII against the affirmative action program undertaken by a private firm. See also Flanagan v. President and Directors of Georgetown College, 417 F. Supp. 377 (D.D.C.1976) (affirmative action plan violates Title VI).
[15] Compare Griggs v. Duke Power Co., 401 U.S. 424, 91 S. Ct. 849, 28 L. Ed. 2d 158 (1971) (upholds statutory doctrine of racially discriminatory proportional impact with Washington v. Davis, 426 U.S. 229, 238-40, 96 S. Ct. 2040, 48 L. Ed. 2d 597 (1976) (disapproves constitutional doctrine of racially discriminatory impact, and requires judicial finding of intent to discriminate); Village of Arlington Heights v. Metropolitan Housing Development Corp., 429 U.S. 252, 270-71, 97 S. Ct. 555, 50 L. Ed. 2d 450 (1977); see Boston Chapter NAACP, Inc. v. Beecher, 504 F.2d at 1027 (approves use of race-conscious remedies for unintentional discrimination pursuant to Title VII); Brest, supra, at 32-33.
[16] Current Population Survey, Department of Labor, Bureau of Labor Statistics, Tables 3A, 26A (unpublished data). No reliable data for Rhode Island is available.
[17] See, e. g., Swann v. Charlotte-Mecklenburg Board of Education, 402 U.S. 1, 91 S. Ct. 1267, 28 L. Ed. 2d 554 (1971); Griffin v. County School Board of Prince Edward County, 377 U.S. 218, 84 S. Ct. 1226, 12 L. Ed. 2d 256 (1964); Brown v. Board of Education, 347 U.S. 483, 74 S. Ct. 686, 98 L. Ed. 873 (1954); McLaurin v. Oklahoma State Regents, 339 U.S. 637, 70 S. Ct. 851, 94 L. Ed. 1149 (1950); Sweatt v. Painter, 339 U.S. 629, 70 S. Ct. 848, 94 L. Ed. 1114 (1950); Cooper v. Aaron, 358 U.S. 1, 78 S. Ct. 1401, 3 L. Ed. 2d 5 (1958); Gong Lum v. Rice, 275 U.S. 78, 48 S. Ct. 91, 72 L. Ed. 172 (1927); Missouri ex rel. Gaines v. Canada, 305 U.S. 337, 59 S. Ct. 232, 83 L. Ed. 208 (1938); Cumming v. County Board of Education, 175 U.S. 528, 20 S. Ct. 197, 44 L. Ed. 262 (1899).
[18] In addition to the cases cited supra, at 570-571; see, e. g., Griggs v. Duke Power Co., 401 U.S. 424, 91 S. Ct. 849, 28 L. Ed. 2d 158 (1971); Steele v. Louisville & N.R.R., 323 U.S. 192, 65 S. Ct. 226, 89 L. Ed. 173 (1944).
[19] In testing the reasonable relationship of the 20 percent employment quota, the Court examined whether the figure was unrealistic, leaving room nonetheless for a little over optimism, whether it required contractors to employ unqualified minority workers and whether there was sufficient opportunity to contest the accusation of non-compliance with the quota. Satisfied on all counts, the Court upheld the quota.
[20] The capacity to request a waiver is properly vested in the grantee rather than the individual contractor. Only the grantee is in a position to evaluate the feasibility of satisfying the 10 percent requirement based upon whether any bidder has been able to submit a responsive bid. If no bidder has been successful, it is in the interest of the grantee as well as the bidders to seek a waiver.
Any due process rights the Altshuler Court recognized grew out of the threat of sanctions imposed upon a contractor after he had been awarded a contract for failure to comply with the employment quota in his actual performance.
[21] See programs described in Constructors Association of Western Pa. v. Kreps, at n. 8; Report, supra. In Fullilove v. Kreps, 443 F. Supp. 253 at n. 14, the Court writes that the Secretary of Commerce asserted that 35 programs were in operation. Representative Mitchell proposed the amendment precisely because all these programs had failed to increase the number of contracts awarded to minority businesses. 123 Cong.Rec.H. 1436 (daily ed. Feb. 24, 1977). His sentiments were reiterated on the floor of the Senate by Senator Brooke, 123 Cong.Rec.S. 3910 (daily ed. March 10, 1977).
[22] Some progress has been made in the area of federal procurement contracts. In 1969, minority businesses only received $12.7 million in awards. In 1974, they received $701 million, according to the Interagency Report promulgated by the Office of Management and Budget, supra, at 3; a more modest estimate of $394 million was proferred in the Report of the Commission on Civil Rights, supra, at 6. Despite these gains, minority businesses still received, based on the more optimistic figure, only 1.2 percent of the $57.5 billion awarded for federal procurement contracts in 1972. Id. at 6.
[23] The Thirteenth Amendment reads:
Section 1. Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted shall exist within the United States, or any place subject to their jurisdiction.
Section 2. Congress shall have power to enforce this article by appropriate legislation.
[24] See, K. Stampp, The Era of Reconstruction 1865-1867 (1965). Cf. Commonwealth of Pa. v. Local U. 542, Int. U. of Op. Eng., 388 F. Supp. 155, 163-67, 179 (E.D.Pa.1974); Cornelius v. Benevolent Protective Order of Elks, 382 F. Supp. 1182, 1200, n. 26 (D.Conn.1974).
[25] In the final speech before the House of Representatives voted in favor of the Fourteenth Amendment, Thaddeus Stevens described his vision (which, he believed, the Civil War Amendments would only dimly realize):
In my youth, in my manhood, in my old age, I had fondly dreamed that when any fortunate chance should have broken up for awhile the foundation of our institutions, and released us from obligations the most tyrannical that ever man imposed in the name of freedom, that the intelligent, pure and just men of this Republic, true to their professions and their consciences, would have so remodeled all our institutions as to have freed them from every vestige of human oppression, of inequality of rights, of the recognized degradation of the poor, and the superior caste of the rich. In short, that no distinction would be tolerated in this purified Republic but what arose from merit and conduct.
Quoted in Bickel, The Original Understanding and the Segregation Decision, 69 Harv.L.Rev. 1, 54-55 (1955).
[26] The First Amendment religious clause embodies an analogous vision: a diverse country free of balkinization and the divisiveness of struggle among religious groups. The visions of the First and Fourteenth Amendments differ in that the First Amendment successfully prevented religious prejudices from deeply embedding themselves in our social fabric, by creating a wall of separation which limited divisive national political struggles among religious groups. By contrast, the seeds of struggle and division over slavery were embedded in the Constitution at the same time that the wall of separation was erected to avoid religious competition. Our Union was split asunder by that struggle. The wounds remain today of that racism which fueled political struggles up until the Civil War Amendments attempted to foreclose those rifts once and for all. But those wounds continue to block the realization of the color-blind society the Fourteenth Amendment envisions.
Ours is a nation of foreigners, immigrants and minorities. Religious groups have found a home here, free to enjoy their varied practices and beliefs, secure that they need not struggle in the political arena for their survival. So, too, immigrant groups have found a home here where they can practice both diverse and uniquely American ways. Although some struggle has marked the entry of all minority groups into our society, the constitutional assurance of the equal protection of the laws has promised a broader American identity to all these groups. Protecting that promise of equality before the law is essential. Nonetheless, the Thirteenth Amendment, by its history, singles out one group, former slaves, as to whom the Government can take special pains to assure the equal application of the laws and give aid in securing them a competitive position in society. The justification is historical, stemming from the enforced immigration to this country, the destruction of former ties and ways of living, the severe conditions of slavery, the exploitation of slaves which made them as much as any the builders of southern society. The justification is strengthened by the denial of the equal protection of the laws, sanctioned by the Supreme Court and Congress, long after the equal protection clause of the Fourteenth Amendment guaranteed to others rights denied the black person.
[27] See Sullivan v. Little Hunting Park, Inc., 396 U.S. 229, 90 S. Ct. 400, 24 L. Ed. 2d 386 (1969) (§ 1982); Griffin v. Breckenridge, 403 U.S. 88, 105, 91 S. Ct. 1790, 29 L. Ed. 2d 338 (1971) (§ 1985(3)); Tillman v. Wheaton-Haven Recreational Ass'n., Inc., 410 U.S. 431, 439-40, 93 S. Ct. 1090, 35 L. Ed. 2d 403 (1973) (§§ 1981, 1982); Johnson v. Railway Express Agency, 421 U.S. 454, 459-60, 95 S. Ct. 1716, 44 L. Ed. 2d 295 (1975) (§ 1981); Runyon v. McCrary, 427 U.S. 160, 168-75, 96 S. Ct. 2586, 49 L. Ed. 2d 415 (1976) (§ 1981); McDonald v. Santa Fe Trail Transportation Co., 427 U.S. 273, 285-96, 96 S. Ct. 2574, 49 L. Ed. 2d 493 (1976) (§ 1981); District of Columbia v. Carter, 409 U.S. 418, 421-25, 93 S. Ct. 602, 34 L. Ed. 2d 613 (1973) (§ 1982); Palmer v. Thompson, 403 U.S. 217, 226-27, 91 S. Ct. 1940, 29 L. Ed. 2d 438 (1971); see also Dombrowski v. Dowling, 459 F.2d 190, 195 (7th Cir. 1972) (Judge Stevens); Spiess v. C. Itoh Co. (America), Inc., 408 F. Supp. 916, 919-930 (S.D.Tex.1976); Buchanan, The Quest of Freedom: A Legal History of the Thirteenth Amendment (1976) from articles appearing serially in 12 Houston L.Rev. (1976); tenBroek, Thirteenth Amendment to the Constitution of the United States, 39 Calif.L.Rev. 171 (1951); Note, Federal Power to Regulate Private Discrimination: The Revival of the Enforcement Clauses of the Reconstruction Era Amendments, 74 Colum.L.Rev. 449 (1974); Larson, The Development of Section 1981 as a Remedy for Racial Discrimination in Private Employment, 7 Harv.Civ.Rts.Civ.Lib.L.Rev. 56 (1972); Note, The "New" Thirteenth Amendment: A Preliminary Analysis, 82 Harv.L.Rev. 1294 (1969); Note, Jones v. Mayer: The Thirteenth Amendment and the Federal Anti-Discrimination Laws, 69 Colum.L.Rev. 1019 (1969).
[28] Justice Douglas has written, "Some badges of slavery remain today. While the institution has been outlawed, it has remained in the minds and hearts of many white men." Jones v. Alfred Mayer, 392 U.S. at 445, 88 S.Ct. at 2206 (Douglas, J., concurring) (see his list of Supreme Court cases at 445-48 which testify to the pervasiveness of discrimination). See, The Civil Rights Cases, 109 U.S. at 36, 43, 3 S. Ct. 18 (Harlan, J., dissenting); Dombrowski v. Dowling, 459 F.2d at 195; NAACP v. Lansing Bd. of Education, 429 F. Supp. 583, 586-89, 637-39 (W.D.Mich.1976).
[29] C. Woodward, Reunion and Reaction (1951).
[30] W. Miller, A History of the United States (1958) at 257-60; G. Myrdal, An American Dilemma, Vol. 2 (1944), at 577-82.
[31] See, Report of C. Shurz, S.Exec. Doc. No. 2, 39th Cong., 1st Sess., 2, 17-25, cited in Jones v. Alfred Mayer, 392 U.S. at 428, 88 S. Ct. 2186; Note, Developments in the Law Section 1983 and Federalism, 90 Harv.L.Rev. 1133, 1153-54 (1977).
[32] See, Note, Developments in the Law Section 1983 and Federalism, 90 Harv.L.Rev. at 1158-61.
[33] Congress also passed Title VI of the Civil Rights Act of 1964, Pub.L. 88-352, § 601 et seq., 78 Stat. 252 (1964), 42 U.S.C. § 2000d et seq. (1970), pursuant, in part, to its Thirteenth Amendment power. United States v. Jefferson County Bd. of Educ., 372 F.2d 836, 856 (5th Cir. 1966), cert. denied, 389 U.S. 840, 88 S. Ct. 67, 19 L. Ed. 2d 103 (1967). It directed that no person, on the ground of race, color, or national origin, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any program receiving Federal financial assistance. In 1977, Congress took a more direct and concerted approach, by means of the minority business enterprise requirement, to prevent the exclusion of minorities from the benefits of the federal public works program.
In addition, drawing partially on its Thirteenth Amendment powers, Congress enacted the Civil Rights Act of 1968, Title VIII, Pub.L. 90-284, § 801 et seq., 82 Stat. 81 (1968), 42 U.S.C. § 3601 et seq. (1970), which protects the right not to be discriminated against in the purchase or rental of property and in the conditions of such transactions on account of race, color, religion, or national origin. The Act also forbids blockbusting techniques and discrimination in financing. See, Williams v. Matthews Co., 499 F.2d 819, 825 (8th Cir. 1974), cert. denied, 419 U.S. 1021, 95 S. Ct. 495, 42 L. Ed. 2d 294; U. S. v. Bob Lawrence Realty, Inc., 474 F.2d 115, 120-21 (5th Cir. 1973), cert. denied, 414 U.S. 826, 94 S. Ct. 131, 38 L. Ed. 2d 59; U. S. v. Hunter, 459 F.2d 205, 214-15 (4th Cir. 1972), cert. denied, 409 U.S. 934, 93 S. Ct. 235, 34 L. Ed. 2d 189; Zuch v. Hussey, 394 F. Supp. 1028, 1047 (E.D.Mich.1975); Brown v. State Realty Co., 304 F. Supp. 1236, 1240 (N.D.Ga. 1969); U. S. v. Mintzes, 304 F. Supp. 1305, 1312-13 (D.Md.1969).
In 1976, Congress exercised its power under the Thirteenth Amendment when it authorized attorney fees in civil rights litigation, Pub.L. 94-559, § 2, 90 Stat. 2641 (1976), 42 U.S.C. § 1988 (1977). See Bond v. Stanton, 555 F.2d 172, 175 (7th Cir. 1977).
Congress exercised its Thirteenth Amendment powers in other contexts as well. It outlawed peonage in the Anti-Peonage Act, 42 U.S.C. § 1994 (1970). Congress may also have enacted the predecessor to 18 U.S.C. § 241 (1970), the criminal counterpart of 42 U.S.C. § 1985(3), at least in part pursuant to its Thirteenth Amendment powers. See U. S. v. Price, 383 U.S. 787, 805, 86 S. Ct. 1152, 16 L. Ed. 2d 267 (1966).
[34] The minority business enterprise provision at issue includes other minority groups in addition to black persons. On the facts of this case, we need not decide the applicability or inapplicability of this Thirteenth Amendment analysis to other groups. See Jones v. Alfred Mayer, 392 U.S. at 435, 88 S. Ct. 2186; Griffin v. Breckenridge, 403 U.S. at 102 n.9, 91 S. Ct. 1790; Pendrell v. Chatham College, 370 F. Supp. 494 (W.D.Pa.1974).
For the applicability of § 1981 to Mexican American or Spanish-surnamed persons who did not suffer slavery, see Castro v. Beecher, 459 F.2d 725, 728-32 (1st Cir. 1972); Gomez v. Pima County, 426 F. Supp. 816, 818-19 (M.D. Ala.1976); League of U. Latin Am. Citizens v. City of Santa Clara, 410 F. Supp. 873 (C.D.Calif. 1976); Sabala v. Western Gillette, Inc., 362 F. Supp. 1142, 1147 (S.D.Tex.1973), modified 516 F.2d 1251 (5th Cir. 1975); Guerra v. Manchester Terminal Corp., 350 F. Supp. 529, 533-38 (S.D.Tex.1972) aff'd 498 F.2d 641, 653-54 (5th Cir. 1974); Godbolt v. Hughes Tool Co., 63 F.R.D. 370, 373-74 (S.D.Tex.1972); cf. Hernandez v. Texas, 347 U.S. 475, 74 S. Ct. 667, 98 L. Ed. 866 (1954); Takahashi v. Fish and Game Comm'n, 334 U.S. 410, 419-20, 68 S. Ct. 1138, 92 L. Ed. 1478 (1948); Spiess v. C. Itoh & Co., 408 F. Supp. 916 (S.D.Tex.1976); Sud v. Import Motors Ltd., 379 F. Supp. 1064, 1071-72 (W.D. Mich.1974). Contra Nat. Assn. of Government Employees v. Rumsfeld, 413 F. Supp. 1224, 1228 (D.D.C.1970) aff'd 556 F.2d 76 (D.C.Cir.1976). We also note that the Supreme Court, employing a rationality standard, has reviewed the use of a benign classification as to Indian employment and has upheld it under Congress' plenary power to determine relations with Indian tribes. Morton v. Mancari, 417 U.S. 535, 551-55, 94 S. Ct. 2474, 41 L. Ed. 2d 290 (1974).
[35] Whatever limit interests in privacy, freedom of association and the like place on Congressional power to define a badge and incident of slavery, that limit is not in issue here. See Runyon v. McCrary, 427 U.S. at 175-79, 96 S. Ct. 2586 (Court); at 211, 96 S.Ct. at 2613 (White, J., dissenting) ("A racially motivated refusal to hire a Negro or a white babysitter or to admit a Negro or a white to a private association cannot be called a badge of slavery . . ."); Tillman v. Wheaton-Haven Rec. Ass'n, 410 U.S. at 438-39, 93 S. Ct. 1090; Sullivan v. Little Hunting Park, 396 U.S. at 236, 90 S. Ct. 400; Brown v. Dade Christian Schools, Inc., supra; Note, Section 1981 and Private Groups: The Right to Discriminate versus Freedom from Discrimination, 84 Yale L.J. 1441 (1975).
[36] Today, this Court upholds the constitutionality of the minority business enterprise provision on its face. Although plaintiffs have not claimed that the statute, while constitutional on its face, cannot be constitutionally applied to the Rhode Island construction industry, we shall briefly address such an attack. An as-applied attack might take two forms. First, the plaintiffs might have argued that Congress cannot remedy discrimination in states or locales where no discrimination has in fact occurred or been proved. Second, plaintiffs might have argued that the 10 percent figure is not feasible; and that it is not reasonably related to and is, in fact, altogether unreasonable in light of Rhode Island's minority population of 3.4 percent. See General Population Characteristics of Rhode Island, 1970 Census, United States Dept. of Commerce, Bureau of the Census, Table 18 at 41-28-29. Plaintiffs have raised neither of these as-applied claims.
1) With regard to the first as-applied argument, we initially note that this Court has today approved the facial constitutionality of the minority business enterprise requirement despite the fact that the requirement does not provide for a waiver upon proof that the industry in the local trade area has not engaged in discriminatory practices. We have done so on the basis of Congress' broad powers under the spending power and Amendment 14 § 2 and especially on the basis of Congress' power under the Thirteenth Amendment to remedy general and pervasive discrimination. The absence of such a waiver provision is "reasonably related" to Congress' objectives. To afford a local association or an individual contractor an opportunity to prove that the trade area is innocent of discrimination in an administrative hearing in each of the 8,591 public works projects (Agreed Statement of Facts, at 5) would totally frustrate the objective of quickly infusing federal dollars into the most economically depressed portions of the population and industry. Cf. Califano v. Jobst, 434 U.S. 47, 98 S. Ct. 95, 54 L. Ed. 2d 228 (1977). Moreover, even judicial remedies for past discrimination can burden persons innocent of discrimination. Franks v. Bowman, 424 U.S. at 773-79, 96 S. Ct. 1251. A fortiori, Congress, which paints with a broader brush, can similarly adopt a remedial scheme that, to be effective, necessarily involves contractors who may in fact be innocent of the discrimination practiced by the industry region-wide or even nationwide. The discrimination in the construction industry is a national phenomenon calling for a national remedy. In addition to these practical considerations, which assure the facial validity of the provision, there is a serious question of whether contractors can claim exemption from a national remedial program based simply upon their individual innocence of past discriminatory practices when the program burdens no constitutional right, intends no punishment and any burden imposed is feasible, cf. Clark v. Universal Builders, Inc., 501 F.2d at 331. Such feasibility is assured by the possibility of waiver. Even if we would review any as-applied claim in light of these conclusions, the plaintiffs have neither claimed nor produced any evidence to prove that the construction industry in the relevant trade area did not engage in discriminatory practices against minorities. If they were to make such a showing, plaintiffs might then argue that the 10 percent requirement hits so far wide of the mark, namely remedying past discrimination, that the requirement is not reasonably related to the remedial purpose. Plaintiffs have offered no such proof nor made such an argument. We need not therefore reach this question.
2) With regard to the as-applied attack that the 10 percent requirement is not feasible given Rhode Island's minority population, it is apparent that plaintiffs have not yet exhausted their other administrative and judicial remedies. Cf. n.3, supra. Plaintiffs' first remedy would clearly lie in the statute's waiver provision with respect to Pawtucket and other projects. Plaintiffs have not alleged that either non-responsive bidder requested that the City of Pawtucket seek a waiver. Failure to seek or grant a waiver would open the way for judicial review of the administrative actions of both city and federal officials.
However, the issues would not be of constitutional dimension, but would involve questions of administrative discretion or involve the construction of the statute or its implementing regulations. Nothing in the statute or the regulations suggests that an unreasonable minority business requirement, beyond the capacity of local contractors, was meant to be imposed. Rather local conditions including minority population and the availability of minority business enterprises are supposed to shape the extent of the requirement. Indeed, if the minority population is so small that no minority enterprises are available, the grantee can seek a waiver even before requesting bids. Guidelines (Aug., 1977) at 15. Thus an as-applied attack on the 10 percent requirement would actually be an attack on rules promulgated or administrative action taken pursuant to a constitutional provision. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1873236/ | 396 F. Supp. 33 (1975)
Paul KAISER t/a Wamsley Pontiac
v.
GENERAL MOTORS CORPORATION (PONTIAC MOTOR DIVISION).
Civ. A. No. 71-1242.
United States District Court, E. D. Pennsylvania.
May 20, 1975.
*34 Robert H. Malis, Philadelphia, Pa., for plaintiff.
W. Bradley Ward, Philadelphia, Pa., for defendant.
OPINION
DITTER, District Judge.
In this case, cross-motions for summary judgment require me to determine whether an automobile manufacturer's refusal to permit one of its dealers to relocate his place of business creates a valid claim for relief.
I. FACTUAL BACKGROUND
Plaintiff, Paul Kaiser, is the sole proprietor, chief executive, and general manager of Wamsley Pontiac in Morrisville, Bucks County, Pennsylvania. Defendant, Pontiac Motor Division of General Motors Corporation, manufactures and distributes automobiles and spare parts.
To market its products, Pontiac has established a system of franchising dealerships that are locally owned and operated by private businessmen. Under this plan, each Pontiac dealer is granted the non-exclusive right to purchase new Pontiacs at dealer prices and to resell them in a manner which promotes maximum sales and preserves the reputation and goodwill of Pontiac.
Defendant views its dealers not only as salesmen for new automobiles, but as the components of a comprehensive and integrated network of repair and service facilities, each segment of which promotes car sales on a nationwide basis. A continuing effort is made to match dealers with areas where sales and services are needed. Demographic and economic studies are used as a basis for providing the right number of dealers in the right places to attract sales and guarantee convenient accessibility of service franchises and parts supplies to the largest possible segment of the public.
On March 14, 1962, the parties entered into a five-year dealer selling agreement which imposed upon plaintiff "the obligation to develop properly the sale [of Pontiac automobiles] at retail particularly in the following area: In the State of Pennsylvania: In Bucks CountyMorrisville, Fairless Hills, Yardley." In addition, the agreement stated:
In order to provide product representation commensurate with the good will attached to the name "Pontiac" and to facilitate the proper sale and servicing of Pontiac Motor vehicles, parts and accessories, Dealer will maintain a place of business satisfactory as to appearance and location, and adequate in size and layout for new motor vehicle sales operations, service operations, parts and accessories sales and used car sales, and will maintain the business hours customary in the trade.
*35 Once Dealer is established in facilities and at a location mutually satisfactory to Dealer and Pontiac, Dealer will not move to or establish a new or different location, branch sales office, branch service station, or place of business including any used car lot or location without the prior written approval of Pontiac [emphasis added].
From Pontiac's standpoint, control over where its dealers locate is a means to avoid ruinous competition among them and to preserve the effectiveness of its nation-wide service system.
In February of 1963, defendant redefined and assigned to plaintiff what it termed its Trenton, New Jersey Metropolitan Area[1] to include additional contiguous areas, including the city of Morrisville, Pennsylvania. Plaintiff by letter expressly consented to this expansion, and the parties subsequently executed a supplement to the dealer selling agreement redefining and enlarging the plaintiff's area of sales and service responsibility.
A new expressway, connecting Trenton, New Jersey with U. S. Route 1 in Pennsylvania at a point near Langhorne, Pennsylvania, was opened in 1965. The effect of this new highway was to re-route some traffic which previously had passed through Morrisville. Plaintiff contends that the change in traffic pattern resulted in a decrease in his volume of business. Nevertheless, the March, 1962, dealer selling agreement was superseded by a new one dated November 1, 1965, for a term expiring October 31, 1970. This agreement assigned to plaintiff the same primary area of responsibility and contained a provision that, absent a mutual modification of the contract, he would continue to operate at his Morrisville location.
In the summer of 1966 plaintiff first discussed with James Buckland, then district manager for Pontiac, the possibility of relocating his dealership. Plaintiff and Buckland thereafter looked for suitable sites within the Pennsylvania portion of the Trenton Metropolitan Area. Plaintiff subsequently proposed to Pontiac that he relocate his dealership at a point near the Reedman automobile sales complex on Route 1 in Langhorne. Pontiac rejected this suggestion because (1) the contemplated site was outside the Trenton Metropolitan Area; (2) Pontiac regarded the borough of Morrisville as a point to be serviced by plaintiff; and (3) of the potential impact of the change on other Pontiac dealers in the general area.
Throughout 1967 and 1968, plaintiff continued to express an interest in moving his dealership to the Langhorne area. He was repeatedly refused permission to do so because (1) that location was within the area of responsibility of Reedman Pontiac, a dealership operated by Joseph ("Ted") Reedman in Bristol; (2) the unique circumstances of the Reedman Chevrolet complex[2] had resulted in a "false and inflated market"; and (3) because Pontiac believed two dealers were needed in the Trenton Metropolitan Area.
Plaintiff subsequently sought another site for relocation, and in the fall of 1968, proposed to move to Lincoln Point, Falls Township, Pennsylvania. Pontiac Division's Organization and Analysis departments approved this proposal, and plaintiff pursued negotiations to obtain an option on the Lincoln Point location. Although the validity of the "option" plaintiff obtained in August of 1969 is questionable, it is plain that he failed to preserve or extend whatever rights he *36 did possess with respect to the site.[3] By the time Pontiac had fully approved the proposed relocation and the Trenton Metropolitan Area had been redefined by General Motors to encompass the Lincoln Point property, plaintiff notified Pontiac that he had lost his "option", and again requested permission to relocate in Langhorne. Pontiac refused for the same reasons it had proffered previously.
In November, 1970, the parties entered into a new dealer sales and service agreement for a five year period ending October 31, 1975, and this contract is still in effect. Plaintiff continued to seek Pontiac's consent to relocate in Langhorne and Pontiac steadfastly refused to permit him to do so.
Plaintiff commenced the present action in May, 1971, invoking the jurisdiction of this court pursuant to Section 4 of the Sherman Anti-Trust Act, 15 U.S. C. § 12,[4] the Automobile Dealers' Day in Court Act, 15 U.S.C. §§ 1221-1225, and the parties' diversity of citizenship as authorized by 28 U.S.C. § 1332.
II. THE PLEADINGS AND CONTENTIONS OF THE PARTIES
Fairly read, plaintiff's complaint alleges three causes of action. First, he submits that Pontiac conspired to protect the competitive position of Reedman Pontiac by refusing to permit him to relocate his place of business nearer to that of Reedman. Next, plaintiff asserts that Pontiac restricted the area in which he was allowed to conduct his business and "unreasonably and without due cause, and in violation of the terms, covenants and conditions of plaintiff's dealership franchise agreement, prevented the plaintiff from moving his business to a location or place within the territory previously assigned . . ." Finally, he contends that Pontiac unilaterally withdrew a substantial portion of his sales territory and refused to permit him to relocate his dealership either within or without his "primary area of responsibility," both of which actions he alleges constituted a breach of the dealer selling agreement.
Defendant for its part denies any wrong or damage to the plaintiff by virtue of any of its actions or conduct, denies any breach of its agreement with plaintiff, and asserts that the dealer selling agreements between plaintiff and itself were valid in all respects. Defendant further avers that there is no genuine issue as to any material fact and that it is entitled to summary judgment as a matter of law.
In response to defendant's motion, plaintiff has proffered two arguments. Initially, he asserts that summary judgment is inappropriate on three grounds. First, he submits that genuine and material issues of fact exist with respect to the alleged conspiracy in violation of the Sherman Act, the proof of which is within defendant's sole control. *37 Next, plaintiff contends that factual issues exist with respect to the defendant's motive and intent, which are of crucial significance where the Automobile Dealers' Day in Court Act has been invoked. Third, he argues that he has established a prima facie case of fraud. Alternatively, plaintiff contends that in the absence of any material issue of fact, he is entitled as a matter of law to summary judgment.[5]
III. SUMMARY JUDGMENT IN ANTITRUST SUITS
That summary judgment is rarely appropriate in complex antitrust litigation is not surprising. See Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 473, 82 S. Ct. 486, 491, 7 L. Ed. 2d 458 (1962);[6]In re Penn Central Securities Litigation, 367 F. Supp. 1158, 1167 (E.D.Pa.1973). Nevertheless, summary judgment, if otherwise justified, is clearly proper in antitrust cases. See International Salt Co. v. United States, 332 U.S. 392, 396, 68 S. Ct. 12, 15, 92 L. Ed. 20 (1947); Goldinger v. Boron Oil Co., 375 F. Supp. 400, 413 (W.D.Pa. 1974). Moreover, "a party cannot rest on the allegations contained in his complaint in opposition to a properly supported summary judgment motion made against him." First National Bank of Arizona v. Cities Service Co., 391 U.S. 253, 289, 88 S. Ct. 1575, 1592-93, 20 L. Ed. 2d 569 (1968);[7]Drake Motor Lines, Inc. v. Highway Truck Drivers and Helpers Local No. 107, 343 F. Supp. 1130 (E.D.Pa.1972). Rather, he must produce some evidence to establish the existence of the facts which will support his allegations.
Plaintiff's assertion that Pontiac is in sole control of all proof of the alleged conspiracy does not change the rule.[8] In First National Bank of Arizona v. Cities Service Co., supra, the plaintiff alleged a conspiracy among seven major oil companies, in violation of the Sherman Act, to prevent plaintiff's selling Iranian oil. The district court held that evidence of the defendant's failure to reach accord with the plaintiff with respect to the sale of the Iranian oil was insufficient, in light of other evidence, to raise a genuine triable issue of fact as to whether the defendant had participated in the alleged conspiracy with other companies to boycott the plaintiff. Both the Court of Appeals and the Supreme Court affirmed. In rejecting the plaintiff's claim that the defendant had not disproved its participation in the alleged conspiracy, despite the fact that the only suggestion of such participation was the plaintiff's allegation thereof, the Supreme Court said:
Essentially all that the lower courts held in this case was that Rule 56(e) placed upon [plaintiff] the burden of *38 producing evidence of the conspiracy he alleged only after respondent Cities Service conclusively showed that the facts upon which he relied to support his allegation were not susceptible of the interpretation which he sought to give them. That holding was correct. To the extent that petitioner's burden-of-proof argument can be interpreted to suggest that Rule 56(e) should, in effect, be read out of antitrust cases and permit plaintiffs to get to a jury on the basis of the allegations in their complaints, coupled with the hope that something can be developed at trial in the way of evidence to support those allegations, we decline to accept it. While we recognize the importance of preserving litigants' rights to a trial on their claims, we are not prepared to extend those rights to the point of requiring that anyone who files an antitrust complaint setting forth a valid cause of action be entitled to a full-dress trial notwithstanding the absence of any significant probative evidence tending to support the complaint. [emphasis added]
391 U.S. at 289-90, 88 S.Ct. at 1593. See, e. g., Chapman v. Rudd Paint & Varnish Co., 409 F.2d 635, 643 (9th Cir. 1969); Oak Distributing Co. v. Miller Brewing Company, 370 F. Supp. 889, 896-97 (E.D.Mich.1973).
IV. SUMMARY JUDGMENT IN THE CASE AT BAR
The propriety of summary judgment in the instant suit depends, of course, upon the merits of plaintiff's allegations under his three asserted legal grounds for recovery, i. e., the Sherman Act, the Automobile Dealers' Day in Court Act, and common law fraud.
A. ANTITRUST CLAIM
1. Conspiracy contention.
To establish a violation of Section 1 of the Sherman Act, the existence of a contract, combination, or conspiracy between two or more parties must be demonstrated. See, e. g., GAF Corp. v. Circle Floor Co., 329 F. Supp. 823, 827 (S.D.N.Y.1971), aff'd, 463 F.2d 752 (2d Cir. 1972); Six Twenty-Nine Productions, Inc. v. Rollins Telecasting, Inc., 365 F.2d 478, 484 (5th Cir. 1966). Paragraph 16 of the complaint alleges in essence that Pontiac and Ted Reedman of Reedman Pontiac entered into a conspiracy to prevent plaintiff's relocating his dealership close to Reedman's. Yet despite voluminous discovery, plaintiff has failed to produce any evidence of such an agreement.[9] Quite to the contrary, the unrebutted affidavits before the court demonstrate that Pontiac's refusal to permit plaintiff to relocate in Langhorne was motivated exclusively by business considerations.[10] Plaintiff's unsubstantiated hope that he can at trial produce evidence of a conspiracy[11] is insufficient *39 to constitute a genuine issue of material fact required to defeat a motion for summary judgment.[12]
2. Franchise Agreement Aspects.
The franchise agreement on its face is not violative of the antitrust laws. The permissible limits of franchisor control of franchisees were discussed in United States v. Arnold, Schwinn & Co., 388 U.S. 365, 376, 87 S. Ct. 1856, 1864, 18 L. Ed. 2d 1249 (1967), wherein the Court stated:
. . . a manufacturer of a product other and equivalent brands of which are readily available in the market may select his customers, and for this purpose he may "franchise" certain dealers to whom, alone, he will sell his goods. Cf. United States v. Colgate & Co., 250 U.S. 300, 39 S. Ct. 465, 63 L. Ed. 992 (1919). If the restraint stops at that pointif nothing more is involved than vertical "confinement" of the manufacturer's own sales of the merchandise to selected dealers, and if competitive products are readily available to others, the restriction, on these facts alone, would not violate the Sherman Act.
In Boro Hall Corp. v. General Motors Corp., 124 F.2d 822, reh. denied, 130 F.2d 196 (2d Cir. 1942), cert. denied, 317 U.S. 695, 63 S. Ct. 436, 87 L. Ed. 556 (1943), Judge Augustus Hand held that the restriction of sales of automobiles by a manufacturer and distributor to a dealer who would confine its headquarters for dealings to some extent, so as not unduly to affect other authorized dealers, was reasonable and not violative of the Sherman Act. Conversely, in Colorado Pump & Supply Co. v. Febco, Inc., 472 F.2d 637 (10th Cir.), cert. denied, 411 U.S. 987, 93 S. Ct. 2274, 36 L. Ed. 2d 965 (1973), an exclusive dealing contract which merely assigned a territory within which the distributor was authorized to sell, but did not mention, much less *40 forbid, sales outside the territory, was held lawful.
The Supreme Court specifically declined, almost a decade ago, to consider the legality of the General Motors location clause. See United States v. General Motors Corp., 384 U.S. 127, 139-40, 86 S. Ct. 1321, 1327-28, 16 L. Ed. 2d 415 (1966). In concurring, however, the late Mr. Justice Harlan stated, "In my opinion, . . . General Motors is not precluded from enforcing the location clause by unilateral action, and I find nothing in the Court's opinion to the contrary." Id. at 149, 86 S.Ct. at 1332. And the lower federal courts have uniformly sustained the reasonableness and legality of the franchise location clause in actions brought under the Automobile Dealers' Day in Court Act, supra. See, e. g., Woodard v. General Motors Corp., 298 F.2d 121 (5th Cir. 1962); Salco Corp. v. General Motors Corp., 1973-2 C.C.H. Trade Cases ¶ 74,745 (D.Colo. 1973).
Furthermore, plaintiff's claim that defendant established horizontal allocation of selling areas is without factual or legal support. The testimony here, including that of the plaintiff, demonstrates without contradiction that the designation of an area of sales responsibility in a dealer selling agreement does not operate in any way to restrict the territory within which the dealer may make sales. Rather, the clause merely insures adequate facilities to provide for the sales and servicing of Pontiac automobiles to the motoring public within the dealer's primary area of responsibility. The right of a franchisor to designate geographical areas wherein its dealers shall be primarily responsible for the distribution of its products was recognized by the district court on remand in United States v. Arnold, Schwinn & Co., 291 F. Supp. 564 (N.D.Ill.1968). In its final decree, the court stated:
Notwithstanding the foregoing provisions, nothing in this Final Judgment shall prevent Schwinn from maintaining and creating or eliminating areas or territories of prime responsibility for its distributors; from choosing and selecting its distributors and retailers or designating geographic areas in which such distributors shall respectively be primarily responsible for distributing Schwinn products, or from terminating such distributorships of distributors who do not adequately represent Schwinn and promote the sale of Schwinn products in areas so designated as their primary responsibility; from designating in its retailer franchise agreements the location of the place or places of business for which the franchise is issued; or from engaging in any activity rendered lawful by subsequent legislation enacted by the Congress of the United States [emphasis supplied].
Id. at 565-66. And in analyzing a selling agreement identical to those in the case at bar, the Supreme Court concluded that it ". . . does not restrict or define those to whom the dealer may sell. Nor are there limitations as to the territory within which the dealer may sell." United States v. General Motors Corp., supra, 384 U.S. at 130, 86 S.Ct. at 1322.
Plaintiff's reliance upon American Motor Inns, Inc. v. Holiday Inns, Inc., 365 F. Supp. 1073 (D.N.J.1973), is misplaced. There, plaintiff American Motor Inns, Inc. (AMI), a franchisee of Holiday Inns, Inc. (HI), alleged a violation of Section 1 of the Sherman Act on the theory that HI conspired with others to restrain and monopolize trade in the Newark, New Jersey, area hotel-motel industry. HI's standard practice, upon receipt of an application to construct a new Holiday Inn, was to send out "radius letters," i. e., written notices of the application to at least the three Holiday Inns nearest the proposed site, affording them fifteen days to comment upon the proposed additional inn. Although HI's executive committee made the final determination where there was an objection to an application, the court held that the *41 radius letter gave to existing franchisees a "veto of sorts" over applications for franchises and constituted a conspiracy to allocate territories horizontally in violation of the Sherman Act.
In contrast, as previously stated, the dealer selling agreement in the case at bar imposes no restraint upon competition with respect to the sale of Pontiac automobiles: each dealer is entirely free to sell to customers in every other dealer's primary area of responsibility. Furthermore, the provisions of the franchise agreement in American Motor Inns operated effectively to provide for the allocation of exclusive sales territories, free of competition from other franchisers, while the record evidences no such restraint in the present case. Finally, the type of affirmative and vigorous opposition of existing HI franchisees to AMI's application in American Motor Inns is conspicuously absent in the case at bar.[13]
3. Group Boycott Claim
Plaintiff's final argumentthat GMC's requirement of approval by the sales section of the marketing staff of an application for relocation of an existing dealership constitutes a per se violation of the Sherman Act in the form of a group boycottalso must be rejected as lacking either a factual or legal foundation.[14] In asserting this proposition plaintiff relies upon two United States Supreme Court cases, United States v. General Motors Corp., supra, and Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 79 S. Ct. 705, 3 L. Ed. 2d 741 (1959). Neither is helpful to him. Klor's involved an alleged conspiracy between a retailer and ten manufacturers and their distributors either not to sell to plaintiff or to sell to it only at discriminatory prices and highly unfavorable terms. In reversing a grant of summary judgment to the defendants, the Court defined group boycotts as "concerted refusals by traders to deal with other traders," which refusals "cripple the freedom of traders and thereby restrain their ability to sell in accordance with their own judgment [footnote omitted]." Id. at 212, 79 S.Ct. at 709. The crucial contrast between the facts in Klor's and those in the instant case, however, is emphasized in the following language in Mr. Justice Black's opinion for the Court:
This is not a case of a single trader refusing to deal with another, nor even of a manufacturer and a dealer agreeing to an exclusive dealership. Alleged in this complaint is a wide combination consisting of manufacturers, distributors and retailers. This combination takes from Klor's its freedom to buy appliances in an open competitive market and drives it out of business as a dealer in the defendants' products. It deprives the manufacturers and distributors of their freedom to sell to Klor's at the same prices and conditions made available to Broadway-Hale, and in some instances forbids them from selling to it on any terms whatsoever.
Id. at 212-13; 79 S.Ct. at 709-10. Because General Motors and Pontiac are a single corporate entity, there can be no "group," and Klor's is inapplicable to the case at bar.
In United States v. General Motors Corp., supra, the Court held that joint collaborative efforts by Chevrolet dealers, Chevrolet dealer associations, and General Motors Corporation to eliminate a class of competitors by terminating dealings with them and a minority of Chevrolet dealers, and to deprive franchised *42 dealers, if they so chose, of their freedom to deal through discounters, constituted an unlawful conspiracy in violation of the Sherman Act. The unilateral exercise by General Motors of its right to disapprove a request by an existing franchisee to relocate his dealership, without the collaboration with others in the decision making process, can by no stretch of the imagination be said to constitute a "group boycott" within the meaning of United States v. General Motors Corp. and Klor's. Plaintiff has offered no evidence whatever of any refusal, concerted or otherwise, by anyone to deal with him, or to deny him access to Pontiac automobiles, or to interfere with his contractual right to sell Pontiacs to anyone anywhere.
I, therefore, conclude that Pontiac's refusal to allow plaintiff to relocate his dealership in Langhorne constituted no antitrust violation.
B. DEALERS' ACT CLAIM
Plaintiff's claim under the Automobile Dealers' Day in Court Act, also known as the Automobile Dealers' Franchise Act, 15 U.S.C. §§ 1221-1225, is equally ineffective to bar summary judgment. That statute created a new cause of action in favor of a franchised automobile dealer against an automobile manufacturer for damages sustained "by reason of the failure of said automobile manufacturer . . . to act in good faith in performing or complying with any of the terms or provisions of the franchise, or in terminating, cancelling, or not renewing the franchise."
A long line of cases in this Circuit have strictly construed a lack of good faith, as used in the context of this statute, to require a showing of coercion or intimidation. See Milos v. Ford Motor Co., 317 F.2d 712, 715-16 (3d Cir.), cert. denied, 375 U.S. 896, 84 S. Ct. 172, 11 L. Ed. 2d 125 (1963); Globe Motors, Inc. v. Studebaker-Packard Corp., 328 F.2d 645, 646-47 (3d Cir. 1964); Garvin v. American Motors Sales Corp., 318 F.2d 518, 520 (3d Cir. 1963); Berry Brothers Buick, Inc. v. General Motors Corp., 257 F. Supp. 542, 546 (E.D.Pa.1966), aff'd per curiam, 377 F.2d 552 (3d Cir. 1967).[15] Having failed to allege that defendant's conduct even begins to approximate coercion or intimidation, plaintiff cannot maintain a claim under this statute.[16]
C. COMMON LAW FRAUD
Plaintiff lastly submits that he has established a prima facie case of fraud, precluding summary judgment for the defendant. Plaintiff's theory of fraud centers around the "plus" territory[17]*43 which plaintiff was to acquire upon becoming a metropolitan dealer. Plaintiff contends that defendant knew that (1) the designation of "plus" territory was illusory; (2) the inclusion of "plus" communities was material, and did in fact influence the plaintiff to become a metropolitan dealer; and (3) the plaintiff neither would nor could know the true meaning of the term "plus" territory. After a careful review of the documents before the court, I conclude that plaintiff has failed to establish any material factual issue respecting his allegation of fraud.
The primary area of responsibility assigned to Wamsley Pontiac in 1956 included, among other communities in Bucks County, Pennsylvania, Fairless Hills and Yardley. Fairless Hills and Yardley were retained in plaintiff's primary area under the 1962 dealer-selling agreement between the parties. Under the 1963 modification of that agreement concomitant with plaintiff's inclusion in the Trenton Metropolitan Area, however, those two communities were contained in the area described as "plus the following communities." The 1965 dealer selling agreement incorporated the 1963 modification. In a letter in March, 1970, from John P. Ware, then Philadelphia zone manager for Pontiac, to plaintiff, the portion of Bucks County which had been included in the Trenton Metropolitan Area under the 1965 agreement, specifically only the borough of Morrisville, was enlarged to cover the Lincoln Point site upon which plaintiff claimed to have possessed an option. The 1970 dealer selling agreement presently in force retains this provision.
Plaintiff argues that the redefinition of his primary area of responsibility in 1963, in light of Pontiac's promise to give him "additional territory and responsibility" if he agreed to inclusion within the Trenton Metropolitan Area, constituted a false misrepresentation giving rise to damages. Even a cursory comparison of the 1962 and 1963 agreements demonstrates the fallacy of this argument. Under the 1963 agreement plaintiff's primary area of responsibility notwithstanding the change in status of Fairless Hills and Yardleywas vastly enlarged; it included the City of Trenton, Ewing and Hamilton Township, and a portion of Lawrence Township, all in Mercer County, New Jersey; the City of Bordentown, the borough of Fieldsboro and Bordentown Township and all unincorporated communities therein, in Burlington County, New Jersey; and the borough of Morrisville, Bucks County, Pennsylvania. In addition to Fairless Hills and Yardley, Robinsville in Mercer County, New Jersey, and Columbus and Crosswicks, in Burlington County, New Jersey, were designated as "plus" communities.
Although conceding that he could still continue to sell automobiles to anyone residing in Fairless Hills and Yardley, plaintiff nevertheless asserts that the characterization of those communities as "plus" territory was an emasculation of his Pennsylvania territory, depriving him of certain unspecified rights he had when those communities were within his primary area of responsibility. The change in designation, plaintiff contends, delayed his relocation in Lincoln Point, since that was located in "plus" territory until he had lost his option on that site. Plaintiff's contention, although possibly correct,[18] is irrelevant *44 to and establishes no evidence of fraud. Plaintiff has produced not a scintilla of evidence to substantiate his claims that he was deceived as to the meaning of the term "plus" communities or indeed that he even bothered to ascertain its meaning. Indeed, his free and willing assent to the dealer selling agreements of 1963, 1965, and 1970, under which he obtained the benefits of a metropolitan dealership for Pontiac, including the goodwill value of its very name, may operate as an estoppel to his present attack upon those agreements. Cf. Tempo Music, Inc. v. Myers, 407 F.2d 503, 507 (4th Cir. 1969); Marshall v. Mole Constructors, 193 F. Supp. 617, 618 (W.D.Pa.1961). Plaintiff's claim of fraud therefore cannot defeat Pontiac's motion for summary judgment.
Accordingly, for all the foregoing reasons, plaintiff's motion for summary judgment must be denied and defendant's motion for summary judgment must be granted.
NOTES
[1] "The Marketing Staff of General Motors Corporation, in conjunction with each automotive division of the Corporation, establishes Metropolitan Areas as a part of the orderly marketing of its products. Generally, each city having a population of 50,000 or more, according to the latest U.S. Census, will be designated as a Metropolitan Area." Defendant's Brief at 4, citing G.M.C. Answer to Plaintiff's Interrogatory No. 1(c) and (d).
[2] See note 11, infra.
[3] Plaintiff paid no consideration for the "option," and the only writing relating to it is a letter from Paul Kash and Frank J. Ray to plaintiff, dated August 19, 1969, which reads as follows:
Regarding our recent conversation about the tract of ground at West Trenton Avenue and Route #1, we shall hold open your first right of refusal for sixty (60) days. If we obtain a buyer before you go to agreement with us, then you will be notified and have the first opportunity to firm out an agreement.
Plaintiff never furnished or exhibited a copy of the "option" to anyone at Pontiac.
In his deposition plaintiff acknowledged that he made no attempt to exercise the "option" or to renew it within sixty days after August 19, 1969, as contemplated in the letter from Messrs. Kash and Ray. During that sixty-day period Mr. Kash advised plaintiff that he (Kash) was negotiating with other prospects and that if he obtained a purchaser, any obligation to plaintiff would have to cease. Nonetheless, plaintiff did nothing to preserve his rights.
[4] This is a singularly curious and inappropriate section upon which to assert jurisdiction. Section 12 of Title 15 simply defines various terms and establishes no substantive offense in and of itself.
[5] As a result of plaintiff's alternative responses to the defendant's motion for summary judgment, defendant would have this court impute to plaintiff "a clear admission that the case presents no factual dispute requiring trial." Such a conclusion would be patently erroneous. See Rule 8(e) (2), Fed. R.Civ.P.; Sanisidro v. Dampskisselskabet Torm, A/S, 45 F.R.D. 29 (E.D.Pa.1968).
[6] As the Supreme Court stated in Poller:
. . . summary procedures should be used sparingly in complex antitrust litigation where motive and intent play leading roles, the proof is largely in the hands of the alleged conspirators, and hostile witnesses thicken the plot [footnote omitted].
368 U.S. at 473, 82 S.Ct. at 486.
[7] The Supreme Court pointed out in Cities Service that the explicit purpose of amending Rule 56(e) of the Federal Rules of Civil Procedure was to overturn a line of Third Circuit cases holding that a party could, by relying on his well pleaded allegations, successfully oppose a motion for summary judgment. 391 U.S. at 289 n. 19, 88 S.Ct. at 1593 n. 19.
[8] Compare Poller v. Columbia Broadcasting System, 368 U.S. 464, 473, 82 S. Ct. 486, 490, 7 L. Ed. 2d 458 (1962) with First National Bank of Arizona v. Cities Service Co., 391 U.S. 253, 289-90, 88 S. Ct. 1575, 1593, 20 L. Ed. 2d 569 (1968).
Indeed, to hold that plaintiff must be deemed to present a sufficiently controverted issue of conspiracy because he has no access to proof of a conspiracy would be a ludicrous exercise of judicial legerdemain.
[9] Plaintiff's counsel conceded at oral argument that he had failed to depose Ted Reedman. Tr. 55-56. In light of plaintiff's bold assertions of a conspiracy, this omission is, to say the least, startling.
The only reference to any communication between Pontiac and Ted Reedman concerning plaintiff's proposal was made in the affidavit of Warren Brooks, docket entry number 29 in this proceeding. Mr. Brooks, the Pontiac district manager of district 2, comprised of southern New Jersey dealerships and several in Pennsylvania, stated that in 1968 he informed Mr. Reedman that if Pontiac, in the exercise of its independent business judgment, looked favorably upon plaintiff's proposed relocation in Langhorne, then Pontiac would want Reedman's approval in writing. Such approval would be needed, Mr. Brooks explained, because plaintiff would be moving into Reedman's contractually-defined area of responsibility. Inasmuch as Pontiac itself never authorized plaintiff's move to Langhorne, Mr. Reedman's approval never was either needed or secured. Plaintiff admits that he has no evidence of any other communications with Pontiac and Reedman regarding plaintiff's proposal and none appears in any of the documents before this court.
[10] See text, page 35.
[11] Ted Reedman's nephew is the owner of Reedman Chevrolet Inc., located on Route 1 in Langhorne, Pennsylvania. Reedman Chevrolet is a gargantuan operation involving by its advertisements "hundreds of cars and trucks traded weekly." In a remarkable colloquy between the court and plaintiff's counsel at oral argument, counsel disclosed his unsubstantiated, and by his own admission possibly never provable, suspicion concerning Pontiac's motive in refusing plaintiff's request to relocate in Langhorne:
The Court: That brings me to the other question I really wanted to ask you.
What reason does Pontiac have in wanting to protect Reedman?
Why protect Reedman anymore than protect Wamsley?
Mr. Malis: Because of another Mr. Reedman, it is our belief, and there is nothing in the record on this point yet. Certainly, there may never be. It is our belief that the true motive in wanting to protect Reedman Pontiac is by reason of a tremendous influence exerted by Reedman Chevrolet, which is his nephew, the largest Chevrolet dealer, I think, in the country who is located in Langhorne and so he has, and everyone knows he has tremendous, tremendous influence. He is in fact selling Pontiacs, brand new ones. We have determined that simply by looking at his advertising.
And so, the motive lies in the relationship between Reedman Pontiac in Bristol and the desire on the part of the largest Chevy dealer in the country to lend some of that power or influence to prevent anyone from coming in to compete with Reedman's Pontiac.
Tr. 59-60
[12] Inasmuch as I have concluded that no material issue of fact exists with respect to plaintiff's allegation of a conspiracy it is unnecessary for me to consider defendant's alternative argument, i.e., that an agreement between Pontiac and Ted Reedman to deny plaintiff's proposed relocation still would not be violative of the antitrust laws. I do note with some interest in this regard, however, a line of cases in this Circuit which seem to stand for the proposition that a manufacturer is free to choose which dealers shall distribute its products even should such a choice involve an agreement or combination with one dealer against another. See Ark Dental Supply Co. v. Cavitron Corp., 323 F. Supp. 1145 (E.D.Pa.1971), aff'd, 461 F.2d 1093 (3d Cir. 1972); Marsin Medical Supply Co., Inc. v. Howmedica, Inc., Civil No. 74-160 (E.D.Pa., filed March 21, 1974); Eastcoast Equipment Co. v. Harnischfeger Corp., 1973 CCH Trade Cases ¶ 74,560 (E.D.Pa.1973) ; Peerless Dental Supply Co. v. Weber Dental Manufacturing Co., 283 F. Supp. 288 (E.D.Pa. 1968).
[13] Plaintiff in American Motor Inns also contended that it was illegal under Section 1 of the Sherman Act for HI to deny an application for a Holiday Inn franchise in a "parent company town," in which HI operated its own inn because of its anit-competitive effect. Judge Garth rejected this argument, holding that "HI may grant or reject franchise applications at will when it operates as a franchisor, . . ." American Motor Inns, Inc. v. Holiday Inns, Inc., 365 F. Supp. 1073, 1092 (1973).
[14] A similar contention also was rejected in American Motor Inns, Inc., supra at 1090-91.
[15] The legislative history of the Act fully supports this interpretation. See Milos v. Ford Motor Company, 317 F.2d 712, 715-16 (3d Cir.), cert. denied 375 U.S. 896, 84 S. Ct. 172, 11 L. Ed. 2d 125 (1963).
[16] Plaintiff contends that in Rea v. Ford Motor Co., 497 F.2d 577 (3d Cir. 1974), the most recent case in which the Court of Appeals has had occasion to construe the Act, it rendered a more flexible interpretation. Upon a close reading of the case, I disagree. Although the court in Rea did hold that whether an automobile manufacturer has acted with sufficient justification to constitute good faith is a factual question to be determined upon the circumstances of each particular case, id. at 585, there is not even the slightest hint that the fundamental definition of a lack of good faith, i. e., intimidation or coercion, has been diluted. Quite the contrary intention is discernable from the court's continued citation of Milos, Garvin, Globe, and Berry Brothers as accurate statements of the law.
[17] Easy definitions of the terms, "primary area of responsibility" and "plus territory," eluded counsel in both their briefs and at oral argument. Defense counsel characterized the former as "where a dealer may locate his dealership." Included in the term, however, is the idea that to promote sales and assure adequate service to customers within a populated or heavily travelled area, Pontiac has determined that one or more dealers must conduct his business there. While the dealer is in no way precluded from selling vehicles to those who live elsewhere, or providing service for them, he cannot move his facilities outside that particular areaand, in fact, can only move his business to another site within the area after receiving Pontiac's permission.
"Plus territory," on the other hand, seems to designate one or more adjacent communities. Because such territories are less heavily travelled and more sparsely populated, they are considered unable to support their own dealerships, and accordingly, no dealer may locate therein.
[18] Plaintiff's request to locate at Lincoln Point, made in March, 1969, was not approved until January 1970, some ten months later. Lincoln Point was added to the Trenton Metropolitan Area in March, 1970. However, since the written approval of Pontiac was a prerequisite to any relocation, whether within or without his primary area of responsibility, it is doubtful that Lincoln Point's location significantly affected the time factor.
In any event, Langhorne, where plaintiff doggedly proposed to relocate, was well outside the Yardley-Fairless Hills area, whether the latter be deemed to be within his primary area of responsibility, as it was before 1963, or "plus" territory. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2471193/ | 767 F. Supp. 2d 161 (2011)
SHEET METAL WORKERS' INTERNATIONAL ASSOCIATION, Plaintiff,
v.
UNITED TRANSPORTATION UNION, Defendant.
Civil Action No. 07-2230(JDB).
United States District Court, District of Columbia.
March 4, 2011.
*164 Arlus Jeremiah Stephens, Murphy Anderson, PLLC, Washington, DC, Michael Timothy Anderson, Murphy Anderson, PLLC, Boston, MA, Paul L. More, Richard G. McCracken Davis, Cowell & Bowe, LLP, San Francisco, CA, for Plaintiff.
Charles R. Both, Law Offices of Charles R. Both, Edgar Neville James, Steven K. Hoffman, James & Hoffman, P.C., Washington, DC, for Defendant.
MEMORANDUM OPINION
JOHN D. BATES, District Judge.
Before the Court is a motion by plaintiff Sheet Metal Workers International Association ("SMWIA") to compel arbitration of the claims in this case, which relate to an attempted merger between SMWIA and defendant United Transportation Union ("UTU"). UTU contends that no valid arbitration clause exists because the Merger Agreement that contains the arbitration provision either was never formed or has terminated. UTU also moves for leave to file several counterclaims against SMWIA arising from the disputed merger. Individual members of UTU move to intervene, raising statutory claims under the Labor-Management Reporting and Disclosure Act ("LMRDA") that relate to their vote that ratified the Merger Agreement in 2007.
BACKGROUND
I. Procedural History
The present conflict arises from an attempted merger between SMWIA and UTU in late 2007, which would create a new union, the International Association of Sheet Metal, Air, Rail and Transportation Workers ("SMART"). The parties and individual members of UTU have filed several cases that relate to the disputed merger. In Michael v. United Transp. Union, 2008 WL 2600002 (N.D.Ohio 2008), a district court granted injunctive relief to individual plaintiffs who claimed that UTU violated their rights to an "equal vote" under Title I of the LMRDA by not providing them sufficient information to vote on the merger. The Sixth Circuit reversed and the injunction was withdrawn and the case dismissed. See Michael v. Futhey, ___ Fed.Appx. ___, 2009 WL 4981688 (6th Cir.2009). This case was stayed during the Michael litigation. See Order dated April 3, 2008 [Docket Entry 15] at 1.[1]
After the Michael litigation, SMWIA continues to urge that the current dispute regarding the Merger Agreement should be sent to arbitration, and UTU maintains that the Merger Agreement is invalid and no obligation to arbitrate exists. UTU has moved for leave to file an amended answer and counterclaims. See Defendant's Counterclaims and Amended Answer ("Def.'s Answer") [Docket Entry 22]. SMWIA does not oppose this motion, but contends that the defenses and counterclaims UTU raises in its amended answer are "within the scope of the arbitration clause of Article *165 XII of the parties Merger Agreement." Plaintiff's Memorandum in Opposition to UTU's Motion for Leave to File ("Pl.'s Opp'n to Mot. for Leave") [Docket Entry 25] at 1. Additionally, individual members of the UTU have sought leave to intervene in this case, claiming violation of their LMRDA rights. Motion by Certain Members of Defendant UTU for Leave to Intervene ("Mot. to Intervene") [Docket Entry 32] at 8. Individual UTU members have also filed a separate case before this Court, Murphy v. Sheet Metal Workers Int'l Ass'n, 10-cv-01194, which raises substantially the same issues as are raised by the proposed intervenors. SMWIA has moved, and UTU has consented, to consolidate Murphy with this case. See Consent to Motion to Consolidate [Docket Entry 14] at 1.
II. Factual Background
Several of the details of the attempted merger remain in dispute between the parties. But the sequence of events that gave rise to the parties' claims and the contractual provisions of the Merger Agreement are straightforward. In May 2007, Paul Thompson, then President of UTU, and Michael Sullivan, the President of SMWIA, entered into a Merger Agreement, which set forth a process by which the two unions would ratify the proposed merger. Am. Compl. ¶ 11. On June 11, 2007, the UTU Board of Directors voted unanimously to approve the Merger Agreement. Id. ¶ 17. The Board also voted to submit the merger to a vote of UTU membership, as required by the Merger Agreement. Id. On June 13, 2007, the General Executive Counsel of SMWIA voted to approve the Merger Agreement. Id. ¶ 18. Between July 17, 2007, and August 7, 2007, UTU's membership voted on the proposed merger. Id. ¶ 19. UTU members voted using an automated telephone voting system administered by the American Arbitration Association. Defendant's Opposition to SMWIA's Motion to Compel ("Def.'s Opp'n") [Docket Entry 33] at 9. Members who called in to vote were asked: "Do you accept the proposed merger agreement? Press 1 to accept the proposed merger agreement. Press 2 to reject the proposed merger agreement." Id. Members were not asked to vote on the SMART Constitution. Id. UTU membership voted in favor of the "merger agreement," with a vote count of 8,625 for the merger and 3,472 against it. Am. Compl. ¶ 19. The American Arbitration Association certified the results on August 8, 2007. Id. The Merger Agreement stated that the effective date of the merger would be January 1, 2008. Merger Agreement ("MA") [Docket Entry 1-1] at 3.
To prepare members for the vote, UTU mailed to the membership a copy of the Merger Agreement. See Defendant's Counterclaims and Amended Answer ("Def.'s Answer") [Docket Entry 22-1] ¶ 11. The version of the Merger Agreement sent to UTU membership contained empty signature lines for the Presidents of both unions and the Secretary-Treasurers of both unions. See Def.'s Opp'n at 10. The final, signed Merger Agreement, however, only contained signature lines for the Presidents. Id. The Merger Agreement states that "[t]he UTU Constitution will become Article 21A of the SMART Constitution to the extent not in conflict with the current SMWIA Constitution or the terms of this Agreement." MA at 11. UTU did not mail members a copy of the SMART Constitutionor the SMWIA or UTU Constitutions (although both were available on the UTU website). See Def.'s Opp'n at 8.
UTU held its convention in August 2007 shortly after the vote on the merger. Am. Compl. ¶ 23. Malcolm B. Futhey, Jr. was elected to succeed Paul Thompson as President *166 of UTU, and a number of other new UTU officers were also elected. Id. ¶¶ 23-25. Following the convention, and prior to the merger's effective date of January 1, 2008, internal dissent within UTU regarding the merger grew. See id. ¶¶ 26-27. Futhey, who would become President of UTU on January 1, 2008, sided with UTU members who argued that the merger should not go into effect. Id. ¶ 27. These dissenters assert that Thompson had misled the UTU Board and membership regarding potential conflicts between the SMWIA and UTU Constitutions. Id. ¶ 28. Also, they contend that UTU, under Thompson's leadership, improperly failed to provide a printed copy of the new SMART Constitution to UTU members when they voted on the merger. See Def.'s Opp'n at 8.
Article II of the Merger Agreement, titled "Effective Date," set forth a number of conditions before the proposed merger would take effect:
Upon approval of this Merger Agreement and of the SMART Constitution (together the "Merger Documents") by the General Executive Council of SMWIA and the Board of Directors of UTU, and by the membership of UTU prior to its regular convention to be held in August 2007, and upon certification of those results by the respective International General Secretary-Treasurers, the merger of SMWIA and UTU to form SMART shall be effective. SMART shall be created as an unincorporated association under the laws of the District of Columbia, effective January 1, 2008, which shall be the effective date of the merger and is hereafter referred to as the "Effective Date." If either SMWIA or UTU fails to approve the Merger Documents by the procedures stated above, they shall be deemed terminated and of no force and effect.
MA at 3. Article XII of the Merger Agreement contained an arbitration clause:
In the event of any dispute or controversy arising out of or under this Agreement, such dispute or controversy shall be referred to the SMWIA General President and the International President of UTU (or, if the dispute or controversy arises after the Effective date, the SMART General President and the SMART President, Transportation Division for conference and resolution). If they are unable to resolve the dispute or controversy, it may be submitted by either officer, and no one else, to arbitration by an arbitrator appointed by the President of the AFL-CIO. The decision of such arbitrator on the disputed matter shall be final and conclusive on all parties and may be enforced in any court of competent jurisdiction.
The arbitrator's power shall be limited to the application and interpretation of this Agreement. The arbitrator shall have no power or authority to rescind, alter, amend, or modify any of the provisions of this Agreement.
Arbitration under this agreement shall be the exclusive remedy for any dispute hereunder, and the right to obtain such arbitration shall be a complete defense to any action at law or in court or in any tribunal to enforce, modify, construe or assert any right under this Agreement. The arbitrator shall have the power to require the attendance of any party to a dispute hereunder or of any witness whose testimony may be relevant to the arbitration of such dispute and to subpoena books, records, and other instruments relative to such dispute.
Each party will bear its own cost and will share equally the fees and expenses of the arbitration, provided that if the arbitration proceeding occurs after the *167 Effective Date, all costs shall be borne by SMART.
The laws of the District of Columbia shall be deemed to govern the interpretation and performance of this Agreement.
MA at 13-14. The Merger Agreement also states in Article III that it "shall expire and have no further legal force and effect on September 1, 2011 or when three-fourths of the SMART General Executive Council vote to terminate it." MA at 4.
After the proposed January 1, 2008 "effective date" of the merger, and following the legal developments of the Michael litigation, the parties have continued to dispute the obligations and duties of union officers as to UTU, SMWIA, and SMART. Def.'s Answer at 14-15. These disputes are the bases for claims under Title V of the LMRDA, which regulates the fiduciary duty of union officers to their respective union members. See Mot. to Intervene at 13-15. Ultimately, as both unions concede, these issues relate to whether the merger ever occurred, which could only happen if UTU and SMWIA entered into a Merger Agreement. See Am. Compl. ¶ 4; Def.'s Answer at 14.
STANDARD OF REVIEW
When considering "a motion to stay proceedings and/or compel arbitration, the appropriate standard of review for the district court is the same standard used in resolving summary judgment motions" pursuant to Federal Rule of Civil Procedure 56(a). Brown v. Dorsey & Whitney, LLP, 267 F. Supp. 2d 61, 67 (D.D.C.2003) (internal quotation marks omitted); see also Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51, 54 & n. 9 (3d Cir.1980). Thus, it is appropriate to grant a motion to stay proceedings when the pleadings and the evidence demonstrate 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). The party seeking summary judgment (i.e., arbitration) bears the initial responsibility of demonstrating the absence of a genuine dispute of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). The moving party may successfully support its motion by identifying those portions of "the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of motion only), admissions, interrogatory answers, or other materials," which it believes demonstrate the absence of a genuine issue of material fact. Fed. R.Civ.P. 56(c)(1); see Celotex, 477 U.S. at 323, 106 S. Ct. 2548.
In determining whether there exists a genuine dispute of material fact sufficient to preclude summary judgment, the court must regard the non-movant's statements as true and accept all evidence and make all inferences in the non-movant's favor. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986); see also Par-Knit Mills, Inc., 636 F.2d at 54 ("The district court, when considering a motion to compel arbitration which is opposed on the ground that no agreement to arbitrate had been made between the parties, should give to the opposing party the benefit of all reasonable doubts and inferences that may arise."). A non-moving 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. By pointing to the absence of evidence proffered by the non-moving party, a moving party may succeed on summary judgment. Celotex, 477 U.S. at 322, 106 S. Ct. 2548. Moreover, "if the evidence is merely colorable, or is not significantly probative, summary judgment *168 may be granted." Anderson, 477 U.S. at 249-50, 106 S. Ct. 2505 (citations omitted). Summary judgment, then, is appropriate if the non-movant fails to offer "evidence on which the jury could reasonably find for the [nonmovant]." Id. at 252, 106 S. Ct. 2505.
ANALYSIS
I. UTU's Amended Answer and Counterclaims
UTU has moved for leave to file an amended answer and counterclaims. Def.'s Answer [Docket Entry 22]. SMWIA does not oppose this motion, but contends that the defenses and counterclaims UTU raises in its amended answer are "within the scope of the arbitration clause of Article XII of the parties' Merger Agreement." Pl.'s Opp'n to Mot. for Leave at 1. This Court "freely give[s] leave" to amend a pleading "when justice so requires," Fed.R.Civ.P. 15(a), and will grant UTU leave to file its amended answer. UTU also contends that its counterclaims and defenses are not arbitrable. Def.'s Opp'n at 38. The counterclaims raised by UTU include: declaratory judgment that the Merger Agreement has been terminated; unlawful demand for dues owed to UTU; tortious interference with contract; and federal and common law trademark infringements and false description of the UTU logo and service mark. See Def.'s Answer at 15-21. The Court will discuss these issues further below.
II. SMWIA's Motion to Compel Arbitration
SMWIA invokes the Federal Arbitration Act ("FAA" or "Act"), 9 U.S.C. §§ 1-16 (2000), to request a stay of proceedings in this action pending arbitration of its claims. In passing the FAA, Congress sought "to place arbitration agreements upon the same footing as other contracts." Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24, 111 S. Ct. 1647, 114 L. Ed. 2d 26 (1991). Accordingly, the FAA dictates that an agreement to arbitrate in any "contract evidencing a transaction involving commerce" is enforceable "save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. The Act further provides that a district court, "upon being satisfied that the issue involved in [a] suit or proceeding is referable" to arbitration, "shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement." Id. § 3.
Before this Court can be satisfied that the issues in this action are referable to arbitration, it must first consider UTU's challenges to the validity of the contract that contains the arbitration agreement. See, e.g., Stromberg Sheet Metal Works, Inc. v. Wash. Gas Energy Sys., Inc., 448 F. Supp. 2d 64, 68 (D.D.C.2006). "An agreement to arbitrate is valid, irrevocable, and enforceable, as a matter of federal law, `save upon such grounds as exist at law or in equity for the revocation of any contract.'" Perry v. Thomas, 482 U.S. 483, 492 n. 9, 107 S. Ct. 2520, 96 L. Ed. 2d 426 (1987) (citation omitted) (quoting § 2). The Supreme Court has clarified that state law, either in statutory or common-law form, can operate to invalidate an arbitration agreement under § 2 so long as "that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally." Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 686-87, 116 S. Ct. 1652, 134 L. Ed. 2d 902 (1996) (quoting Perry, 482 U.S. at 492 n. 9, 107 S. Ct. 2520). Thus, arbitration agreements can be rendered unenforceable on the basis of "generally applicable contract defenses, such as fraud, duress, or unconscionability." *169 Id. at 687, 116 S. Ct. 1652. SMWIA contends that to the extent that state-law contract principles are relevant to UTU's challenges to the arbitration agreement, this Court should look to the law of the District of Columbia, Am. Compl. ¶ 12, and the Merger Agreement states that "the laws of the District of Columbia shall be deemed to govern the interpretation and performance of this Agreement," MA at 14. UTU maintains that the Merger Agreement is by its own terms "of no force and effect." Def.'s Answer ¶ 12.
The FAA creates a strong presumption in favor of enforcing arbitration agreements and "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S. Ct. 927, 74 L. Ed. 2d 765 (1983); Shearson/Am. Express Inc. v. McMahon, 482 U.S. 220, 226-27, 107 S. Ct. 2332, 96 L. Ed. 2d 185 (1987) (requiring courts to "rigorously enforce agreements to arbitrate"). Nevertheless, parties cannot be forced into arbitration unless they have agreed to do so. Granite Rock Co. v. Int'l Broth. of Teamsters, ___ U.S. ___, 130 S. Ct. 2847, 2858, 177 L. Ed. 2d 567 (2010); AT & T Techs., Inc. v. Commc'ns Workers, 475 U.S. 643, 648, 106 S. Ct. 1415, 89 L. Ed. 2d 648 (1986) ("[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit."). Moreover, the authority of arbitrators to resolve disputes is derived from the agreement of the parties to engage in arbitration. Equal Emp't Opportunity Comm'n v. Waffle House, Inc., 534 U.S. 279, 294, 122 S. Ct. 754, 151 L. Ed. 2d 755 (2002). Because arbitration provisions are in essence a matter of contract between the parties, courts decide whether the parties are bound by a given arbitration clause. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84, 123 S. Ct. 588, 154 L. Ed. 2d 491 (2002) ("[A] gateway dispute about whether the parties are bound by a given arbitration clause raises a question of arbitrability for a court to decide.") (internal quotation omitted). Thus, courts shall apply "the presumption favoring arbitration, in FAA and in labor cases, only where it reflects, and derives its legitimacy from, a judicial conclusion that arbitration of a particular dispute is what the parties intended because their express agreement to arbitrate was validly formed ... [,] legally enforceable and best construed to encompass the dispute." Granite Rock, 130 S.Ct. at 2860-61.
As SMWIA does here, such questions of arbitrability are typically brought before the court pursuant to section 4 of the FAA, which permits a party to petition any United States district court which would otherwise have subject-matter jurisdiction "for an order directing that such arbitration proceed in the manner provided for in such agreement." See 9 U.S.C. § 4. When presented with a motion to compel arbitration, a district court must "determine the enforceability of the agreement [to arbitrate] and decide whether arbitration should be compelled." Nelson v. Insignia/Esg, Inc., 215 F. Supp. 2d 143, 146 (D.D.C.2002). To make such a determination, courts must engage in a two-part inquiry. Id. at 149-50. First, the court must decide whether the parties entered into a valid and enforceable arbitration agreement. Nur v. K.F.C., USA, Inc., 142 F. Supp. 2d 48, 50-51 (D.D.C.2001). If so, the court must then determine whether the arbitration agreement encompasses the claims raised in the complaint. Id.
Here, for the reasons described below, this Court finds that SMWIA and UTU entered into the Merger Agreement, which contains a valid and enforceable arbitration agreement. The Merger Agreement's *170 broad arbitration clause encompasses the dispute between the parties as to whether the Merger Agreement has terminated. Hence, the Court lacks authority to determine whether the Merger Agreement remains in effect, which is an issue properly before the arbitrator.
A. The Arbitration Agreement is Enforceable
SMWIA contends that this Court must compel arbitration under the arbitration clause of the Merger Agreement. Whether or not the preconditions to the effective date of the merger under Article II were satisfied, SMWIA asserts, the Merger Agreement is a binding document that requires under Article XII that the parties arbitrate "any dispute or controversy arising out of or under this Agreement." See Plaintiff's Motion to Compel Arbitration ("Mot. to Compel") [Docket Entry 26] at 2.
UTU contests the validity of the arbitration provision on several grounds. First, UTU argues that President Thompson lacked the authority to commit UTU to the Merger Agreement. Second, UTU contends that, by its very terms, the Merger Agreement is "terminated and of no force and effect" because certain prerequisites to the merger did not occur. Third, UTU asserts that the Merger Agreement is invalid and unenforceable because Thompson, with the knowledge and acquiescence of SMWIA's President Sullivan, violated the LMRDA in securing approval of the Agreement by UTU's members. Finally, UTU argues that even if the arbitration clause is valid, it does not cover the disputes raised by UTU's affirmative defenses and counterclaims.
As a preliminary matter, this Court must ensure that it has the authority to resolve each of these issues. Certain challenges to an arbitration agreement must be referred to arbitration in the first instance. In Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 126 S. Ct. 1204, 163 L. Ed. 2d 1038 (2006), the Court noted that "[c]hallenges to the validity of arbitration agreements ... can be divided into two types." 546 U.S. at 444, 126 S. Ct. 1204. The first type, which "challenges specifically the validity of the agreement to arbitrate," may be adjudicated by the district court. Id. But the FAA does not permit a district court to consider the second type, which consists of "challenges [to] the contract as a whole, either on a ground that directly affects the entire agreement (e.g., the agreement was fraudulently induced), or on the ground that the illegality of one of the contract's provisions renders the whole contract invalid." Id.; see also Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404, 87 S. Ct. 1801, 18 L. Ed. 2d 1270 (1967) ("[I]n passing upon a § 3 application for a stay while the parties arbitrate, a federal court may consider only issues relating to the making and performance of the agreement to arbitrate.").
Although the Supreme Court in Buckeye Check Cashing confirmed that "a challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator," 546 U.S. at 449, 126 S. Ct. 1204 (emphasis added), it also noted that "[t]he issue of the contract's validity is different from the issue whether any agreement between the alleged obligor and obligee was ever concluded," id. at 444 n. 1, 126 S. Ct. 1204. And the Court further emphasized that its opinion "addresses only the former, and does not speak to the issue decided in cases ... which hold that it is for the courts to decide whether the alleged obligor ever signed the contract, whether the signor lacked authority to commit the alleged principal, and whether the signor lacked the mental capacity to assent." Id. *171 (citations omitted). UTU's first challenge, that President Thompson lacked the authority to commit it to the Merger Agreement, clearly falls into the category of disputes carved out of Buckeye Check Cashing's broader holding and hence that are properly resolved by this Courti.e., disputes over whether a contract existed at all. UTU's second argument, that the Merger Agreement has terminated, is a closer issue under D.C. Circuit precedent.
1. President Thompson's Authority to Enter into the Merger Agreement.
UTU raises a number of concerns regarding former President Thompson's "authority" to bind UTU to the Merger Agreement. "[A]uthority to do an act can be created by written or spoken words or other conduct of the principal which, reasonably interpreted, causes the agent to believe that the principal desires him so to act on the principal's account." Lewis v. Washington Metro. Area Transit Auth., 463 A.2d 666, 669 n. 4 (D.C.1983) (citing Restatement (Second) of Agency § 26 (1958)). UTU does not dispute that Thompson was President at the time he signed the Merger Agreement or claim that UTU's Constitution requires something more than the President's signature to bind the union. Def.'s Answer ¶ 9; Def's Opp'n at 10. Instead, UTU claims that "Thompson lacked the authority to commit UTU when he knew that the prerequisites to the agreement had not been satisfied and that he was only one of the two officers required to sign on behalf of UTU."[2] Def.'s Opp'n at 29-30.
The draft of the Merger Agreement circulated to the membership had a signature line for the Secretary-Treasurers of both unions to sign. Def.'s Opp'n at 31. The final Merger Agreement, however, only had signature lines for the two union Presidents. Id. UTU does not identify any other flaw in the Merger Agreement that Thompson signed or point to any requirement in the UTU Constitution that would indicate that the President lacked authority to bind UTU to contracts absent the signature of the Secretary-Treasurer. In fact, the UTU Board of Directors explicitly "recognize[d] that the UTU Constitution grants authority to the UTU International President to set policy as it pertains to the UTU's execution of a merger with another union." Resolution of United Transportation Union Board of Directors on July 24, 2009 [Docket Entry 22-2] at 1. Nonetheless, UTU asserts "the facts of the record clearly demonstrate that two intended signatories failed or refused to sign the proposed Merger Agreement." Id. at 32. Therefore, UTU argues, the Court should not compel arbitration because it is not clear that UTU was bound to the Merger Agreement.
To support its argument that Thompson's signature alone does not indicate a valid contract, UTU cites Will-Drill Resources, Inc. v. Samson Resources Co., 352 F.3d 211 (5th Cir.2003). There, a company offered to buy the mineral resources from a number of sellers, represented by a single sales agent, and the agent, but not all of the sellers, signed the Proposed Sale Agreement that contained an arbitration clause. Will-Drill Resources, 352 F.3d at 212. The company later decided to withdraw *172 the sales agreement, arguing that the Proposed Sale Agreement was not legally binding absent the signature of each seller. Id. at 213. The Fifth Circuit vacated the district court's order granting the agent's motion to compel arbitration, ruling that courts should "refus[e] to order arbitration of disputes where one party claims that it is not bound by the arbitration agreement, either because it was not an original party to the agreement, its signature was forged, or because the person signing on its behalf was acting outside the scope of his authority and thus the party is not bound by the signature." Id. at 216.
None of the reasons discussed in Will-Drill Resources to support a refusal to order arbitration apply here. The UTU President and Secretary-Treasurer are not distinct parties to the Merger Agreement, but representatives of the same "party"UTU. Then-UTU President Thompson signed the Merger Agreement, and no one contends his signature was forged. Furthermore, UTU's claim that Thompson "was acting outside the scope of his authority and [UTU] is not bound by [his] signature" does not make sense under traditional agency principles. See Lewis, 463 A.2d at 672 ("The principal may ratify [an agent's] act expressly or impliedly, by conduct inconsistent with any other hypothesis."). Here, the Merger Agreement was actually ratified by both the UTU Board of Directors and the UTU membership prior to Thompson signing the Agreement on August 8, 2007. Def.'s Answer ¶¶ 17, 19. Hence, Thompson plainly possessed the authority to sign the Merger Agreement on behalf of UTU.[3]
To be sure, UTU now claims that Thompson misrepresented information to the UTU Board and membership to induce their approval of the Merger Agreement. Id. ¶¶ 16, 17. But approval of the Merger Agreementa condition for "the merger of SMWIA and UTU to form SMART"is not a condition for the formation of the Merger Agreement. See MA at 3. The FAA "does not permit the federal court to consider claims of fraud in the inducement of the contract generally," Buckeye Check Cashing, 546 U.S. at 445, 126 S. Ct. 1204, and courts certainly may not consider claims of fraud in the inducement of contract terms and conditions other than the arbitration clause. Such a claim is for the arbitrator to decide. See id. This Court will not permit UTU to recast a claim that Thompson misrepresented information in order to induce UTU members to approve the Merger Agreement (an issue for the arbitrator) as a claim of lack of authority to enter into the Merger Agreement (an issue for the Court) simply in order to avoid arbitration.[4]See id. at 444 n. 1 & *173 445, 126 S. Ct. 1204; see also Granite Rock, 130 S.Ct. at 2861 n. 11 ("[I]t is not the mere labeling of a dispute for contract law purposes that determines whether an issue is arbitrable.").
2. Whether the Merger Agreement Has Terminated
SMWIA contends that the Merger Agreement is a valid contract that remains in effect until at least September 1, 2011. See MA at 4. UTU counters that conditions precedent to the effectiveness of the Merger Agreement itselfnot just the mergerwere not fulfilled. Def.'s Answer ¶ 5. Thus, UTU argues, by its own terms the Merger Agreement was terminated when certain conditions did not occur. Id. In Nat'l R.R. Passenger Corp. v. Boston & Maine Corp., 850 F.2d 756 (D.C.Cir.1988), the D.C. Circuit established a framework to evaluate whether parties had agreed to arbitrate the duration of an arbitration clause. "Mindful [] of the federal policy in favor of arbitration," the court in National Railroad "nonetheless [sought] to determine what appears to be most consistent with the intent of the parties." Id. at 760-61. The court observed that "parties have it within their power to specify the date and hour at which their obligation to arbitrate is to end, or to specify a clear condition subsequent, such as sending of notice, giving any party the right to terminate that obligation.... Where they have not, the court performs its office of interpretation when it infers that they intended for the arbitrator to resolve the ambiguity." Id. at 762. The court explained that a broad arbitration clause indicates an intent to permit the arbitrator to decide issues of contract duration, but this "presumption in favor of arbitrating disputes over contract duration can be overcome by a clear showing that the parties intended for the underlying contract to expire, or separately agreed to terminate it, before the relevant dispute arose." Id. at 763.
The court in National Railroad explained that "[i]f the arbitration clause is a narrow one, covering only specified types of disputes ... then [courts] must presume that the parties did not intend for disputes over contract duration to be referred to arbitration." Id. at 762. In those cases, "the court will decide the question of duration unless the party seeking arbitration makes a clear showing that the contracting parties intended such disputes to be arbitrated." Id. But, when "[f]aced with a somewhat broader arbitration clause, however, such as one providing generally (perhaps with certain specified exceptions) that disputes `arising under' or `concerning' the contract are to be arbitrated, [courts] will presume that disputes over the termination or expiration of the contract should be submitted to arbitration." Id.; accord New England Cleaning Servs. v. Servs. Emp. Int'l Union, 199 F.3d 537, 541 (1st Cir.1999) ("Under a broad arbitration clause, i.e. one covering all types of disputes, `all questions, including those regarding termination, will be *174 properly consigned to an arbitrator.'") (internal citations omitted).
However, "even in cases involving very broad arbitration clauses, the presumption in favor of arbitrating disputes over contract duration can be overcome by a clear showing that the parties intended for the underlying contract to expire, or separately agreed to terminate it, before the relevant dispute arose." National Railroad, 850 F.2d at 762-63. For example, the presumption in favor of arbitrating disputes may be overcome "if a contract provides that `all disputes between the parties shall be arbitrated,' but with equal clarity provides that it will expire on a date certain." Id. at 763. In that case, "any dispute over whether the contract actually expired or was extended by the parties must be decided by the court rather than by the arbitrator." Id. Or, "even if the contract contains no expiration date, if the party resisting arbitration makes a clear showing that the parties have agreed to terminate the agreement containing the arbitration clause (or even just the clause itself), then the court must decide the contract duration issue itself, rather than sending it to arbitration." Id.
Courts consider arbitration clauses to be "broad" if they apply to disputes "`arising under' or `concerning' the contract." Id. at 762; see also Invista N. Am. S.à.r.l. v. Rhodia Polyamide Intermediates S.A.S., 503 F. Supp. 2d 195 (D.D.C. 2007) (ruling that claims were within scope of arbitration clause of confidentiality agreement which stated that "[a]ny dispute arising out of this Agreement shall be settled by arbitration," because "arising out of" phrase was subject to broad interpretation in light of federal policy in favor of arbitration); Wolff v. Westwood Mgmt., LLC, 503 F. Supp. 2d 274, 282 n. 4 (D.D.C. 2007), aff'd, 558 F.3d 517 (D.C.Cir.2009) (citing cases); Meshel v. Ohev Sholom Talmud Torah, 869 A.2d 343, 362 (D.C.2005) ("[L]anguage [ ] requiring the submission to a Beth Din of `any claim' of a member against the congregation that cannot be resolved amicably [] is sufficiently broad and all-encompassing to include the underlying disagreements between the parties concerning the governing structure of the congregation, the ownership of its property, and the fiduciary duties of its officers and directors.").
Here, the arbitration clause contains the provision that "any dispute or controversy arising out of or under this Agreement shall be referred to the SMWIA General President and International President of the UTU ... [and][i]f they are unable to resolve the dispute or controversy, it may be submitted by either officer, and no one else, to arbitration by an arbitrator appointed by the President of the AFL-CIO." MA at 13. This clause contains the explicitly broad phrase "arising out of or under" the Merger Agreement and applies to "any dispute or controversy." Hence, because the parties agreed to a broad arbitration clause, the court may "presume that disputes over the termination or expiration of the contract should be submitted to arbitration." See National Railroad, 850 F.2d at 762. UTU may overcome this presumption of arbitration, "erected by the broad arbitration clause in this case, that this dispute over contract duration should be submitted to arbitration: either (1) by demonstrating that the original contract contains an unambiguous expiration date; or (2) by making a clear showing that the contract was properly terminated before this dispute arose." See id. at 763.
The Merger Agreement contains in Article III the clear expiration date of September 1, 2011, see MA at 4, but this date does not help UTU. Instead, UTU contends that the "unambiguous expiration date" is *175 contained in Article II, the provision that establishes the "effective date" of the merger. See MA at 4. UTU's argument that the Merger Agreement is of "no force and effect" proceeds as follows. The Merger Agreement sets forth a ratification process for the "Merger Documents"defined as "together the Merger Agreement and the SMART Constitution"; Article II of the Merger Agreement sets forth specific procedures for SMWIA and UTU to approve the "Merger Documents"; and Article II states that "[i]f either SMWIA or UTU fails to approve the Merger Documents by the procedures stated above, they shall be deemed terminated and of no force and effect." Def.'s Opp'n at 6. Because UTU did not provide a SMART Constitution to UTU membership, UTU contends, it was thereby impossible for those members to approve the SMART Constitution. Id. Therefore, UTU asserts, the "Merger Documents" were not approved and the Merger Agreement is "of no force and effect."
UTU's argument ultimately does not overcome the presumption in favor of arbitrating disputes over contract duration. Article II of the Merger Agreement indicates that "the merger of SMWIA and UTU to form SMART shall be effective" upon the "approval of this Merger Agreement and of the SMART Constitution ... by the General Executive Council of SMWIA and the Board of Directors of UTU, and by the membership of UTU prior to its regular convention to be held in August 2007, and upon certification of those results by the respective International General Secretary-Treasurers." MA at 3 (emphasis added). The effective date of the Merger Agreement itself is not necessarily contingent upon its approval through this process by a date certain. UTU's argument may raise questions about the effective date of the agreement, but it does not identify an "unambiguous expiration date" as required by National Railroad to overcome the presumption that the dispute over contract duration or termination should be submitted to arbitration. See also Virginia Carolina Tools, Inc. v. Int'l Tool Supply, Inc., 984 F.2d 113, 118 (4th Cir.1993) (ruling that a provision in an option agreement with "an express termination date" of 60 days after execution of the option overcame the agreement's otherwise "broad, non-specific arbitration clause").
Moreover, UTU's argument does not make a "clear showing" that the Merger Agreement was "properly terminated before this dispute arose" by its own terms. See National Railroad, 850 F.2d at 763. UTU does not dispute that its Board of Directors and membership approved the Merger Agreement, or that the American Arbitration Association certified the election results. Def.'s Opp'n at 17-18. Instead, UTU only disputes whether the Secretary-Treasurers certified the results of the UTU membership vote, a fact UTU previously conceded in the Michael litigation. See Plaintiff's Reply in Support of Motion to Compel ("Pl.'s Reply") [Docket Entry 35] at 5-6. And other provisions of the Merger Agreement, which state that "the Merger Agreement shall expire and have no legal force or effect on September 1, 2011," directly contradict UTU's argument. See MA at 4. Hence, UTU cannot make the necessary "clear showing" to overcome the presumption that the issue of contract duration or termination should be submitted to arbitration.
B. Does the Arbitration Agreement Cover the Disputed Issues?
UTU also contends that the arbitration clause in the Merger Agreement is narrow, and does not cover all disputed issues between SMWIA and UTU. "[I]t is generally for the courts to decide whether *176 an arbitration clause is broad enough to cover a particular dispute." National Railroad, 850 F.2d at 761. As described above, the arbitration clause here is explicitly broad, covering "any dispute or controversy arising out of or under this Agreement." MA at 13.
"[A broad] arbitration clause ... encompasses all matters that touch upon the contract." Wolff, 558 F.3d at 519 (citing Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614, 624 n. 13, 105 S. Ct. 3346, 87 L. Ed. 2d 444 (1985)). In Wolff, the D.C. Circuit affirmed the district court's grant of defendant's motion to compel arbitration despite plaintiff's argument that the parties' real estate agreement had terminated. Id. There, the arbitration clause applied to "any dispute which may arise during construction and management of the office building complex," and covered all of plaintiff's claims based on fiduciary duty because "[t]he obligations at issue in this case could only have arisen from the [disputed] Agreement." Id. at 519. Furthermore, "[a]n order to arbitrate [a] particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage." Id. at 520 (quoting Air Line Pilots Ass'n v. Fed. Express Corp., 402 F.3d 1245, 1248 (D.C.Cir.2005)). "The Arbitration Act itself establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." Id. (quoting Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S. Ct. 927, 74 L. Ed. 2d 765 (1983)).
Here, the arbitration clause plainly covers UTU's defenses and counterclaims that challenge the merger as well as any ongoing tort and trademark disputes between the two unions. See Def.'s Answer at 19-23. UTU's tort and trademark claims relate to obligations that depend on the status of the merger. Because "[t]he obligations at issue ... could only have arisen from the [disputed] Agreement," Wolff, 558 F.3d at 519, all of UTU's claims and disputes can fairly be said to arise out of or under the Merger Agreement.
The arbitration provision of the Merger Agreement, however, limits the arbitrator's power "to the application and interpretation of this Agreement" and does not provide the arbitrator with the "authority to rescind, alter, amend, or modify any of the provisions of the Agreement." MA at 13. UTU contends that the arbitrator therefore cannot "apply external law" or "decide that no agreement was ever formed" because the arbitrator can only "appl[y] and interpret[] the Merger Agreement." Def.'s Opp'n at 39. But UTU misinterprets the limitations on the arbitrator. Here, the reference to the "laws of the District of Columbia" confirms that the arbitrator has authority to consider and utilize external law when applying and interpreting the agreement. See Am. Postal Workers Union v. U.S. Postal Service, 789 F.2d 1, 6 (D.C.Cir.1986) (ruling that "a provision of the agreement specifying that the discharge of Postal Service employees must be `consistent with applicable laws and regulations'" granted an arbitrator the authority to consider federal criminal law).
UTU contends that the Merger Agreement's "exclusion of rescission from the arbitrator's authority" requires the Court to rule on UTU's defenses and arguments about whether a Merger Agreement was ever formed. Def.'s Opp'n at 40. But *177 approval of the Merger Agreementa condition for "the merger of SMWIA and UTU to form SMART"is not a condition for the formation of the Merger Agreement. See MA at 3. UTU concedes that "a Merger Agreement was entered into between [SMWIA] and [UTU]," see Resolution of the UTU Board of Directors, and disputes only whether the conditions precedent to the merger (and the continuing effectiveness of the Merger Agreement) have been satisfied. It is the role of the arbitrator, not the Court, to apply and interpret the terms and conditions of the Merger Agreement. UTU cannot simply label the dispute as one of contract formation and thereby avoid arbitration. See Granite Rock, 130 S.Ct. at 2861 n. 11 (explaining that the "labeling of a dispute for contract law purposes" does not "determine[] whether an issue is arbitrable"). The arbitrator, in interpreting the Merger Agreement itself, has the authority to determine whether "the Merger Documents [were approved] by the [stated] procedures" or if "they shall be deemed terminated and of no force and effect." See MA at 3. The arbitration clause of the Merger Agreement does not limit the arbitrator's authority to deem the contract terminatedthe remedy sought by UTU.
III. LMRDA Claims
Individual members of UTU have moved to intervene, raising statutory claims under the LMRDA that relate to their vote that ratified the Merger Agreement in 2007. Mot. to Intervene at 8. Three of the proposed intervenors have also filed a separate case before this Court, Murphy v. Sheet Metal Workers Int'l Ass'n, 10-cv-01194, which raises the same issues the proposed intervenors raise here. SMWIA has moved, and UTU has consented, to consolidate Murphy with this case. See Consent to Motion to Consolidate [Docket Entry 14] at 1. The Court will grant the motion to consolidate in a separate order in the Murphy case.
The Court will also grant the individual UTU members' motion to intervene. The intervenors raise claims under Title I and Title V of the LMRDA, arguing that UTU members' votes on the merger were not meaningful under 29 U.S.C. § 411(a)(1) and that UTU members have no fiduciary obligations to SMWIA or SMART under § 501. At a minimum, given the identical facts, timely motion, and related federal claims raised by the intervenors, permissive intervention is appropriate. Fed. R.Civ.P. 24(a), (b)(1)(B) ("[T]he court may permit anyone to intervene who ... has a claim or defense that shares with the main action a common question of law or fact."); EEOC v. Nat'l Children's Ctr., Inc., 146 F.3d 1042, 1045 (D.C.Cir.1998).
The parties agree that the individual UTU members' LMRDA claims are not arbitrable, see Mot. to Intervene at 8, and an arbitrator generally cannot decide individual union members' statutory claims under the LMRDA, see 14 Penn Plaza v. Pyett, ___ U.S. ___, 129 S. Ct. 1456, 1474, 173 L. Ed. 2d 398 (2009). Those claims are, therefore, properly before this Court. However, the Court declines to address the statutory issues at this time. The arbitrator should first evaluate the parties' claims arising under the Merger Agreement, which may shed considerable light on the LMRDA claims. See IBT/HERE Emp. Representatives' Council v. Gate Gourmet Div. Americas, 402 F. Supp. 2d 289, 292-93 (D.D.C.2005) ("Because a ruling in the pending arbitration proceeding may moot the remaining claims in this case or obviate the need for further judicial intervention, the court grants the plaintiff's motion to hold this case in abeyance."); U.S. ex rel. Milestone Tarant, LLC v. Federal Ins. Co., 672 F. Supp. 2d 92, *178 100-01 (D.D.C.2009) ("Where the issues are not `referable to arbitration' [] the courts have discretionary power to stay civil proceedings pending the resolution of arbitration.").
"A trial court has broad discretion to stay all proceedings in an action pending the resolution of independent proceedings elsewhere." Gate Gourmet, 402 F.Supp.2d at 292; Int'l Painters & Allied Trades Industry Pension Fund v. Painting Co., 569 F. Supp. 2d 113, 120-21 (D.D.C. 2008) (staying proceedings pending determination by another court of the "underlying contractual obligations" of the parties). "The power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants." Gate Gourmet, 402 F.Supp.2d at 292 (quoting Air Line Pilots Ass'n v. Miller, 523 U.S. 866, 879, 118 S. Ct. 1761, 140 L. Ed. 2d 1070 (1998)). This Court may find it most "efficient for its own docket and the fairest course for the parties to enter a stay of an action before it, pending resolution of independent proceedings which bear upon the case." Id. (quoting Leyva v. Certified Grocers of Cal., Ltd., 593 F.2d 857, 863-64 (9th Cir.1979)). Hence, the Court will stay the intervenors' LMRDA claims pending arbitration of the disputed issues raised by SMWIA and UTU under the Merger Agreement.
Deference to the agreement of the parties and judicial efficiency both support this approach. The Merger Agreement's arbitration clause requires the arbitration of disputes arising out of or under the Agreement. Therefore, the arbitrator must decide the parties' disputes that arise from the Agreement, including whether the Merger Agreement remains in effect. If the arbitrator decides that the Merger Agreement is no longer in effect, then this Court may not need to address individual UTU members' LMRDA claims under Title I; or, if the arbitrator decides otherwise, this Court may not need to address UTU members' LMRDA claims under Title V. The Supreme Court resolved a similar question of efficiency in Buckeye Check Cashing in favor of sending issues to arbitration:
It is true ... that the Prima Paint rule [of severability] permits a court to enforce an arbitration agreement in a contract that the arbitrator later finds to be void. But it is equally true that respondents' approach permits a court to deny effect to an arbitration provision in a contract that the court later finds to be perfectly enforceable. Prima Paint resolved this conundrumand resolved it in favor of the separate enforceability of arbitration provisions.
Buckeye Check Cashing, 546 U.S. at 448-49, 126 S. Ct. 1204. So too, here, this Court defers to the parties stated intent to arbitrate all issues "arising out of or under" their Merger Agreement. To the extent that the intervenors' statutory claims remain after an arbitrator addresses the contractual and related issues, the Court will evaluate them as necessary at that time.
CONCLUSION
For the reasons explained above, the Court will grant SMWIA's motion to compel arbitration and stay the individual UTU members' claims under the LMRDA pending the completion of arbitration. A separate Order accompanies this Memorandum Opinion.
NOTES
[1] This case was reassigned on June 3, 2010 from Judge James Robertson to Judge John D. Bates. See Docket Entry 38. The related case of Murphy, et al. v. Sheet Metal Workers Int'l Ass'n, et al., 10-cv-01194 (JDB), which was filed on July 15, 2010, is also before Judge Bates.
[2] The "prerequisites to the agreement" to which UTU refers are not clear. To the extent the "prerequisites" are the lack of the Secretary-Treasurers' signatures on the Merger Agreement, the Court addresses that issue below. To the extent that UTU argues that the Merger Agreement was "nullified ... by its own terms," Def.'s Opp'n at 30, the Court concludes that this is an issue of contract termination, which the arbitrator, not the Court, has the authority to decide.
[3] Moreover, the July 24, 2009 Resolution of the UTU Board of Directors, which UTU included as Attachment A to its Motion for Leave to File an Amended Answer and Counterclaims [Docket Entry 22-2], states that "on or about June 13, 2007 a Merger Agreement was entered into between the Sheet Metal Workers International Association ("SMWIA") and United Transportation Union ("UTU"), which provided that the two unions would merge to form the International Association of Sheet Metal, Air, Rail and Transportation Workers ("SMART"), conditioned upon UTU membership ratification of the Merger Agreement, together with a SMART Constitution." Hence, UTU effectively concedes that the two unions "entered into" a Merger Agreementwhether the requisite conditions for the merger occurred, of course, is a different issue that is not before this Court.
[4] UTU also argues that Thompson lacked authority to bind UTU to the Merger Agreement by contending (against itself) that UTU violated Title I of the LMRDA by failing to provide enough information for members to have a "meaningful vote." Assuming that UTU may raise this argument, it nonetheless does not challenge the authority of Thompson to enter the Merger Agreement for the same reasons explained above. Under the UTU Constitution, the President has the authority to act "as may be necessary for the proper conduct of the affairs of the organization and the accomplishment of its objectives." UTU Constitution [Docket Entry 33-7] at Art. 16.
UTU members contend under Title I of the LMRDA that members did not receive sufficient information from UTUessentially, a copy of the SMART Constitutionto have a meaningful vote on the actual merger. The parties do not dispute that UTU's Board and membership received the complete text of the Merger Agreement, which explained the conditions precedent to the actual merger of UTU and SMWIA. UTU repeatedly argues that under the very terms of the Merger Agreementthe disputed merger did not take effect. In so doing, UTU cannot dispute the formation of the Merger Agreement itself. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2471472/ | 129 F.Supp.2d 698 (2001)
Reinaldo HERNANDEZ, Petitioner,
v.
Art BEELER, Respondent.
No. CIV.A. 00-293.
United States District Court, D. New Jersey.
January 31, 2001.
*699 Reinaldo Hernandez, Petitioner, pro se.[1]
OPINION
RODRIGUEZ, District Judge.
This matter is before this court on a Motion for Reconsideration filed by Reinaldo Hernandez (the "Petitioner"). He moves for reconsideration of this Court's Order dated November 28, 2000 dismissing his petition for a writ of habeas corpus pursuant to 28 U.S.C. § 2241 ("§ 2241") after recharacterizing it as a motion brought pursuant to 28 U.S.C. § 2255 ("§ 2255"). He further moves this court, upon reconsideration, to vacate the dismissal and transfer this matter to another judge within the District of New Jersey. For the reasons that follow, his motion will be granted in part and denied in part.
I. BACKGROUND
On May 5, 1995, the United States District Court for the District of Delaware sentenced Petitioner to 120 months in prison, followed by 5 years of supervised release, after a guilty plea to possession with intent to distribute cocaine. (Answer at 1-2.) Petitioner did not file an appeal. (Answer at 2.)
On April 30, 1998, Petitioner filed a § 2241 Petition with his sentencing court, which that court recharacterized as a § 2255 Motion. See Hernandez v. United States, No. 94-60, 1998 WL 552942 (D.Del. Aug.13, 1998). The petition was dismissed on August 13, 1998. See id. The Third Circuit Court of Appeals denied a certificate of appealability and denied a petition for authorization to file a successive motion under § 2255. (Pet. at Ex. A.)
Petitioner filed this instant § 2241 Petition on February 17, 2000. The grounds raised in his previous petition are also raised here. (Pet. at p. 6, ¶ 12.) Those grounds are (1) the traffic stop leading to his arrest was the result of unconstitutional racial profiling, violating the Fourth and Fifth Amendments; and (2) the arresting officer violated Petitioner's rights under Article 36 of the Vienna Convention. (Pet. at Questions Presented.) Additionally, Petitioner contends that the District of Delaware and the Third Circuit acted illegally in construing his original § 2241 Petition as a § 2255 Motion.[2]
Pursuant to the Third Circuit's opinion in United States v. Miller, 197 F.3d 644 (3d Cir.1999), this Court sent Petitioner a "Miller Notice" on August 17, 2000.[3] The Miller Notice gave Petitioner 3 options:
*700 1. You may have your pleading ruled upon as filed; or
2. You may have your pleading recharacterized as a Section 2255 motion and heard as such. If you do, however, you will lose your ability to file a second or successive pleading absent Certification by the Court of Appeals; or
3. You may withdraw your pleading and file an all inclusive Section 2255 Petition subject to the one (1) year period described by [§ 2255].
On August 29, 2000, Petitioner moved this Court to stay the 45-day period the Miller Notice provided Petitioner to select one of the three options above. This court denied that motion by Order dated October 4, 2000, but addressed Petitioner's confusion:
[P]etitioner is correct in stating that (1) because he previously filed a section 2255 motion which was denied by the Court, if his instant petition is recharacterized as a section 2255 motion, it would be a second or successive motion which requires Certification by the appropriate Court of Appeals, and because the Third Circuit already denied petitioner a Certification to file a second or subsequent petition, the instant petition could be dismissed by the Court as a successive and uncertified filing....
Petitioner did not make a choice from the three options contained in the Miller Notice, electing, "by lack of notice, to have his motion ruled upon as filed." (Pet'r's Mot. for Recons. at 2.) In ruling upon the motion as filed, this court recharacterized the § 2241 Petition as a § 2255 Motion and dismissed it.[4]
Petitioner now argues that this court "engaged in a shell game of semantics." (Pet'r's Mot. for Recons. at 2.) Petitioner argues that when a petitioner receives a Miller Notice and chooses, either in writing or by not responding, to have his pleading "ruled upon as filed," the court plays a shell game if, in the process of ruling upon the pleading as filed, it recharacterizes the pleading as a § 2255 Motion. If Petitioner is correct, then the only time a court could recharacterize any pleading as a § 2255 Motion after sending a Miller Notice would be where a petitioner affirmatively chose the second option in the Miller Notice.
II. DISCUSSION
A. Motion for Reconsideration
There is no Federal Rule of Civil Procedure that addresses a Motion for Reconsideration. However, Local Civil Rule 7.1(g) is entitled "Motions for Reargument."
A motion for reargument shall be served and filed within 10 days[5] after the entry *701 of the order or judgment on the original motion by the Judge or Magistrate Judge. There shall be served with the notice a brief setting forth concisely the matters or controlling decisions which counsel believes the Judge or Magistrate Judge has overlooked....
Local Civ. R. 7.1(g).
"Courts in this district have routinely held that although Local Civil Rule 7.1(g) is entitled `Motions for Reargument,' reconsideration and reargument are interchangeable terms, and, however denominated, will be governed by the rule." United States v. Compaction Sys. Corp., 88 F.Supp.2d 339, 345 (D.N.J.1999) (citing Public Interest Research Group v. Yates Indus., 790 F.Supp. 511, 512 n. 1 (D.N.J. 1991)) (quotations and alterations omitted).
To succeed on a motion for reconsideration, a petitioner must present "something new or something overlooked by the court in rendering the earlier decision." Khair v. Campbell Soup Co., 893 F.Supp. 316, 337 (D.N.J.1995) (citing Harsco Corp. v. Zlotnicki, 779 F.2d 906, 909 (3d Cir.1985)). The petitioner should show "more than a disagreement" with the decision he would like reconsidered. Anders v. FPA Corp., 164 F.R.D. 383, 387 (D.N.J. 1995).
Here, Petitioner appears to have raised more than a "disagreement" with this Court's Order. If Petitioner's argument is correct, this Court has misconstrued the Third Circuit's opinion in Miller and denied Petitioner the full benefit of the law. Thus, Petitioner's motion in as far as it seeks to have this Court reconsider its Order of November 28, 2000 will be granted.
B. United States v. Miller
In Miller, the Third Circuit held,
[D]istrict courts must first take certain prophylactic measures before recharacterizing a pro se petitioner's post-conviction motion as a § 2255 motion or ruling on a § 2255 motion denominated as such. More specifically, we prescribe that upon receipt of a pro se pleading challenging an inmate's conviction or incarceration whether styled as a § 2255 motion or notdistrict courts should issue a form notice to the petitioner regarding the effect of such a pleading in light of AEDPA. This communication should advise the petitioner that he can (1) have his motion ruled upon as filed; (2) if his motion is not styled as a § 2255 motion have his motion recharacterized as a § 2255 motion and heard as such, but lose his ability to file a second or successive petitions absent certification by the court of appeals; or (3) withdraw his motion and file an all-inclusive § 2255 petition within the one-year statutory period prescribed by AEDPA in § 2255.
Miller, 197 F.3d at 646.
The Miller court explained that, prior to enactment of the AEDPA, it benefitted petitioners for a district court to recharacterize a motion that would be proper if brought as a § 2255 Motion as such. Id. When this procedure was followed, the petitioner had his motion decided rather than dismissed because of procedural failures. Id. "This practice developed both for efficiency's sake and out of a sense of fairness to pro se petitioners, whose claims are construed quite liberally." Id.
However, after the enactment of the AEDPA, recharacterizing a motion as a § 2255 Motion could cause harm to a petitioner. Id. The AEDPA limits a petitioner, absent certification from a court of appeals, to one § 2255 Motion. Id.; see 28 U.S.C. §§ 2244, 2255. Thus, a district court's recharacterization could effectively bar a petitioner from more completely attacking his conviction. Miller, 197 F.3d at 646. To help ensure that a recharacterization did not unfairly harm a petitioner, the Third Circuit held that the Miller Notice *702 must be sent to a petitioner, or a recharacterization would be set aside. Id.
At issue here is what the Miller court meant by the first option: to have the motion "ruled upon as filed." This court has, in past opinions and orders, proceeded as though "ruled upon as filed" included the ability to recharacterize the motion as a § 2255 Motion and either dismiss the motion or transfer the motion to the court in which it should have been brought.
Petitioner raises the argument that "ruled upon as filed" means that this Court should not recharacterize a motion as a § 2255 Motion. In reviewing the language used in the Miller Notice, this Court agrees that a petitioner could understand it to mean that a court will not recharacterize his motion as a § 2255 Motion unless the petitioner chooses option two.
The Third Circuit did not provide a meaning for "ruled upon as filed." There are two plausible alternatives.[6]
The first, the meaning this Court has been using, is that "ruled upon as filed" means that a district court should treat the pleading as what it really is, which involves recharacterizing the pleading as a § 2255 Motion if the petitioner is attacking his conviction or sentence. The Miller Notice explains that the petitioner can lose the right to file a second § 2255 Motion and offers the petitioner the ability to withdraw his motion to prevent the recharacterization. On its face, this appears to address the fairness considerations that were discussed in Miller.
Additionally, the Miller court relied upon Adams v. United States, 155 F.3d 582 (2d Cir.1998). See Miller, 197 F.3d at 648-53. In Adams, the Second Circuit held that a district court could not recharacterize a motion a § 2255 Motion unless:
(a) the movant, with knowledge of the potential adverse consequences of such recharacterization, agrees to have the motion so recharacterized, or (b) the court finds that, notwithstanding its designation, the motion should be considered as made under § 2255 because of the nature of the relief sought, and offers the movant the opportunity to withdraw the motion rather than have it so recharacterized.
Adams, 155 F.3d at 584.
The language of Adams seems to indicate that, recharacterization is proper when a movant chooses not to have his motion recharacterized, as long as he has had the opportunity to withdraw the motion before recharacterization. See also United States v. Moore, No. 98-1515, 1999 WL 377258, *1 (2d Cir. June 1, 1999) ("Under ordinary circumstances, if the district court offered a defendant the Adams options and the defendant refused to elect either option, insisting instead on his own characterization of the motion, the district court would be well within its authority to adhere to its characterization of the motion as a § 2255 petition and to decide it as such."), cited on other grounds in Miller, 197 F.3d at 650 n. 4.; Ambrosio v. United States, Nos. 99-9626, 94-674, 2000 WL 109009, at *1 (S.D.N.Y. Jan.28, 2000) (explaining how a district court in the Western District of Pennsylvania recharacterized a § 2241 Petition as a § 2255 Motion despite petitioner insisting that it was properly brought as a § 2241 Petition).
On the other hand, "ruled upon as filed" could, as petitioner contends, mean that the district court may not recharacterize a motion or petition not brought under § 2255 as a § 2255 Motion. If this is the proper meaning, then it appears that a district court should dismiss the motion or petition as filed, if it is not proper for consideration as filed, instead of recharacterizing the motion or petition against the will of the petitioner. It appears that this is the meaning that Magistrate Judge Welsh accords this language. See Welles v. Guzik, *703 No. 99-5871, 2000 WL 62305, at *1 n. 1 (E.D.Pa. Jan.11, 2000) ("If the court does not recharacterize Mr. Welles' original pleading (which he has characterized as a § 2241 petition) as a § 2255 motion, the court will dismiss his original pleading because ... Mr. Welles should have filed a § 2255 motion, not a § 2241 petition.").
In Miller, the court provided two justifications for allowing a district court to convert a motion to a § 2255 Motion: efficiency and fairness. Miller, 197 F.3d at 646. The court instituted the issuance of the Miller Notice in this circuit to ensure that the second justification, fairness, was not obliterated by the AEDPA. However, efficiency remains a substantial justification for converting a motion to a § 2255 Motion.
Once the motion is recharacterized as a § 2255 Motion, the issues raised can be adjudicated, either procedurally or substantively, under § 2255. Issues that cannot be addressed by the court as presented, like in this matter where a petitioner attacks his conviction or sentence under § 2241 without falling into the Dorsainvil limited exception, are, nonetheless, addressed. Thus, the first meaning of "ruled upon as filed," explained above, seems to meet the efficiency requirement. The issues are ultimately adjudicated.
However, the second meaning, which dismisses the motion for failure to bring it under a proper heading, leaves the adjudication of the issues for another day. Not only is this a waste of judicial resources, it is also a waste of resources for the petitioner and respondent, who expend time and money in subsequent litigation. Thus, efficiency is best served under the first meaning of "ruled upon as filed."
The Miller Notice attempts to satisfy the concerns of fairness created by one-shot rule for § 2255 Motions under the AEDPA. Still, the fairness concerns do not appear to be satisfied where a petitioner, in good faith, reads the Miller Notice as providing him with a right to proceed with his pleading without the possibility of recharacterization as a § 2255 Motion. Such a petitioner may have an intention of bringing an all-inclusive § 2255 attack on his conviction or sentence and believe that choosing the first option will not interfere with that intention. Imagine a petitioner's surprise, when, after choosing to not recharacterize his pleading as a § 2255 Motion, he ends up with a district court decision that does exactly that. He is now confronted with the task of obtaining certification from a court of appeals before raising other grounds that he planned on including in his yet-to-be-filed § 2255 Motion.
Both the efficiency and fairness justifications can be addressed with a simple adjustment to the Miller Notice that this Court has been issuing. When mailing a Miller Notice in the future, this Court will present petitioners with the following options:
1. You may choose to have your pleading recharacterized as a petition filed pursuant to 28 U.S.C. § 2255 ("Section 2255") and heard as such. If you do, however, you will lose your ability to file a second or successive Section 2255 Motion absent Certification by the Court of Appeals. Additionally, your pleading may be dismissed if it has not been filed within the one-year period described in Section 2255;
2. You may withdraw your pleading and file an all-inclusive Section 2255 Motion subject to the one-year period described in Section 2255; or
3. You may have your pleading ruled upon as filed. If you do and the Court determines that your pleading can only be considered pursuant to Section 2255, then your pleading will be recharacterized and adjudicated as such.
Because Petitioner did not have the benefit of this clearer explanation of his choices when he chose to have his motion ruled upon as filed, this court will vacate the Dismissal Order of November 28, 2000. Petitioner will be ordered to select one of *704 the three options listed above within 45 days of this order. If he chooses not to respond, this Court will rule upon the pleading as filed as explained in Option # 3 above.
C. Recusal
Petitioner's final request in his Motion for Reconsideration is that this matter be transferred to a different Judge. Apparently, Petitioner feels that recusal is in order.
Whenever a party to any proceeding in a district court makes and files a timely and sufficient affidavit that the judge before whom the matter is pending has a personal bias or prejudice either against him or in favor of any adverse party, such judge shall proceed no further therein, but another judge shall be assigned to hear such proceeding.
28 U.S.C. § 144. Petitioner has filed no such affidavit and, thus, § 144 is not applicable.
Also pursuant to federal law:
(a) Any justice, judge, or magistrate of the United States shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned.
(b) He shall also disqualify himself in the following circumstance:
(1) Where he has a personal bias or prejudice concerning a party ...;
28 U.S.C. § 455. There is no implication of a reasonable question regarding the impartiality of this court. For such an implication to arise every time a judge dismisses a petition for habeas corpus is simply not appropriate. Additionally, this court finds no grounds for disqualifying itself as it has no personal bias or prejudice in favor of or against any party to this proceeding.
This portion of Petitioner's motion will be denied.
III. CONCLUSION
Petitioner's Motion for Reconsideration will be granted as he raised a legitimate question as to whether this Court misconstrued the law of the this circuit. Upon reconsideration, this Court finds that the Miller Notice Petitioner received was subject to two possible interpretations. Thus, in the interest of fairness, this court will vacate the recharacterization of Petitioner's § 2241 Petition as a § 2255 Motion and subsequent dismissal.
Petitioner will be ordered to notify this court of whether he wishes to have his pleading recharacterized as a § 2255 Motion; withdraw his current pleading; or have his pleading ruled upon as filed, in accordance with this Opinion.
This court will not transfer this matter to another judge.
An appropriate order will issue.
ORDER
This matter having come before this court on Petitioner's Motion for Reconsideration; and
For the reasons expressed in the Opinion of this Court issued even date;
IT IS ORDERED this 31st day of January, 2001 that Petitioner's motion [10] is GRANTED IN PART and DENIED IN PART as follows:
1. GRANTED as to the request for reconsideration;
2. GRANTED as to the request to vacate the Order of November 28, 2000; and
3. DENIED as to the request for recusal; and
IT IS FURTHER ORDERED that this Court's Order of November 28, 2000, dismissing this matter, is VACATED; and
IT IS FURTHER ORDERED that Petitioner has forty-five days from the date of this Order within which to advise this Court as to his choice from the following three options:
1. Petitioner may choose to have his pleading recharacterized as a motion *705 filed pursuant to 28 U.S.C. § 2255 ("Section 2255") and heard as such. If he does, however, his petition will be dismissed for failure to obtain certification from the Third Circuit to file a second or successive pleading. Additionally, his pleading could be dismissed for failure to file it within the one-year period described in Section 2255;
2. Petitioner may withdraw his pleading and attempt once again to obtain certification from the Third Circuit and file an all-inclusive Section 2255 Motion subject to the one-year period described in Section 2255; or
3. Petitioner may have his pleading ruled upon as filed. If he does, the petition will be recharacterized as a § 2255 Motion and dismissed for the reasons contained in this Court's now-vacated Order of November 28, 2000.
If Petitioner does not notify this court of his choice, this matter will be ruled upon as filed.
NOTES
[1] Petitioner filed this instant Motion for Reconsideration without service of the motion upon Respondent. Because the outcome of this motion will either be dismissal again, or a withdrawal of the original pleading, this Court did not require service upon the Respondent.
[2] In this Court's Order of November 28, 2000, it was explained that the proper mode of addressing the issue would be for petitioner to attempt to appeal that claimed error to the United States Supreme Court.
[3] Miller was a case involving an attack on a plea agreement by a defendant before the court that accepted the plea. Miller, 197 F.3d at 647. Miller filed his attack with two motions: a motion requesting dismissal of the underlying indictment and a motion for a new trial under Federal Rule of Criminal Procedure 33. Id. Both motions were time-barred, so the court recharacterized them as a § 2255 Motion. Id. Because § 2255 motions must be filed with the court that convicted and sentenced the defendant, the factual situation of this instant petition was not addressed. That is, the Miller court did not determine whether a district court must issue a Miller Notice where a petitioner files a § 2241 Petition that should be construed as a § 2255 Motion and the § 2241 Petition is not filed with the convicting and sentencing court.
However, this court, since the decision in Miller, has consistently applied Miller to these types of § 2241 petitions. To do otherwise would go against the principles of Miller, wherein a prisoner placed in a prison outside of his sentencing jurisdiction could have his § 2241 Petition converted to a § 2255 Motion and used against him to bar a more complete collateral attack on his conviction. Accord Welles v. Guzik, No. 99-5871, 2000 WL 62305 (E.D.Pa. Jan.11, 2000) (sending Miller Notice to petitioner before converting a § 2241 Petition to a § 2255 Motion).
[4] While, under some circumstances a transfer to the court before which the § 2255 Petition should have been filed would have been warranted, this Court found that, because Petitioner had not received certification for a successive § 2255 Petition from the Third Circuit, such a transfer would be futile.
[5] Although this motion was not filed until 14 days after this Court entered its Order dismissing this matter, Federal Rule of Civil Procedure 6(a) is applicable to Local Civil Rule 7.1(g). See Juzwin v. Amtorg Trading Corp., 718 F.Supp. 1233, 1234 n. 1 (D.N.J.1989). Thus, December 2, 3, 9, and 10 are removed from the calculation of the time period in which to file, and this Motion for Reconsideration was filed on the tenth day.
[6] A third alternative, that the Miller court meant "ruled upon as filed" to mean that the court could accept jurisdiction where none exists because a petitioner requests the court to do so, is not plausible. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2469056/ | 725 F.Supp.2d 916 (2010)
LANDSTAR RANGER, INC., a Florida Corporation, Plaintiff,
v.
PARTH ENTERPRISES, INC., a California Corporation, USA Logistics, LLC, a New Jersey Limited Liability Company, and does 1 through 10, inclusive, Defendants.
Case No. CV 09-01426 MMM (AJWx).
United States District Court, C.D. California.
July 19, 2010.
*917 Gregg S. Garfinkel, Nemecek & Cole PC, Sherman Oaks, CA, for Plaintiff.
ORDER GRANTING PLAINTIFF'S MOTION FOR DEFAULT JUDGMENT
MARGARET M. MORROW, District Judge.
On February 27, 2009, plaintiff Landstar Ranger Inc., filed this breach of contract action against defendants Parth Enterprises, Inc., USA Logistics, LLC, and certain fictitious defendants, alleging breach of interstate transportation contracts.[1] The clerk entered the default of Parth Enterprises, Inc. on August 20, 2009.[2] Subsequently, *918 the court dismissed plaintiff's claim against defendant USA Logistics, LLC without prejudice for lack of prosecution.[3] Plaintiff now seeks to have the court enter default judgment against Parth Enterprises, Inc. in the principal sum of $243,817.34 and to award prejudgment interest under California Civil Code § 3289.[4] Landstar also requests the opportunity to submit a bill of costs following entry of the default judgment.[5]
I. FACTUAL AND PROCEDURAL BACKGROUND
Plaintiff Landstar Ranger Inc., a Florida corporation with its principal place of business in Jacksonville, Florida,[6] is a federally licensed motor carrier engaged in the business of interstate carriage for hire.[7] Defendant Parth Enterprises Inc., a California corporation with its principal place of business in City of Industry, California,[8] contracted with Landstar to transport sixty shipments between September and November 2008.[9] Each shipment was prepared by USA Logistics; Landstar was the carrier of record and Parth was the shipper/consignor on each preprinted bill of lading contract.[10] Landstar picked up each shipment from Parth's City of Industry, California office and delivered it to Parth's office in Carnbury, New Jersey. It invoiced Parth a total of $313,803.60 for the sixty shipments.[11] Parth accepted each of Landstar's invoices and related documentation without objection or protest.[12]
Landstar received five wire transfer payments from USA Logistics for the shipments totaling $69,986.26.[13] Landstar contends that $243,817.34 remains due and owing for the deliveries to Parth.[14] It asserts that despite demand, Parth has failed to pay the remaining balance.[15] Landstar filed this action on February 27, 2009, and served Parth by personal service on the California Secretary of State on July 20, 2009,[16] as had been authorized by the court.[17] Landstar's motion for entry of default judgment is supported by the declaration of Gregg S. Garfinkel, who states that Parth is not an infant, incompetent *919 person, member of the military service, or otherwise exempt from default judgment under the Service Members Civil Relief Act, 50 App. U.S.C. § 521.[18]
II. STANDARDS FOR ENTRY OF DEFAULT JUDGMENT
A. Compliance with Rule 55 of the Federal Rules of Civil Procedure and Local Rule 55-1
Local Rule 55-1 requires that a party moving for default judgment submit a declaration (1) indicating when and against which party default has been entered; (2) identifying the pleading as to which default has been entered; (3) indicating whether the defaulting party is an infant or incompetent person, and if so, whether that person is represented by a general guardian, committee, conservator or other representative; (4) stating that the Service Members Civil Relief Act, 50 App. U.S.C. § 521, does not apply; and (5) affirming that notice has been served on the defaulting party, if required by Rule 55(b)(2).[19]
Plaintiff has complied with these requirements. Plaintiffs motion states that on August 20, 2009, the clerk entered Parth's default.[20] Plaintiff subsequently filed this motion for entry of default judgment against Parth.[21] Plaintiff asserts that Parth is not an infant, incompetent person, member of the military service or otherwise exempt from default judgment under the Service Members Civil Relief Act, 50 App. U.S.C. § 521.[22] Finally, as Parth has not appeared in the action, plaintiff was not required to notify defendant of its intent to seek this default judgment.[23] The procedural prerequisites to entry of default judgment are thus satisfied. See, e.g., Elektra Entertainment Group Inc. v. Crawford, 226 F.R.D. 388, 392 (C.D.Cal.2005) (finding that the procedural requirements of Rule 55 and Local Rule 55-1 were met where plaintiff submitted declarations addressing each required factor). Therefore, the court turns to the merits of plaintiffs motion.
B. Legal Standard for Governing Default Judgmentthe Eitel Factors
"Granting or denying a motion for default judgment is a matter within the court's discretion. Elektra Entertainment Group Inc. v. Bryant, No. CV 03-6381 GAF (JTLx), 2004 WL 783123, *1 (C.D.Cal. Feb. 13, 2004); see also Sony Music Entertainment Inc. v. Elias, No. CV03-6387 DT (RCX), 2004 WL 141959, *3 (C.D.Cal. Jan. 20, 2004). The Ninth Circuit has directed that courts consider the following factors in deciding whether to enter default judgment: (1) the possibility of prejudice to plaintiff, (2) the merits of plaintiffs substantive claim, (3) the sufficiency of the complaint, (4) the sum of money at stake in the action; (5) the possibility of a dispute concerning the material facts; (6) whether defendant's default was the product of excusable neglect, and (7) the strong public policy favoring decisions on the merits. See Eitel v. McCool, 782 *920 F.2d 1470, 1471-72 (9th Cir.1986); see also Elektra Entertainment Group, 2004 WL 783123 at *1-2.
Once a party's default has been entered, the factual allegations of the complaint, except those concerning damages, are deemed to have been admitted by the nonresponding party. See FED.R.CIV.PROC. 8(b)(6); see also, e.g., Geddes v. United Fin. Group, 559 F.2d 557, 560 (9th Cir. 1977) (stating the general rule that "upon default[,] the factual allegations of the complaint, except those relating to the amount of damages, will be taken as true"). The court, however, must still "consider whether the unchallenged facts constitute a legitimate cause of action, since a party in default does not admit mere conclusions of law." 10A Charles Alan Wright, Arthur R. Miller, & Mary Kay Kane, FEDERAL PRACTICE AND PROCEDURE: CIVIL 3D § 2688, at 63 (1998) (foot-note omitted); see also Cripps v. Life Ins. Co. of N. Am., 980 F.2d 1261, 1267 (9th Cir.1992) ("[N]ecessary facts not contained in the pleadings, and claims which are legally insufficient, are not established by default"); Doe v. Qi, 349 F.Supp.2d 1258, 1272 (N.D.Cal.2004) ("[Although] the factual allegations of [the] complaint together with other competent evidence submitted by the moving party are normally taken as true . . . this Court must still review the facts to insure that the Plaintiffs have properly stated claims for relief").
If the court determines that the allegations in the complaint are sufficient to establish liability, it must then determine the "amount and character" of the relief that should be awarded. 10A Wright, Miller, & Kane, supra, § 2688, at 63; Crawford, 226 F.R.D. at 394 (district court has "wide latitude" and discretion in determining the amount of damages to award upon default judgment, quoting James v. Frame, 6 F.3d 307, 310 (5th Cir.1993)).
III. DISCUSSION
A. Eitel Factors
1. Possibility of Prejudice to Plaintiff
The first Eitel factor considers whether a plaintiff will suffer prejudice if a default judgment is not entered. Pepsico, Inc. v. California Security Cans, 238 F.Supp.2d 1172, 1177 (C.D.Cal.2002). Denying default judgment here would leave Landstar without a proper remedy. See Pepsico, 238 F.Supp.2d at 1177 (stating plaintiffs would have no other recourse for recovery if default judgment was not granted). Such a denial is unwarranted given that plaintiff has delivered sixty shipments to Parth, and has only received partial payment for its services. Since the facts in the complaint are deemed true, see Geddes, 559 F.2d at 560, the court concludes that plaintiff would suffer prejudice if a default judgment were not entered.
2. Substantive Merits and Sufficiency of the Claim
The second and third Eitel factors assess the substantive merit of plaintiff's claim and the sufficiency of its pleadings. These factors "require that a plaintiff state a claim on which [it] may recover." See Pepsico, 238 F.Supp.2d at 1175; see also Danning v. Lavine, 572 F.2d 1386, 1388 (9th Cir.1978) (stating that the issue is whether the allegations in the complaint state a claim upon which plaintiff can recover).
The elements of a claim for breach of contract are: (1) the existence of a contract, (2) performance by the plaintiff, (3) breach by the defendant and (4) damage to plaintiff as a result of defendant's breach. See Great American Insurance Co. v. MIVCO Packing Co., LLC, No. 08-05454, 2009 WL 942390, *6 (N.D.Cal. April 6, 2009) (citing Amelco Electric v. City of Thousand Oaks, 27 Cal.4th 228, 115 Cal. Rptr.2d 900, 38 P.3d 1120 (Cal.2002)).
*921 Landstar's complaint adequately alleges all elements of a claim for breach of contract. It asserts that Parth tendered sixty shipments of goods under bill of lading contracts for transportation in interstate commerce between September and November 2008.[24] It alleges that Landstar performed under the contracts by transporting each of the sixty shipments.[25] Landstar alleges that, although Parth accepted each delivery and the related invoices without objection or protest,[26] it breached the contracts by failing to pay $243,817.34 in shipping charges owed to Landstar.[27] Accepting these factual allegations as true, as the court must in deciding a motion for default judgment, plaintiff has pled and proved a claim for breach of the bill of lading contracts.
3. Amount at Stake
The third Eitel factor balances "the amount of money at stake in relation to the seriousness of the [d]efendant's conduct." Pepsico, 238 F.Supp.2d at 1176; see also Eitel, 782 F.2d at 1471-72. This requires that the court assess whether the recovery sought is proportional to the harm caused by defendant's conduct. See Walters v. Statewide Concrete Barrier, Inc., No. C 04-2559 JSW, 2006 WL 2527776, *4 (N.D.Cal. Aug. 30, 2006) ("If the sum of money at issue is reasonably proportionate to the harm caused by the defendant's actions, then default judgment is warranted").
Landstar seeks $243,817.34 due under the bill of lading contracts as well as prejudgment interest.[28] In support of its request, plaintiff proffers an invoice summary, copies of the invoices, and the underlying shipping documents, which reflect the outstanding balance.[29] The documents clearly indicate that Landstar made shipments on Parth's behalf from City of Industry, California to Cranbury, New Jersey, and that the shipments were received by Parth. The summary and the invoices clearly specify the charges and the outstanding balance due as of December 4, 2008. Landstar also proffers the declaration of Gregg S. Garfinkel, who states that total transportation charges still due and owing are $243,817.34.[30] Finally, Landstar proffers freight bills reflecting its shipping charges and a corresponding list of open invoices from Parth.[31] Based on the evidence presented, the court concludes that the damages Landstar seeks are consistent with the terms of the contracts and are otherwise appropriate. This factor therefore weighs in favor of entry of default judgment.
4. Possibility of Dispute
The fifth Eitel factor considers the possibility that material facts may be in dispute. Pepsico, 238 F.Supp.2d at 1177; see also Eitel, 782 F.2d at 1471-72. There is no indication from Landstar or Parth that there are any facts in dispute. Plaintiff explains that Parth received invoices totaling $313,803.60 for the sixty shipments, and that it accepted these invoices and underlying paperwork without objection or protest.[32] Landstar has also supplied *922 the bill of lading contracts supporting its claims and acknowledged receipt of five wire transfers from USA Logistics in the amount of $69,986.26.[33] Parth has failed to appear in the action or to contest the material facts alleged in plaintiffs complaint. See Pepsico, 238 F.Supp.2d at 1177 ("Upon entry of default, all wellpleaded facts in the complaint are taken as true, except those relating to damages," citing TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir.1987)). Since Landstar has supported its claims with ample evidence, and defendant has made no attempt to challenge the accuracy of the allegations in the complaint, no factual disputes exist that preclude the entry of default judgment.
5. Possibility of Excusable Neglect
The sixth Eitel factor considers whether defendant's default may have been the product of excusable neglect. See Pepsico, 238 F.Supp.2d at 1177; see also Eitel, 782 F.2d at 1471-72. Here, the possibility of excusable neglect is remote. Landstar demanded payment, yet Parth did not pay the remaining balance.[34] As authorized by the court, Landstar properly served Parth via personal service on the California Secretary of State.[35] Parth, however, failed to appear or defend. Despite the fact that the Secretary of State, rather than Parth's designated agent for service of process, received the summons and complaint, there is little chance that defendant's default was the result of excusable neglect given the numerous attempts Landstar made to locate Parth's agent. Parth, moreover, has made no effort to defend itself. See Solis v. Vigilance, Inc., No. C 08-05083 JW, 2009 WL 2031767, *1-2 (N.D.Cal. July 9, 2009) (finding that the excusable neglect factor favored entry of default judgment where defendant did not appear, even though defendant was served through the California Secretary of State); Shanghai Automation Instrument Co., Ltd. v. Kuei, 194 F.Supp.2d 995, 999, 1005 (N.D.Cal.2001) (default could not be attributed to excusable neglect where corporate entities had been properly served through the California Secretary of State). Consequently, this factor too favors entry of default judgment.
6. Policy for Deciding Cases on the Merits
"Cases should be decided upon their merits whenever reasonably possible." Eitel, 782 F.2d at 1472. The fact that Rule 55(b) has been enacted, however, indicates that "this preference, standing alone, is not dispositive." Pepsico, 238 F.Supp.2d at 1177 (quoting Kloepping v. Fireman's Fund, 1996 WL 75314 at *3 (N.D.Cal.1996)). Rule 55(a) allows a court to decide a case before the merits are heard if defendant fails to appear and defend. See Pepsico, 238 F.Supp.2d at 1177 ("Defendant's failure to answer plaintiffs' complaint makes a decision on the merits impractical, if not impossible"). Since defendant failed to respond to plaintiffs claims, the seventh Eitel factor does not preclude the 'entry of default judgment against it.
7. Conclusion Regarding Eitel Factors
Aside from the policy of deciding cases on the merits, all of the Eitel factors weigh in favor of granting plaintiffs motion for entry of default judgment. As a result, the court concludes that it is appropriate to enter default judgment against Parth.
*923 B. The Character and Amount of Plaintiff's Recovery
Under Rule 8(a)(3), plaintiff's demand for relief must be specific, and it "must `prove up' the amount of damages." Philip Morris USA Inc. v. Banh, No. CV 03-4043 GAF (PJWx), 2005 WL 5758392, *6 (C.D.Cal. Jan. 14, 2005); Elektra Entertainment Group, 2004 WL 783123 at *5. Rule 54(c) "allows only the amount prayed for in the complaint to be awarded to the plaintiff in a default." Id. at *5; see Fong v. United States, 300 F.2d 400, 413 (9th Cir.1962) (stating that a default judgment may not be different in kind from or exceed in amount that prayed for in the complaint); Pepsico, 238 F.Supp.2d at 1174 (stating that a default judgment "shall not be different in kind from or exceed in amount that prayed for in the [complaint]"). In its motion for default judgment, Landstar seeks $243,817.34 in unpaid freight charges plus pre-judgment interest under California Civil Code § 3289. It also seeks to submit a bill of costs following entry of the default judgment.
1. Damages Resulting from Claims Arising Under the Bill of Lading Contracts
Landstar seeks $243,817.34 in transportation charges that are currently due and owing.[36] As noted, Landstar has proffered an invoice summary, copies of its invoices, and the underlying shipping documents, which reflect the outstanding balance requested.[37] This evidence substantially supports Landstar's claim for $243,817.34 in damages related nonpayment for its shipping services.
2. Prejudgment Interest
Landstar also seeks prejudgment interest on the $243,817.34 owed under the bill of lading contracts. It asserts that because the balance was due as of December 4, 2008, "prejudgment interest should accrue from that date pursuant to California Civil Code section 3289." [38] Landstar did not allege entitlement to prejudgment interest in its first amended complaint, however. Because plaintiff did not pray for such damages in the complaint, and no meaningful notice of the possibility that such amounts would be awarded has been given, plaintiff cannot recover prejudgment interest. See FED.R.CIV.PROC. 54(c) ("A default judgment must not differ in kind from, or exceed in amount, what is demanded in the pleadings"); Silge v. Merz, 510 F.3d 157, 160-61 (2d Cir.2007) (affirming the denial of prejudgment interest in connecting with a default judgment where plaintiff did not expressly pray for prejudgment interest in the complaint, and stating that, "[b]y limiting damages to what is specified in the 'demand for judgment,' [Rule 54(c) ] ensures that a defendant who is considering default can look at the damages clause, satisfy himself that he is willing to suffer judgment in that amount, and then default without the need to hire a lawyer"); see also Family Tree Farms, LLC v. Alfa Quality Produce, Inc., No. 1:08-cv-00481-AWI-SMS, 2009 WL 565568, *4 (E.D.Cal. Mar. 4, 2009) ("Plaintiff did not in the complaint allege entitlement to punitive damages or pray for punitive damages. Therefore, it would be inappropriate for Plaintiff to recover punitive damages in the instant application because such damages are beyond the scope of the complaint, and thus no meaningful *924 notice has been given of a demand for punitive damages").[39] Accordingly, the court denies Landstar's request for prejudgment interest.
3. Post-Judgment Interest
"Under the provisions of 28 U.S.C. § 1961, post-judgment interest on a district court judgment is mandatory." Air Separation, Inc. v. Underwriters at Lloyd's of London, 45 F.3d 288, 290 (9th Cir.1995) (citing Perkins v. Standard Oil Co., 487 F.2d 672, 674 (9th Cir.1973)). Post-judgment interest applies to the entire judgment, including principal, pre-judgment interest, attorneys' fees, and costs. Id. at 291. The post-judgment interest rate is set "at a rate equal to the weekly average 1-year constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System, for the calendar week preceding . . . the date of the judgment." 28 U.S.C. § 1961(a). For the calendar week preceding July 19, 2010, that rate was 0.28%.
IV. CONCLUSION
For the reasons stated, plaintiffs motion for default judgment is granted. The court awards plaintiff $243,817.34 in damages based on the transportation charges. Plaintiff must submit its bill of costs within fourteen days of entry of this order.
JUDGMENT FOR PLAINTIFF
On July 16, 2010, the court granted plaintiffs application for default judgment against Parth Enterprises, Inc. Accordingly,
IT IS ORDERED AND ADJUDGED.
1. That plaintiffs recover from defendants total damages of $243,817.34 for breach of contract. This sum shall bear post-judgment interest at the rate of 0.28 percent;
2. That the action be, and it hereby is, dismissed; and
3. That plaintiff recover its costs of suit herein.
NOTES
[1] Complaint, Docket No. 1 (Feb. 27.2010). On March 16, 2009, plaintiff filed a first amended complaint. First Amended Complaint ("FAC"), Docket No. 4 (March 16, 2009).
[2] Default by Clerk, Docket No. 17 (Aug. 17, 2009).
[3] Order of Dismissal for Lack of Prosecution, Docket No. 33 (Feb. 9, 2010).
[4] Application for Default Judgment ("Motion"), Docket No. 20 (Aug. 31, 2009), ¶ 5; Declaration of Gregg S. Garfinkel ("Garfinkel Decl."), ¶¶ 8-9.
[5] Motion, ¶ 7.
[6] First Amended Complaint, ¶ 1.
[7] Id., ¶ 2.
[8] Id., ¶ 5.
[9] Id., ¶ 11.
[10] Id., ¶¶ 12-14.
[11] Id., ¶ 15.
[12] Id., ¶ 17, Exh. A (listing open invoices to Parth and related freight documentation).
[13] Id., ¶ 18.
[14] Id.; Garfinkel Decl., ¶ 5.
[15] FAC, ¶ 19.
[16] Proof of Service, Docket No. 12 (Aug. 6, 2009).
[17] Order Granting Service of Summons and First Amended Complaint by Hand Delivery Upon California Secretary of State, Docket No. 6 (June 23, 2009). As support for its request that it be permitted to serve the California Secretary of State, Landstar submitted the declaration of Amy M. Lewis, who represented that Landstar had made numerous attempts to locate and serve Parth's designated agent for service of process without success. (Ex Parte Application for Order Granting Service of Summons and First Amended Complaint by Hand Delivery Upon California Secretary of State, Docket No. 5 (June 19, 2009).)
[18] Garfinkel Decl., ¶ 4.
[19] Rule 55(b)(2) requires service on the defaulting party only if that party has appeared in the action. FED.R.CIV.PROC. 55(b)(2) ("If the party against whom a default judgment is sought has appeared personally or by a representative, that party or its representative must be served with written notice of the application at least 3 days before the hearing"); see also, e.g., In re Roxford Foods, Inc., 12 F.3d 875, 879 (9th Cir.1993) (noting that Rule 55(b)(2) notice "is only required where the party has made an appearance").
[20] Id., ¶ 6.
[21] Docket No. 19.
[22] Garfinkel Decl., ¶ 4.
[23] Id., ¶ 5.
[24] FAC, ¶ 11.
[25] Id., ¶ 15.
[26] Id., ¶¶ 15, 17.
[27] Id., ¶¶ 18, 19.
[28] Id., ¶¶ 19, 22, 26.
[29] Id., Exh. A.
[30] Garfinkel Decl., ¶ 8.
[31] Id., Exh. A.
[32] FAC, ¶ 17.
[33] Id., ¶ 18.
[34] Id.
[35] Garfinkel Decl., ¶ 3.
[36] Motion, ¶ 5.
[37] Garfinkel Decl., Appx. A.
[38] Id., ¶ 9. See CAL. CIV.CODE § 3289(b) ("If a contract entered into after January 1, 1986, does not stipulate a legal rate of interest, the obligation shall bear interest at a rate of 10 percent per annum after a breach").
[39] Plaintiff's complaint does seek "such other and further relief as this Court may deem just and proper." (FAC, ¶ 19(3).) As noted by the Second Circuit, however, such boilerplate language is insufficient to put a defendant on notice of the specific damages sought as required by Rule 54(c). See Silge, 510 F.3d at 160 ("In reaching this result, we must reject Silge's argument that his demand for prejudgment interest was implied by his generic request for 'such other and further relief which this Court deems just and proper.' It has been observed that 'language . . . seeking "such other and further relief as the court may deem proper" is mere boilerplate, meant to cover all bases as to the claims asserted in the complaint.' Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1277 n. 6 (9th Cir.2006). Whatever its import in other contexts, this formulaic language cannot substitute for the meaningful notice called for by Rule 54(c), which anticipates that defendants will look to the demand clause to understand their exposure in the event of default"). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2471296/ | 678 F. Supp. 2d 547 (2009)
Allen David DANIEL, Petitioner,
v.
Greg McQUIGGTN, Respondent.
Case No. 08-13177.
United States District Court, E.D. Michigan, Southern Division.
December 21, 2009.
*549 Allen Daniel, Baraga, MI, pro se.
OPINION AND ORDER DISMISSING THE PETITION FOR A WRIT OF HABEAS CORPUS PETITION, DENYING PETITIONER'S MOTIONS FOR EXPEDITED CONSIDERATION AND MOTION TO SHOW CAUSE
DAVID M. LAWSON, District Judge.
The petitioner, Allen David Daniel, presently confined at Marquette Branch Prison in Marquette, Michigan, has filed a pro se application for a writ of habeas corpus pursuant to 28 U.S.C. § 2254. Also pending before the Court are the petitioner's motions for an order to show cause, for an immediate hearing, and for expedited consideration. The petitioner was convicted by a jury of home invasion and other offenses in the Macomb County, Michigan circuit court. He alleges that he is incarcerated in violation of his right to a speedy trial; his right to a trial free of misconduct, perjury, and fraud; his right to a fair and impartial jury; his right not to be placed in double jeopardy; and his right to confront witnesses and to present a defense. The respondent has filed an answer to the petition, asserting that the petitioner's claims are procedurally defaulted because the petitioner failed to raise his claims in the Michigan Supreme Court. The Court agrees. Therefore, the petition will be dismissed.
I.
On January 11, 2006, a Macomb County, Michigan circuit court jury found the petitioner guilty of second-degree home invasion, Mich. Comp. Laws § 750.110a(3), larceny in a building, Mich. Comp. Laws § 750.360, malicious destruction of a building, Mich. Comp. Laws § 750.380(3)(a), malicious destruction of personal property, Mich. Comp. Laws § 750.377a(1)(b)(i), aggravated stalking, Mich. Comp. Laws § 750.411i, and malicious use of service provided by a telecommunications service provider, Mich. Comp. Laws § 750.540e. On February 8, 2006, the trial court sentenced the petitioner to concurrent prison terms of 99 months to fifteen years for home invasion, two to four years for larceny, 180 days for malicious use of a telecommunications service provider; and two to five years for each of the other convictions.
The petitioner raised multiple claims, including those alleged in his habeas petitions, in a appeal to the state court of appeals. The court of appeals affirmed his convictions in an unpublished per curiam opinion. See People v. Daniel, No. 272073, 2008 WL 1829525 (Mich.Ct.App. Apr. 24, 2008). The petitioner attempted to file an application for leave to appeal in the Michigan Supreme Court, but the Clerk of the state supreme court rejected his application as untimely on June 23, 2008. See aff. of Corbin R. Davis [dkt # 11] at 2.
The petitioner filed the present petition on July 23, 2008. In an effort to better understand the issues, the Court ordered the petitioner to submit a plain and simple statement of his claims. The petitioner then submitted another petition for a writ of habeas corpus, which sets forth the following five claims:
*550 I. The trial court erred in dismissing the entire cause on substantive due process constitutional violations, and violations of the Speedy Trial Act, 180-day rule. U.S. Const. Ams. VI, XIV.
II. The trial court erred in the jury selection ve[n]ire where the prosecution intentionally discriminated against the petitioner and minorities to win at all cost. U.S. Const. Ams. VI, XIV.
III. Trial court erred in dismissing the case based on the people of the state, police, prosecution, judicial misconduct, that includes ext[r]insic fraud upon the Court, obstruction justice, misprison [sic], crimes against justice, subordinations of perjury. U.S. Const. Ams. IV, V, XIV.
IV. The trial court erred in holding an unconstitutional trial where the petitioner was placed in double jeopardy due to the court and prosecution "goad[ing]" the mistrial. U.S. Const. Ams. V, XIV.
V. The trial court erred in denying the petitioner his federal constitutional rights to present a defense, and to confrontation of his accusers John Doe's I, John Doe II, and the petitioner was "entrapped due to outrageous government conduct." U.S. Const. AMS IV, V, VI, XIV §§ 1, 2, 3,4,5.
Am. Pet. for Habeas Corpus at 3-4.
On April 6, 2009, the respondent filed an answer to the petition urging the Court to deny relief. The petitioner subsequently filed a motion for order to show cause and a motion for an immediate hearing on April 17, 2009, and a motion for an extension of time on May 21, 2009. His "show cause" motion attempts to show "manifest injustice" and a "radical jurisdictional defect" that renders the state court's judgment null and void.
II.
The respondent argues in his answer to the habeas petition that the petitioner's claims may not be reviewed on their merits in this Court because of a "procedural default." A procedural default is "a critical failure to comply with state procedural law." Trest v. Cain, 522 U.S. 87, 89, 118 S. Ct. 478, 139 L. Ed. 2d 444 (1997). It will bar consideration of the merits of a federal claim if the state rule is actually enforced and is an adequate and independent ground for the state court's decision. Coleman v. Thompson, 501 U.S. 722, 750, 111 S. Ct. 2546, 115 L. Ed. 2d 640 (1991); Monzo v. Edwards, 281 F.3d 568, 576 (6th Cir.2002). "When a state court judgment appears to have rested primarily on federal law or was interwoven with federal law, a state procedural rule is an independent and adequate state ground[ ] only if the state court rendering judgment in the case clearly and expressly stated that its judgment rested on a procedural bar." Simpson v. Sparkman, 94 F.3d 199, 202 (6th Cir.1996). Federal habeas courts may not grant relief on a state prisoner's procedurally defaulted claims "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, 501 U.S. at 750, 111 S. Ct. 2546; see also Anderson v. Jackson, 567 F. Supp. 2d 973, 978 (E.D.Mich.2008).
The procedural lapse cited by the respondent is the petitioner's failure take his appeal to the state supreme court. Technically, that failure suggests a failure to exhaust state remedies. State prisoners must exhaust available state remedies for their claims before a federal court may *551 grant a writ of habeas corpus. 28 U.S.C. § 2254(b)(1); Baldwin v. Reese, 541 U.S. 27, 29, 124 S. Ct. 1347, 158 L. Ed. 2d 64 (2004). The doctrine of exhaustion of state remedies requires state prisoners to "fairly present" their claims as federal constitutional issues in the state courts before raising those claims in a federal habeas corpus petition. See 28 U.S.C. § 2254(b)(1)(A) and (c); O'Sullivan v. Boerckel, 526 U.S. 838, 844, 119 S. Ct. 1728, 144 L. Ed. 2d 1 (1999); McMeans v. Brigano, 228 F.3d 674, 680-81 (6th Cir.2000); Rust v. Zent, 17 F.3d 155, 160 (6th Cir. 1994). The exhaustion requirement is satisfied if a prisoner "invok[es] one complete round of the State's established appellate review process," including a petition for discretionary review to a state supreme court. O'Sullivan, 526 U.S. at 845, 119 S. Ct. 1728. A prisoner "`fairly presents' his claim to the state courts by citing a provision of the Constitution, federal decisions using constitutional analysis, or state decisions employing constitutional analysis in similar fact patterns." Levine v. Torvik, 986 F.2d 1506, 1516 (6th Cir.1993); see also Prather v. Rees, 822 F.2d 1418, 1420 (6th Cir.1987) (holding that "[o]rdinarily, the state courts must have had the opportunity to pass on defendant's claims of constitutional violations"). A Michigan petitioner must present each ground to both Michigan appellate courts before seeking federal habeas corpus relief. See Mohn v. Bock, 208 F. Supp. 2d 796, 800 (E.D.Mich. 2002); see also Baldwin, 541 U.S. at 29, 124 S. Ct. 1347. The petitioner bears the burden of showing that state court remedies have been exhausted. Rust, 17 F.3d at 160.
The petitioner raised his claims in the Michigan Court of Appeals, which held that his claims of an improper jury venire and denial of his right to present a defense were not preserved for appellate review. The state court of appeals also held that the petitioner's claims of fraudulent conduct and fabricated evidence did not entitle him to appellate relief, his perjury claims were erroneous or meritless, the record did not support his claims of prosecutor misconduct, he was not denied his right to a speedy trial, he abandoned his double jeopardy argument, and his jurisdictional and Confrontation Clause arguments lacked merit because he failed to show that his rights were violated and he did not support his arguments with any authority.
The petitioner attempted to file an application for leave to appeal in the Michigan Supreme Court, but the state supreme court rejected his application as untimely. Because the petitioner did not file a timely application in the Michigan Supreme Court, he failed to fairly present his claims to both state appellate courts. The Michigan Court Rules provide a process through which a criminal defendant may raise unexhausted claims by filing a motion for relief from judgment. See Mich. Ct. R., Subchapter 6.500. However, the petitioner may not proceed under those rules in this case because the Michigan Court of Appeals has already decided these identical issues against him. See Mich. Ct. Rule 6.508(D)(2) (prohibiting state courts from granting a motion for relief from judgment when defendant alleges grounds for relief that were decided against him in a prior appeal). Consequently, the petitioner has no way to exhaust his state claims.
The exhaustion doctrine will not bar a review of the merits of the petitioner's claims in this Court. The exhaustion requirements of 28 U.S.C. § 2254(b)(1)(A) and (c) do not bar review here because the petitioner no longer has state remedies available to him. Rust, 17 F.3d at 160 (holding that failure to exhaust bars review only when the state still provides a remedy to exhaust). "The disappearance of state procedural remedies which evaporate with time will not completely excuse a *552 prisoner's failure to avail himself of them, however." Mohn, 208 F.Supp.2d at 801 (citing Gray v. Netherland, 518 U.S. 152, 162, 116 S. Ct. 2074, 135 L. Ed. 2d 457 (1996), and Hannah v. Conley, 49 F.3d 1193, 1195-96, 1196 n. 3 (6th Cir.1995)). Instead, the petitioner must deal with his failure to adhere to the state procedures, and that default now becomes the bar the petitioner must overcome. As the Sixth Circuit explained:
In situations in which a petitioner has failed to fairly present federal claims to the state courts, and a state procedural rule now prohibits the state court from considering them, the claims are considered procedurally defaulted. Martin v. Mitchell, 280 F.3d 594, 603 (6th Cir. 2002). While in such situations the exhaustion requirement is technically satisfied because there are no longer any state remedies available to the petitioner, see Coleman v. Thompson, 501 U.S. 722, 732, 111 S. Ct. 2546, 115 L. Ed. 2d 640 (1991), the petitioner's failure to have the federal claims considered in the state courts results in a procedural default of those claims that bars federal court review. Williams v. Anderson, 460 F.3d 789, 806 (6th Cir.2006).
Pudelski v. Wilson, 576 F.3d 595, 605 (6th Cir.2009); accord Gray, 518 U.S. at 161, 116 S. Ct. 2074 (explaining that the exhaustion requirement is satisfied if the habeas petitioner's claims are procedurally barred under state law because he no longer has an available remedy to exhaust); Rust, 17 F.3d at 160 (explaining that when "no remedy exists, and the substance of a claim has not been presented to the state courts, no exhaustion problem exists; rather, it is a problem of determining whether cause and prejudice exist to excuse the failure to present the claim in the state courts").
To overcome a procedural default, a habeas petitioner must show "cause" for his default and "prejudice" as a result of the alleged constitutional error, or demonstrate that the Court's failure to consider the substantive merits of his claims will result in a fundamental miscarriage carriage of justice. Coleman, 501 U.S. at 750, 111 S. Ct. 2546. The petitioner attempts to establish "cause" for his failure to file a timely application in the Michigan Supreme Court by alleging that he was denied access to the courts because prison officials confiscated his legal materials.
"[T]he existence of cause for a procedural default must ordinarily turn on whether the prisoner can show that some objective factor external to the defense impeded counsel's efforts to comply with the State's procedural rule." Murray v. Carrier, 477 U.S. 478, 488, 106 S. Ct. 2639, 91 L. Ed. 2d 397 (1986). A showing that some interference by officials made compliance with a state procedural rule impracticable would constitute cause under this standard. Ibid.
Exhibits to the habeas petition demonstrate that the petitioner's grievances against state officials for denying him access to the courts predated the decision of the Michigan Court of Appeals on direct review of the petitioner's convictions. Furthermore, the petitioner managed to file a previous petition for habeas corpus in federal courtchallenging the same convictionson May 19, 2008. See Daniel v. McQuiggin, No. 08-12188, 2008 WL 2242538 (E.D.Mich. May 19, 2008). He filed that petition after the Michigan Court of Appeals affirmed his convictions, but before the deadline expired for filing an application for leave to appeal in the Michigan Supreme Court. The petitioner has failed to show that prison officials interfered with his right of access to the courts, such that he was unable to file a timely application for leave to appeal in the Michigan Supreme Court. Therefore, the petitioner has not shown "cause" for his procedural error.
*553 The Court need not determine whether the petitioner was prejudiced by the alleged constitutional errors because he has not shown "cause" for his procedural default. Willis v. Smith, 351 F.3d 741, 746 (6th Cir.2003) (citing Simpson v. Jones, 238 F.3d 399, 408 (6th Cir.2000)).
The narrow exception for a fundamental miscarriage of justice is reserved for the extraordinary case in which the alleged constitutional errors probably resulted in the conviction of one who is actually innocent of the underlying offenses. Dretke v. Haley, 541 U.S. 386, 388, 124 S. Ct. 1847, 158 L. Ed. 2d 659 (2004); Carrier, 477 U.S. at 496, 106 S. Ct. 2639; Rust, 17 F.3d at 162. "To be credible, . . . a claim [of actual innocence] requires [the] petitioner to support his allegations of constitutional error with new reliable evidence whether it be exculpatory scientific evidence, trustworthy eyewitness accounts, or critical physical evidencethat was not presented at trial." Schlup v. Delo, 513 U.S. 298, 324, 115 S. Ct. 851, 130 L. Ed. 2d 808 (1995). "[T]he Schlup standard does not require absolute certainty about the petitioner's guilt or innocence. A petitioner's burden at the gateway stage is to demonstrate that more likely than not, in light of the new evidence, no reasonable juror would find him guilty beyond a reasonable doubtor, to remove the double negative, that more likely than not any reasonable juror would have reasonable doubt." House v. Bell, 547 U.S. 518, 538, 126 S. Ct. 2064, 165 L. Ed. 2d 1 (2006). The petitioner has not presented any new evidence in support of a claim of actual innocence. The miscarriage-of-justice exception will not excuse the petitioner's procedural default.
III.
The petitioner's habeas claims are procedurally defaulted, and the petitioner has not established "cause and prejudice" to excuse his state procedural default nor has he presented evidence tending to show that a fundamental miscarriage of justice would result from the failure to consider the merits of his claims.
Accordingly, it is ORDERED that the petitions for a writ of habeas corpus [dkt. # 1 and # 5] are DENIED.
It is further ORDERED that the petitioner's motions for an immediate hearing [dkt. # 15] and for expedited consideration [dkt. # 21] are DENIED as moot.
It is further ORDERED that the petitioner's motion for an order to show cause regarding a jurisdictional defect in the state court judgment [dkt. # 14] is DENIED as moot and because the "[d]etermination of whether a state court is vested with jurisdiction under state law is a function of the state courts, not the federal judiciary." Wills v. Egeler, 532 F.2d 1058, 1059 (6th Cir.1976). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2468264/ | 760 F. Supp. 2d 662 (2010)
AUSTIN FIREFIGHTERS RELIEF AND RETIREMENT FUND, Plaintiff/Counterdefendant
v.
William A. BROWN, Brown Bottling Group, Inc., Raymond Wilkins and Mike Cottingham, Defendants/Counterplaintiff.
Civil Action No. 3:07CV228TSL-JCS.
United States District Court, S.D. Mississippi, Jackson Division.
February 11, 2010.
*664 Armin J. Moeller, Jr., Ernest Russell Turner, Balch & Bingham, LLP, Jackson, MS, David J. White, Godwin Pappas Ronquillo, LLP, P. Michael Jung, David N. Kitner, Gary B. Lawson, Strasburger & Price, LLP, Dallas, TX, for Plaintiff/Counterdefendant.
Neville H. Boschert, Douglas T. Miracle, Watkins Ludlam Winter & Stennis, P.A., Joseph Anthony Sclafani, Christopher A. Shapley, Brunini, Grantham, Grower & Hewes, PLLC, Jackson, MS, for Defendants/Counterplaintiff.
MEMORANDUM OPINION AND ORDER
TOM S. LEE, District Judge.
This cause is before the court on the following motions by the parties:
Second motion of defendants/counterplaintiffs William A. Brown, Brown Bottling Group, Inc., Raymond Wilkins and Mike Cottingham for summary judgment for rescission, or in the alternative, motion for partial summary judgment on specific claims in the first amended complaint [Docs. 157 & 175];
AFF's Rule 56(f) motion for continuance [Doc. 200];
Second motion of plaintiff/counterdefendant Austin Firefighters Relief and Retirement Fund (AFF) for partial summary judgment [Doc. 164];
Defendants' motion to exclude certain expert testimony of Edith F. Moates [Doc. 159];
AFF's motion for reconsideration of the court's June 26th, 2009 order relating to AFF's objections to the magistrate judge's March 10, 2009 orders [Doc. 213];
*665 AFF's motion for review of magistrate judge's order [Doc. 232];
Defendants' motion to exclude the affidavit of James M. "Mike" Hill and Exhibit "A" attached thereto [Doc. 196]; and
AFF's motion to exclude expert testimony of David L. Black [Doc. 162].
The court's rulings on these various motions are set forth herein.
The basic background facts, which were set forth in an earlier opinion entered by the court in this cause in September 2008, see Austin Firefighters Relief and Retirement Fund v. Brown et al., 2008 WL 4450253 (S.D.Miss. Sept. 29, 2008), are largely undisputed. This suit arises out of a tax shelter product for S corporations developed and marketed by the accounting firm KPMG, which came to be known as the S corporation Charitable Contribution Strategy (SC2). Under the SC2 tax strategy, S corporation shareholders would attempt to transfer the incidence of taxation on S corporation income by donating S corporation nonvoting stock to a tax-exempt organization, while retaining the economic benefits associated with that stock. See IRS Notice 2004-30. After the donation of the non-voting stock to the tax-exempt entity, the parties would claim that the tax-exempt entity owned ninety percent of the stock of the S corporation and that any taxable income allocated on the non-voting stock to the exempt party was not subject to tax on unrelated business income under the Tax Code. Thus, the tax benefit to the S corporation voting shareholders was two-fold: they would benefit by being able to take a charitable contribution deduction for their stock donation to the tax-exempt entity, and the shareholders would also benefit because during the period the stock was held by the tax-exempt entity, the income of the S corporation would be allocated to the tax-exempt entity based upon the percentage of shares held by the tax-exempt entity, thereby reducing the voting shareholders' taxable income. Another feature of the strategy was that while income allocated to the tax-exempt entity would remain in the S corporation, no dividends would be paid by the S corporation while the tax-exempt entity held the stock.
Pursuant to one or more agreements (typically redemption agreements) entered into as part of the transaction, the exempt party would hold the stock for a twoto three-year period, as specified in the agreement, but at the end of that period, would have the right to require the S corporation or the original shareholders to purchase the exempt party's non-voting stock for an amount equal to the fair market value of the stock as of the date the shares were presented for repurchase. KPMG developed, promoted and sold this SC2 tax strategy to various tax clients and tax-exempt organizations, including AFF and William Brown and his company, BBG.
Plaintiff AFF is a legislatively-created retirement plan which administers pension benefits for members of the City of Austin's Fire Department. In 2000, KPMG contacted AFF to promote its SC2 tax shelter scheme and eventually recruited AFF to participate in five separate SC2 transactions arranged by KPMG. In an Executive Summary initially provided by KPMG to AFF in October 2000, prior to the first transaction, KPMG explained its interest in AFF and outlined the nature of the proposed transactions, as follows:
Under a little known IRS ruling (Revenue Ruling 58-154, attached for your review), individuals are permitted to donate cash and other property to municipal pension plans and obtain a tax deduction. Our client is looking to donate certain financial interests in his closely *666 held business and thereby obtain a deduction under the above Revenue Ruling. The financial interests will be equity interests which will not subject the holder to any potential liabilities of the business. We anticipate the fair market value of these financial interests will be at least $500,000.
Under Federal and State tax law most holders of these financial interests would be taxed on the income from the underlying business (including most tax-exempt entities because the income will constitute "unrelated taxable business taxable income" or "UBTI"), even though the income will not actually be distributed to the holder. Therefore, it does not make economic sense for most entities to accept these financial interests because the tax burden associated with ownership would exceed the value of the financial interest.
However it is our understanding that your entity is a tax-exempt entity which is not subject to any income tax (including UBTI) and would not be taxed on the income from ownership of the financial interests.
Your organization would be required to hold the financial interest for a minimum specified period of time, for example one year.
At the end of that time period your organization will have the right to present financial interests for redemption, i.e. sell it to the operating entity at fair market value for cash.
AFF entered its first SC2 transaction in November 2000, and two additional transactions in December 2000, prior to its transaction with BBG in January 2001.
Around this same time KPMG initiated contact with AFF, a KPMG representative proposed the SC2 tax strategy to Brown. In September 2000, Brown signed an engagement letter with KPMG for KPMG's services to implement the SC2 tax strategy, and soon thereafter, Brown and BBG began making preparations for implementation of the SC2 transaction. This included BBG's changing its corporation structure to a Subchapter S corporation and recapitalizing in order that Brown, its sole shareholder, would be able to donate ninety percent of the shares of BBG (all non-voting shares) to AFF and retain the remaining ten percent (all voting shares). In anticipation of the transaction, on December 19, 2000, BBG also declared a $4.2 million dividend to Brown as a note with payments to be withdrawn later by Brown. A month later, on January 25, 2001, KPMG proposed to AFF an SC2 transaction with BBG.
On January 30, after AFF's Board had voted to approve the transaction, Brown executed an assignment of 9,000 shares of the non-voting common stock of BBG, and on January 31, 2001, AFF executed an Acknowledgment of Receipt of Certificate and Disclosures and a Representation Concerning Qualified Plan Status. On February 21, 2001, a Redemption Agreement drawn up by KPMG was presented to and signed by BBG and AFF to complete the transaction. The Redemption Agreement provided that Brown, BBG's president and sole voting shareholder, would donate his non-voting common stock (9,000 shares) to AFF and in return, AFF would have the right to present all of the BBG stock for redemption for a ten-day period commencing January 31, 2004, and upon such presentation, BBG would purchase the stock at the fair market value. However, the agreement allowed BBG to extend the period for redemption an additional year until January 1, 2005 by making a dividend payment of at least $200,000 prior to January 31, 2004.
For the tax years 2001, 2002, 2003 and 2004, the parties acted in conformance *667 with the SC2 transaction. BBG's income was allocated ninety percent to AFF and ten percent to Brown. As a tax-exempt entity, AFF did not pay taxes on its ninety-percent allocation. Brown paid taxes on his ten-percent allocation. No dividends were declared and distributed during 2001, 2002 or 2003. In January 2004, BBG declared and distributed a dividend of $200,000 to AFF to extend the stock holding period until January 31, 2005. Not long thereafter, on April 1, 2004, the Internal Revenue Service, following a lengthy investigation into abusive tax shelters being developed, marketed and implemented by accountants, lawyers and financial advisors, issued a notice declaring the SC2 shelter at issue to be an abusive tax avoidance transaction and deemed such arrangements "listed transactions." IRS Notice 2004-30 (4/1/04). The IRS also declared that tax-exempt parties in the transactions (including AFF) would be treated as participants in the transactions. Id.
On February 9, 2005, AFF provided formal notice to BBG of its intent to redeem the BBG stock, as provided in the Redemption Agreement, and on February 21, 2005, AFF presented the BBG stock for redemption. Although Brown/BBG initially undertook to have the shares appraised, as provided in the Redemption Agreement, Brown/BBG ultimately took the position that the Redemption Agreement was void and unenforceable due to the IRS's disallowance of the tax benefits which were the foundation of the transaction. Consistent with that position, on April 18, 2006, BBG filed a declaratory judgment action in the Chancery Court of Madison County, Mississippi, seeking a declaration that the Redemption Agreement is void and unenforceable due to the IRS's decision to disallow the tax benefits of the SC2 tax strategy. The BBG suit further demanded the return of the 9,000 shares of non-voting common stock donated by BBG and currently held by AFF, sought a permanent injunction against AFF's enforcement of the Redemption Agreement, and alleged estoppel and rescission. That case was removed to federal court on the basis of diversity jurisdiction, but was eventually dismissed for lack of personal jurisdiction over AFF.
In the meantime, on May 1, 2006, two weeks after BBG had filed its complaint against AFF in state court in Mississippi, AFF filed suit against BBG in federal district court in Texas, alleging that BBG had breached the Redemption Agreement by failing to redeem and purchase the BBG stock. AFF's Texas suit was dismissed for lack of personal jurisdiction over BBG, following which AFF filed the present lawsuit in this court on April 26, 2007, alleging claims against Brown and BBG for breach of fiduciary duty, against Brown for tortious interference with contract, and against BBG for breach of contract. Brown and BBG answered and filed a counterclaim, seeking a declaratory judgment that the Redemption Agreement is void and unenforceable and seeking a return of the 9,000 shares of non-voting common stock donated by BBG and held by AFF, a permanent injunction against AFF's enforcement of the Redemption Agreement, and alleging estoppel and rescission.
Subsequently, AFF sought and was granted leave to amend its complaint to add as defendants BBG directors Raymond Wilkins and Mike Cottingham on AFF's existing claim for breach of fiduciary duty and to add claims against all the defendants for allegedly wrongfully withholding dividends from AFF in breach of their common law fiduciary duty and their duty of good faith and fair dealing, and for oppressive or fraudulent conduct under Mississippi Code Annotated § 79-4-14.30. *668 The addition of these claims by AFF prompted counterclaims by Brown/BBG, and by Cottingham and Wilkins, for breach of the duty of good faith and fair dealing and for abuse of process. Defendants have charged that AFF's claim based on an alleged entitlement to the payment of withheld dividends is directly contrary to the terms of the parties' agreement and in violation of AFF's duty of good faith and fair dealing. They further assert that by naming Wilkins and Cottingham, who were not directors at the time of some of the acts alleged by AFF, and by asserting claims of statutory oppressive or fraudulent conduct, and by seeking the dissolution of BBG, AFF had engaged in abuse of process.
Early in this lawsuit, AFF moved for partial summary judgment on defendants' rescission defenses and on their counterclaim for rescission, and AFF separately moved pursuant to Federal Rule of Civil Procedure 12(b)(6) to dismiss defendants' counterclaims for breach of the duty of good faith and fair dealing and for abuse of process. In addition, defendants moved early on for summary judgment on their counterclaim for rescission. On September 28, 2008, the court entered its opinion on those motions. The court granted AFF's motion for summary judgment as to a few specific defenses raised by defendants, but it otherwise denied AFF's summary judgment motion, and it denied, as well, defendants' summary judgment motion. The court also denied AFF's motion to dismiss defendants' breach of duty of good faith and fair dealing and abuse of process claims. The parties have now filed second summary judgment motions on all these claims, counterclaims and defenses. The court considers the motions/claims in turn.
CROSS-MOTIONS FOR SUMMARY JUDGMENT ON DEFENDANT'S RESCISSION CLAIM
Defendants have moved for summary judgment on their claim for rescission, arguing that "the entire SC2 transaction between Brown, BBG and AFF should be rescinded in its entirety as a matter of public policy" because "the IRS has disallowed the SC2 transaction as an `abusive tax shelter transaction' and Congress has determined that it is a prohibited tax shelter transaction." In a nutshell, defendants argue that in the SC2 transaction, AFF was not just an innocent beneficiary of charity, as it purports, but rather, as the IRS has found, was a knowing participant for hire, without whose participation the transaction could and would never have occurred. Defendants submit that to allow AFF to benefit from an "abusive tax shelter transaction" which it facilitated, would offend public policy.
"Whether a contract clause is unenforceable on grounds of illegality or public policy is a question of law." Cooper Tire & Rubber Co. v. Farese, 423 F.3d 446, 456-458 (5th Cir.2005) (citing MacPhail v. Oceaneering Int'l, Inc., 302 F.3d 274, 278 (5th Cir.2002), cert. denied, 537 U.S. 1110, 123 S. Ct. 891, 154 L. Ed. 2d 782 (2003)). It is well established as a matter of federal law that a court may refuse to enforce contracts that violate law or public policy. See United Paperworkers Intern. Union, AFL-CIO v. Misco, Inc., 484 U.S. 29, 42, 108 S. Ct. 364, 373, 98 L. Ed. 2d 286 (1987).[1] However, the Supreme Court has cautioned that "since the term `public policy' is vague, there must be found definite indications in the law of the sovereignty to justify invalidation of a contract *669 as contrary to public policy." Muschany v. United States, 324 U.S. 49, 66, 65 S. Ct. 442, 451, 89 L. Ed. 744 (1945). Accordingly, a court's authority to refuse enforcement of parties' private agreements is limited to situations where the contract violates "some explicit public policy" that is "well defined and dominant, and is to be ascertained `by reference to the laws and legal precedents and not from general considerations of supposed public interests.'" W.R. Grace & Co. v. Local Union 759, Int'l Union of the United Rubber, Cork, Linoleum & Plastic Workers of Am., 461 U.S. 757, 766, 103 S. Ct. 2177, 2183, 76 L. Ed. 2d 298 (1983) (quoting Muschany, 324 U.S. at 66, 65 S. Ct. at 451); see also Misco, 484 U.S. at 43, 108 S. Ct. at 373. "To put the question more specifically, does [the agreement sought to be avoided] ... run contrary to an explicit, well-defined, and dominant public policy, as ascertained by reference to positive law and not from general considerations of supposed public interests?" Muschany, 324 U.S. at 66, 65 S. Ct. at 451 (citing Misco, 484 U.S. at 43, 108 S. Ct. at 373). See also Eastern Associated Coal Corp. v. United Mine Workers of America, Dist. 17, 531 U.S. 57, 63, 121 S. Ct. 462, 467, 148 L. Ed. 2d 354 (2000) (stating that "the public policy exception is narrow and must satisfy [these] principles"); Fidelity & Deposit Co. of Maryland v. Conner, 973 F.2d 1236, 1241 (5th Cir.1992) ("Although contractual agreements may be invalidated on grounds of public policy, public policy opens only a narrow exception within this general rulean exception to be applied cautiously and only in plain cases involving dominant public interests."). Thus, from the foregoing, it is clear that unless the court can "find in the [laws], the regulations, or any other law or legal precedent an `explicit,' `well defined,' `dominant' public policy to which the [subject agreement] `runs contrary,'" Muschany, Brown's plea for rescission must be rejected.
In support of its motion for summary judgment on its claim for rescission based on public policy, Brown has pointed to statements by the IRS Commissioner to the Senate Subcommittee and the Senate Finance Committee relating to tax exempt organizations which were critical of "accommodation parties" such as AFF for their involvement in the SC2 transactions. In a November 2003 hearing on abusive tax shelters, the IRS Commissioner told the Senate Subcommittee,
[A]busive transactions can and will continue to pose a threat to the integrity of our tax administration system. We cannot afford to tolerate those who willfully promote or participate in abusive transactions. The stakes are too high and the effects of an insufficient response are too corrosive.
An IRS News Release in June 2004 set forth additional comments by the Commissioner to the Senate Finance Committee relating to exempt organizations, quoting his comments as follows:
I cannot overstate the seriousness of the involvement tax-exempt and government entities as accommodation parties to abusive transactions. We use the term "accommodation party" to describe the tax-exempt entity's involvement in a transaction that does not necessarily affect the entity's primary function, but is designed to provide tax benefits to a third party that is a taxable entity....
* * *
When taxpayers use artificial means to avoid their share of the tax burden, they not only shift the burden to all taxpayers, but also undermine the public confidence in the integrity of our system. Further, for many tax-exempt entities most notably charities, tax-exemption, *670 the charitable contribution deduction, and other tax benefits constitute an indirect subsidy of activities Congress has determined are beneficial to society. However, when those entities engage in transactions that offer tax benefits not intended by Congress to third parties, there is a cost to society without a corresponding increase in social benefits.
Defendants have further noted that in its Report on its investigation into KPMG's tax strategies, the Senate Subcommittee concluded:
SC2 transactions could not have taken place at all without the willing participation of a charitable organization. To participate in the SC2 transactions, a charity had to undertake a number of nonroutine and potentially expensive, time consuming tasks. For example, the charity had to agree to accept an S corporation stock donation, which for many charities is, in itself, unusual; make sure it is exempt from unrelated business income tax (hereinafter "UBIT") and would not be taxed for any corporate income during the time when the charity was a shareholder; sign a redemption agreement; determine how to treat the stock donation on its financial statements; and then hold the stock for several years before receiving any cash donation for its efforts. Moreover relatively few charities are exempt from the UBIT, and those that arelike pension fundsdo not normally receive large contributions from private donors.
While the cited statements reflect the IRS Commissioner's criticism of organizations like AFF for their role in SC2 and other tax shelter transactions, these statements are not "laws or legal precedents" and thus do not provide a basis on which this court may properly refuse enforcement of the parties' agreement. However, in further support of their public policy argument, defendants submit that in legislation enacted in 2006, Congress explicitly condemned the role of accommodation parties like AFF in these transactions and established a penalty tax against such entities. In this regard, defendants point out that in 2006, in response to the participation of AFF and other tax-exempt entities in the SC2 and other tax avoidance transactions, Congress enacted the Tax Increase Prevention and Reconciliation Act which, as described in IRS Notice 2006-65, "includes new excise taxes and disclosure rules that target certain potentially abusive tax shelter transactions to which a tax-exempt entity is a party." The Act includes a new section, 26 U.S.C. § 4965, under which the managers of covered tax-exempt entities, "and in some cases the entities themselves, can be subject to excise taxes if the entity is a party to a prohibited tax shelter transaction." IRS Notice 2006-65.
Section 4965 defines "tax exempt entities" to include "non-plan entities" (which covers three subcategories of entities) and "plan entities" (which covers four subcategories of entities, including § 401 pension fund entities such as AFF.). The statute provides for a tax directly on "non-plan entities" that participate in prohibited tax shelter transactions. It does not provide for a tax directly on "plan entities," and hence it does not provide for a tax directly on AFF. Rather, as to "plan entities" such as AFF, the statute states that the "entity manager" is subject to a tax if he "approves such entity as (or otherwise causes such entity to be) a party to a prohibited tax shelter transaction at any time during the taxable year and knows or has reason to know that the transaction is a prohibited tax shelter transaction ...." § 4965(a)(2). See § 4965(b)(2) (providing for tax on manager of $20,000 for each *671 approval or other act causing entity's participation).
AFF reasons from the fact that Congress did not choose to impose a tax or penalty on pension fund entities such as AFF Congress has not declared the components of the transaction entered into by AFF, Brown and BBG unenforceable as against public policy. That is, AFF focuses on the fact that even after Congress passed § 4965 in 2006, no adverse tax consequences and provided for tax-exempt municipal pension plans such as AFF from participation in SC2-type transactions. It concludes that "[i]f Congress decided against taxing plans such as AFF for participating in an SC2 transaction, and further failed to declare such transactions void or unenforceable, under established federal case law, courts should not impose a judicially-created penalty such as voiding contractual obligations." Defendants, conversely, focus on the fact that § 4965 "clearly and unequivocally declares the SC2 transaction a prohibited tax shelter transaction," and they submit that while the statute may not provide for a penalty tax on pension fund entities such as AFF directly, nevertheless, "by penalizing entity managers for each approval or act causing participation in a prohibited tax shelter transaction, Congress clearly expressed public policy condemning the participation of qualified pension plans such as AFF in SC2 transactions."
The court cannot find in § 4965 "an `explicit,' `well defined,' `dominant' public policy" that would be violated by enforcement of the parties' agreement herein. The statute reflects Congress has chosen not to impose an excise tax on plan entities that participate in SC2 or other prohibited tax shelter transactions and thus Congress has chosen not to penalize any plan entity for such participation. And while the statute does provide for a penalty tax on entity managers who cause a plan entity to participate in prohibited transactions, that tax applies only if the manager caused the entity to become involved with knowledge or reason to know that the transaction was a prohibited tax shelter transaction. The fact that Congress chose to penalize entity managers only for their knowingly involving a plan entity in a prohibited tax shelter transaction suggests that public policy, as it applies to plan entities, condemns only knowing participation.
In the case at bar, both parties have taken the position that neither became involved in the subject SC2 transaction with knowledge or reason to know that it was a prohibited tax shelter transaction. On the contrary, both had been advised by KPMG that the transaction was proper, and they only learned otherwise when the IRS declared in 2004 that it was a prohibited transaction. Under the circumstances presented, the court concludes as a matter of law that the transaction is not subject to rescission on the basis that it violates public policy. Accordingly, the court will deny defendants' motion for summary judgment on their rescission claim and defenses, and will grant AFF's cross-motion on this issue.[2][3]
*672 DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT ON SPECIFIC CLAIMS
AFF has alleged that defendants have attempted to squeeze out AFF as a shareholder by means of a scheme to deprive AFF of its rights under the BBG articles of incorporation as an equal shareholder, save and except for voting. This includes allegations that defendants fraudulently concealed from and deprived AFF of its rightful share of at least $2.6 million in dividends that BBG has paid from 2001 to 2004 to Brown during the time AFF has owned its BBG stock, and AFF's rights to other dividends that have been wrongfully withheld from 2001 to date, so as to wrongfully stockpile retained earnings and benefit Brown. Put another way, AFF alleges that as the owner of the 9,000 shares donated by Brown, it fully expected to be paid its share of rightful dividends from profits of the company and that defendants withheld such dividends and concealed from AFF that dividends had been paid and that earnings were available for distribution and yet were stockpiled for Brown's benefits and to the detriment of AFF. Specifically, AFF alleges that
by embarking upon and/or carrying out a scheme to plan to inequitably engineer the ruse of the $4.2 million note to pay Brown dividends in 2001-2003 while paying none to Austin and further to generally and improperly withhold dividends from Austin and to deprive it of the value of its non-voting stock, BBG, Brown, Wilkins and Cottingham committed and conspired to commit, fraud, oppression and breach of fiduciary duty at common law and such individual defendants breached their duty of good faith under Miss.Code. 79-4-8.3 and 79-4-8.42.
In their motion for summary judgment, defendants point out that each of these claims by AFF is based on the premise that AFF, as a BBG shareholder, was entitled to receive dividends, and yet according to defendants, the evidence demonstrates beyond dispute that AFF agreed and objectively acknowledged when it entered into the SC2 transaction that BBG was not required to pay dividends to AFF during the time that AFF held the BBG non-voting stock.
Previously, in ruling on motions for summary judgment, the court wrote,
Certain realities of the parties' transaction are apparent from the evidence of record, including the fact that the parties' arrangement contemplated that no dividends would be paid by BBG to AFF while AFF held the subject stock. All the evidence of record thus far demonstrates beyond reasonable challenge that AFF understood and knew that Brown/BBG's purpose in entering the transaction was to obtain favorable tax treatment in the form both of a charitable contribution deduction and directing income away from BBG and to the tax-exempt AFF; that AFF knew and understood that the value of Brown/BBG's putative "gift" or donation of the subject stock was in AFF's right to redeem the stock; and AFF knew that the transaction was intentionally structured so that it would not receive dividends on the stock during the time it held the stock, other than as might be paid by Brown/BBG for the purpose of extending the time during which AFF would agree to *673 hold the stock prior to redemption. By all indications, AFF expected to realize the value of the gift of stock by redemption of the stock, not by the receipt of dividends. In the Executive Summary provided by KPMG to AFF describing proposed SC2 transactions, KPMG explained that "income will not actually be distributed to the holder." In executing the Acknowledgment of Receipt, AFF explicitly acknowledged that BBG was not required to make distributions of income to shareholders for any purpose, and absent specific action by BBG's Board of Directors, BBG would not be required to make distributions in the foreseeable future. And the Redemption Agreement recites that the price at which BBG would repurchase the shares from AFF was the fair market value on the date presented for redemption, which value was to be determined taking into account, among other things, "that the Corporation is not obligated to pay dividends." The transfer of the stock was not intended to and did not include a transfer of the right to receive dividends; in purpose and effect, the "gift" was of the right to redeem, and to do so at a price which the parties expressly agreed and acknowledged would take into account the fact that BBG was not obligated to pay dividends on the stock. Thus, based on the evidence adduced to date, defendants would seem to be correct, that AFF's claim for the recovery of dividend payments is unsupported by the facts and law, as being directly contrary to the parties' intent and understanding of their arrangement.
2008 WL 4450253, at *13. In support of its present motion, Brown has relied on many of the same documents on which it previously relied, and which are referenced in the court's earlier opinion, from which Brown has quoted extensively. Brown has also referenced additional testimony from AFF administrator William Stefka regarding AFF's expectations with regard to receipt of distribution of income. Brown notes, for example, that Stefka testified before the Senate Subcommittee, which reported that AFF told the Subcommittee that in every SC2 transaction,
it was their expectation that they would not retain ownership of the donated stock, but would sell it back to the stock donor after the expiration of the period of time indicated in the redemption agreement. They also indicated that they did not expect to obtain any significant amounts of money from the S corporation during the period in which the charity was a stockholder but expected, instead, to obtain a large cash payment at the time the charity sold the stock back to the donor.
Brown also points out that AFF was given a copy of BBG's by-laws, including Article XII, Dividends, which recites that "[t]he Board of Directors has the sole power to declare and set the terms and conditions for dividends and, absent unanimous approval of the Board of Directors the corporation shall not be obligated to pay dividends under any circumstances to pay any dividends or to distribute cash to shareholders to pay income taxes due on account of their stock ownership in the corporation." (Emphasis added). Brown further notes that Randy Aylieff, Vice-Chairman of the AFF Board, testified it was his understanding that while BBG's board was not precluded from paying a dividend if they decided to, they were not obligated to do so. Aylieff stated, inter alia,
I think that there was no agreement that the board of directors (BBG) was obligated or predetermined to give us any dividends that they didn'tthey may later come in there and decide to give dividends and were free as fiduciaries *674 of that corporation to give dividends at any time they determined they should be granted. We just didn't have an agreement up front that said you will pay us dividends. I mean, there was nothing there,you know, like I said there was nothing precluding them from acting as directors of the board and doing what directors do.
Finally, Brown notes that AFF had been involved in three other SC2 transactions prior to the transaction with BBG, in each of which AFF had signed acknowledgments and agreements with identical language to the Acknowledgment and Redemption Agreement in the BBG SC2. Brown argues that in light of all the evidence, it cannot be disputed "from an objective standpoint that AFF knew it was not entitled to receive dividends during the time it held BBG's non-voting common stock. Objectively viewed, AFF did not have any expectations to receive dividends...." Brown thus contends that it is entitled to summary judgment on AFF's claims for fraud, breach of fiduciary and good faith duties, and shareholder oppression, all of which are ultimately premised on AFF's claimed right to receive dividends.
In response to defendants' motion, AFF insists that although BBG's bylaws recited that BBG was "not obligated to pay dividends," and the Redemption Agreement provided that BBG was "not obligated to pay dividends," and the Acknowledgment signed by AFF acknowledged that BBG was not "obligated to pay dividends," AFF never agreed or acknowledged when it received the BBG stock or executed the Redemption Agreement that BBG, through its directors, would not owe fiduciary duties and duties of good faith to AFF in considering and paying dividends to AFF while AFF held its stock. That is, as explained by AFF's Randy Aylieff and William Stefka, who testified by deposition and affidavit, respectively, just as would any other shareholder, AFF expected to be treated fairly by the directors in exercising their fiduciary duty for consideration of and payment of dividends. Significantly, AFF has also presented evidence of a legal analysis of the proposed transaction prepared by KPMG, which legal analysis was requested from KPMG by Brown's and BBG's attorneys prior to the transaction as part of their evaluation of the transaction. This KPMG legal memo, which was provided to Brown's counsel, is consistent with and supportive of AFF's position herein. In that memo, KPMG explained that participating entities such as AFF would have equal rights to dividends; that the business judgment rule of discretion to declare dividends would apply, and this rule required that directors' discretion to declare dividends would be "fairly exercised"; and that entities such as AFF would have the legal right to sue if they took the position that the directors' discretion was not "fairly exercised." Specifically, the KPMG legal memo, of which Brown and BBG, through their counsel, apparently were aware upon entering the transaction, recited, "Exempt-Org is an independent party not under the control of Shareholder and is able to fully exercise all of its rights as a shareholder.... Exempt-Org has not waived any of its rights as a shareholder." Further while the memo recited with respect to dividends that "it should not be relevant whether distributions were actually made because Exempt-Org knew when it accepted the stock that it did not have the power to force a distribution," it goes on to state,
The right of a stockholder to the declaration of a dividend rests in the discretion of the directors, so long as such discretion is fairly exercised. The decision, whether or not to make a distribution, is one of business judgment, not *675 law. The courts will not interfere in the legitimate business decisions of a private corporation just to resolve a dispute between majority and minority shareholders. Stockholders have no individual or property interest in the profits of a corporation and are not entitled to any portion of the accumulated earnings until declaration of a dividend or its equivalent.
If a shareholder believes that the corporation is improperly withholding legitimate distributions, it has the right to file suit and compel the corporation to make a distribution.... Exempt-Org., in the proposed transaction, has this right.
As the court's earlier opinion recognized, there is abundant evidence indicating that upon entering the subject transaction, AFF understood and accepted that it would not receive dividends, and which suggests that it in fact had no intention or legitimate expectation of receiving any dividends from BBG, even if in other circumstances they might have been properly payable. However, in light of the evidence presented and argued by AFF on the present motion, the court must conclude that AFF has created a genuine issue of material fact for trial as to whether or not AFF, upon entering the transaction, in fact (and in law) purportedly and effectively relinquished any right it might otherwise have had to receive dividends, if such were otherwise properly payable. Accordingly, to the extent defendants' motion for summary judgment is based on their position that AFF objectively had no expectation of receiving or entitlement to receive any dividends as part of the transaction, then their motion must be denied.[4]
Defendants have also argued that under no circumstances can Wilkins and Cottingham be liable with respect to any of AFF's claims for dividends because neither was a director in December 2000 when the $4.2 million dividend was declared paid to Brown. They further argue that AFF has no cognizable claim with respect to that $4.2 million dividend because BBG declared and authorized the $4.2 million dividend prior to AFF's becoming a shareholder. The court will deny the motion for the reasons set forth by AFF in its response to defendants' motion, as to which defendants have made no reply.[5][6]
AFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT
Defendants have filed counterclaims against AFF for breach of the duty of good faith and fair dealing, alleging that by filing this lawsuit and "attempting to obtain funds from Brown and BBG" on the basis of claims and allegations that are "contrary to the documents that it executed *676 as part of the SC2 transaction with Brown and BBG," AFF has breached its duty of breach of good faith and fair dealing. Similarly, they have charged AFF with abuse of process, alleging,
By asserting claims against Brown, BBG, Wilkins and Cottingham, directly contrary to documents executed by AFF, and, further, by naming Wilkins and Cottingham, who were not directors at the time of some of the acts alleged by AFF, and, further, by asserting claims of Statutory Oppressive or Fraudulent Conduct by BBG, Brown, Wilkins, and Cottingham, and Dissolution, AFF has asserted claims meeting the following criteria: (1) an illegal use of a legal process; (2) has an ulterior motive; and (3) Brown and BBG have been damaged by the perverted use of process.
AFF has moved for summary judgment on both of these claims.
As AFF notes, under Mississippi law, every contract carries with it an implied covenant of good faith and fair dealing in their performance, which covenant holds that "neither party will do anything which injures the right of the other to receive the benefits of the agreement." Ferrara v. Walters, 919 So. 2d 876, 883 (Miss.2005). The duty of good faith and fair dealing "arises from the existence of a contract between parties." American Bankers' Ins. Co. of Fla. v. Wells, 819 So. 2d 1196 (Miss.2001) (citing Cenac v. Murry, 609 So. 2d 1257, 1272 (1992)). Thus, it is said that "[g]enerally, as a matter of law, when a party acts in accordance with the express terms of a contract, the implied covenants of good faith and fair dealing have not been violated." Wilson v. Ameriquest Mortg. Co., Civil Action No. 5:05cv122-DCB-JMR, 2006 WL 2594522, *5 (S.D.Miss. Sept. 8, 2006) (citing Baldwin v. Laurel Ford Lincoln-Mercury, Inc., 32 F. Supp. 2d 894, 898 (S.D.Miss.1998)). Here, AFF points out that there may be evidence of various documentsopinions, summaries, acknowledgments, etc.on which the parties have relied to demonstrate their respective understanding and/or expectations regarding the broader SC2 transaction or arrangement, yet there was, in fact, only one contract between the parties, which was the Redemption Agreement. And AFF maintains that since the evidence bears out its position that it has taken no action, whether in bringing this lawsuit or otherwise, that was not fully consistent with the terms of that Redemption Agreement, then it follows as a matter of law that defendants have no viable claim against it for breach of the duty of good faith and fair dealing. The court agrees and thus, will grant AFF's motion for summary judgment on this claim.
The essence of defendants' abuse of process claim, as the court understands it, is that by filing and continuing to prosecute a non-meritorious lawsuit against them, for the purpose of forcing a settlement to which it knows it is not entitled, AFF has engaged in an abuse of process. The elements of a claim for abuse of process under Mississippi law are as follows: "(1) the party made an illegal use of a legal process, (2) the party had an ulterior motive, and (3) damage resulted from the perverted use of process." Ayles v. Allen, 907 So. 2d 300, 303 (Miss.2005). In support of its motion for summary judgment, AFF relies on Moon v. Condere Corp., 690 So. 2d 1191, 1197 (Miss.1997), and Edmonds v. Delta Democrat Publishing Co., 230 Miss. 583, 93 So. 2d 171, 174-175 (1957), in which cases the Mississippi Supreme Court held that where an abuse of process claim is based simply on the filing of a lawsuit, it cannot be said that process of the court has been abused by accomplishing a result *677 not commanded by it or not lawfully obtainable under it. See Edmonds, 93 So.2d at 175 ("It cannot be argued that the process of the court was abused by accomplishing a result not commanded by it or not lawfully obtainable under it when the only process involved was a simple summons to defend the suit."); Moon, 690 So.2d at 1197 (no cause of action for abuse of process where "the only process involved... was the summons" and "there was no improper use of process after it had been issued"); see also U.S. Axminster, Inc. v. Chamberlain, Civil Action No. 4:95cv332-D-B, 1997 WL 786772, *6 (N.D.Miss. Oct. 2, 1997) ("An action for abuse of process `is concerned with the improper use of process after it has been issued,'" so that mere filing of lawsuit was not an abuse of process).
AFF submits that as defendants have identified no illegal or improper use of process, but rather have merely alleged that AFF has filed a lawsuit which defendants believe and contend has no merit, they have no cognizable claim for abuse of process under the holdings of Edmonds and Moon. It further argues that defendants cannot satisfy the second element of their claim, for even if they had alleged an ulterior motive for the lawsuit, which AFF denies, they have come forward with no evidence to establish what could legitimately be characterized as an ulterior motive. AFF contends that while defendants have presented evidence to show that they disagree with the factual and legal basis for AFF's claims, this evidence says nothing about AFF's motives for bringing the action. Indeed, it does appear that under the reasoning of Moon and Edmonds, and in further view of the absence of evidence (as contrasted with speculation) of an ulterior motive, defendants' position cannot be sustained and accordingly, AFF's motion on this claim must be granted.
AFF'S MOTION FOR RECONSIDERATION
AFF has moved for reconsideration of this court's June 26, 2009 order denying AFF's objections to the magistrate judge's March 10, 2009 orders denying AFF's motions to compel and for production. AFF requests that the court reconsider its order denying AFF's objections to the magistrate judge's orders to correct clear error and prevent manifest injustice, arguing that the magistrate judge's rulings were based on an erroneous premise derived from this court's September 29, 2008 memorandum and opinion and order denying summary judgment. More specifically, statements in the court's earlier opinion that "the transfer of stock (from BBG to AFF) was not intended to and did not include a transfer of the right to receive dividends," and that "BBG was not obligated to pay dividends on the stock," led the magistrate judge to conclude that evidence relating to dividends paid or not paid, or to income or earnings available for distribution by BBG, was not relevant, and to therefore deny AFF's discovery requests aimed at obtaining such evidence. As the court has now concluded in the context of its consideration of and ruling on Brown's second motion for summary judgment that there are disputed issues of fact regarding AFF's expectations with respect to the payment of dividends for the BBG stock, as a result of which conclusion it cannot at this time be said as a matter of law that AFF has no viable claim based on dividends allegedly wrongfully withheld, it follows that AFF is entitled to discovery pertinent to the dividend issue.[7] Accordingly, to the *678 extent the magistrate judge denied AFF's requests for discovery relating to this issue, i.e., to the extent he denied AFF access to BBG financial information post-December 31, 2004 in reliance on the court's prior summary judgment opinion and order, his order must be vacated, as must the undersigned's order denying AFF's application for review. And, inasmuch as the court concludes that AFF is entitled to discovery on the dividend issue, discovery will be reopened as to this issues, and the parties are hereby directed to contact the magistrate judge's office for a status conference to address the parameters of such discovery.
AFF'S MOTION FOR REVIEW OF MAGISTRATE' JUDGE'S ORDER [DOC. 224]
AFF's objection to the magistrate judge's order (Doc. 224) challenges certain rulings based on attorney-client privilege, as to which rulings the court finds the motion for review to have no merit, and challenges other rulings based on a lack of relevance relating to post-December 31, 2004 matters, which rulings relied on the court's earlier ruling, addressed supra, that as a matter of law, AFF could not make out a case that dividends were wrongfully withheld. To the extent the challenged order is based on a perceived lack of relevance of evidence relating to dividends, which perception derived from the court's prior opinion, it is vacated in light of the court's conclusion that AFF is entitled to discovery relating to the issue of dividends.
MOTIONS TO EXCLUDE EXPERT TESTIMONY
AFF has moved to exclude the testimony of defendants' expert David L. Black, contending that Black's opinions do not meet the threshold requirements for admissibility under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S. Ct. 2786, 2796-98, 125 L. Ed. 2d 469 (1993), because his opinions are not based upon sufficient facts or data, his opinions are not the product of reliable principles and methods, and he has not applied the principles and methods reliably to the facts of the case. The court has considered the motion and response thereto, and finds that while Black's proffered opinions may be open to challenge, they satisfy Daubert. See Huss v. Gayden, 571 F.3d 442, 452 (5th Cir.2009) (quoting Daubert, 509 U.S. at 596, 113 S. Ct. 2786 holding that "[v]igorous cross-examination, presentation of contrary evidence, and careful instruction on the burden of proof are the traditional and appropriate means of attacking shaky but admissible evidence," along with reasoning in Holbrook v. Lykes Bros. S.S. Co., Inc., 80 F.3d 777, 782 (3d Cir.1996) that "most arguments about an expert's qualifications relate more to the weight to be given the expert's testimony than to its admissibility").
Defendants have moved to exclude the June 15, 2009 affidavit and supplemental report of AFF's expert James M. (Mike) Hill because, according to defendants, the information upon which Hill relied in preparing the report was available to him *679 prior to the time of his initial Rule 26 expert report and yet the opinions set forth in the supplemental report were not set forth in Hill's initial report. Having reviewed the parties' submission and arguments, the court is unpersuaded that Hill's supplemental report amounts to improper supplementation, and therefore, the court will deny the motion to exclude.
CONCLUSION
Based on the foregoing, it is ordered as follows:
Defendants/counterplaintiffs' second motion for summary judgment for rescission, or in the alternative, motion for partial summary judgment on specific claims in the first amended complaint [Docs. 157 & 175] are denied;
AFF's Rule 56(f) motion for continuance [Doc. 200] is denied;
AFF's second motion for partial summary judgment [Doc. 164] is granted;
Defendants' motion to exclude certain expert testimony of Edith F. Moates [Doc. 159] is granted;
AFF's motion for reconsideration of the court's June 26th, 2009 order relating to AFF's objections to the magistrate judge's March 10, 2009 orders [Doc. 213] is granted as set forth herein;
AFF's motion for review of magistrate judge's order [Doc. 232] is granted in part and denied in part, as set forth herein;
Defendants' motion to exclude the affidavit of James M. "Mike" Hill and Exhibit "A" attached thereto [Doc. 196] is denied; and
AFF's motion to exclude expert testimony of David L. Black [Doc. 162] is denied.
NOTES
[1] Cf. Kelly v. Kosuga, 358 U.S. 516, 519, 79 S. Ct. 429, 431, 3 L. Ed. 2d 475 (1959) (effect of illegality under a federal statute is a matter of federal law).
[2] In its amended complaint in this cause, AFF has alleged that defendants breached their fiduciary duty and duty of good faith by refusing to honor the Redemption Agreement and seeking rescission of the agreement. While the court has ultimately concluded that the parties' transaction cannot be undone on public policy grounds, the court is of the opinion that defendants presented a plausible argument for their position and did not violate their duty of good faith to AFF in making this claim.
[3] The court notes that in connection with the public policy issue, AFF had presented the report and testimony of one of its experts, Edith Moates, who offered her opinion, inter alia, that "because this transaction supported [the] public policy [of encouraging contributions to nonprofit organizations ....], [then] it is not against public policy." Defendants have moved to strike Moates' testimony on this point on the basis that it is a legal conclusion to which she cannot properly testify. The court agrees, and has disregarded Moates' opinion in its evaluation of the parties' arguments on the substantive issue presented.
[4] The court finds it unnecessary to at this time address AFF's further legal arguments relating to shareholder rights and the unenforceability of exculpatory clauses, particularly vague or unspecific exculpatory clauses.
[5] Indeed, the court notes that although defendants filed what purports to be a reply to AFF's response, the reply is devoid of substance. Therein, defendants do not address any of the evidence or myriad legal arguments advanced by AFF in its response; rather, they merely declare that the court should grant summary judgment in their favor.
[6] Though it filed a response to defendants' motion for summary judgment, AFF also filed a Rule 56(f) motion for continuance, arguing that this court's adverse rulings on certain discovery matters, which rulings are the subject of pending challenge/objection by AFF (addressed infra), have severely hampered AFF's ability to fully respond to defendants' summary judgment motion. Although the court does conclude infra that AFF is entitled to further discovery, the court nevertheless will deny the Rule 56(f) motion to continue, since the court concludes that the motion for summary judgment must be denied based on the evidence already in the record.
[7] In a related vein, AFF has argued that reconsideration is in order based on new evidence, in particular work papers of David Black, which it submits "leads to the reasonable probability that BBG and the other defendants since early 2005 had planned to, and in fact did in 2006, cause BBG to directly or indirectly pay the millions of dollars in back taxes, interest and penalty for Brown by a distribution or a loan, in which all Defendants participated and which all Defendants approved." AFF argues that defendants have been able to "mask such a multimillion dollar raid on the BBG treasury by the Magistrate Judge's denial of BBG financial information after December 21, 2004 and by the subject Order Denying Objections." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2468868/ | 777 F. Supp. 2d 1052 (2011)
CLT LOGISTICS, et al., Plaintiff,
v.
RIVER WEST BRANDS, et al., Defendants.
Case No. 10-13282.
United States District Court, E.D. Michigan, Southern Division.
March 4, 2011.
*1054 Melanie T. Frazier, Mark W. Peyser, Howard & Howard Attorneys PLLC, Royal Oak, MI, for Plaintiff.
Peter M. Falkenstein, Jaffe Raitt Heuer & Weiss, P.C., Ann Arbor, MI, for Defendants.
ORDER
VICTORIA A. ROBERTS, District Judge.
This is a trademark infringement action. Plaintiffs 1177216 Ontario Ltd. ("1177216 Ontario") and CLT Logistics, Inc. ("CLT Logistics"), filed suit against Defendants Almar Sales Company, Inc. ("Almar"), River West Brands, LLC ("River West"), and Selective Beauty Brands, LLC ("SBB"), asserting that Defendants violated the Lanham Act and state law through unauthorized use of Plaintiffs' SALON SELECTIVES trademarks.
Before the Court are three motions: (1) Defendants' Motion to Stay, which asserts that abstention is proper in light of a parallel state-court proceeding; (2) Plaintiffs' Motion for Preliminary Injunction, which asserts that Plaintiffs are likely to succeed on their claims of trademark infringement and dilution, and that Defendants' continued use of their marks are causing Plaintiffs irreparable harm; and (3) Defendants' Motion to Dismiss or for Summary Judgment, which asserts that dismissal is warranted because Defendants are licensed to use the marks.
For the following reasons, the Court DENIES Defendants' Motion to Stay (Dkt. 16), DENIES WITHOUT PREJUDICE Plaintiffs' Motion for Preliminary Injunction (Dkt. 2), DENIES Defendants' Motion to Dismiss (Dkt. 10), and DENIES WITHOUT PREJUDICE Defendants' Motion for Summary Judgment (Dkt. 10).
I. BACKGROUND
Plaintiff 1177216 Ontario Ltd. asserts that it is the sole owner of the SALON SELECTIVES portfolio of marks, including United States Patent and Trademark Office Registration Nos. 1,479,236, for hair shampoo and conditioners; 1,479,244, for hair spray, mousse, and coloring preparation; and 1,523,079, for hair sculpting gel. (Dkt. 17, Pls.' Resp. to Defs.' Mot. Dismiss at 1; Dkt. 1, Compl. ¶ 21, Ex. A.) Plaintiff CLT Logistics claims an interest in these marks through an exclusive license from 1177216 Ontario. (Pls.' Resp. to Defs.' Mot. Dismiss at 1.) Although Plaintiffs frame the dispute as a straightforward trademark infringement action, the points of contention at this stage of the litigation have little to do with whether consumers will be confused by Plaintiffs' use of the SALON SELECTIVES marks. In fact, none of Defendants' briefs argues that their use of the SALON SELECTIVES marks is not likely to cause consumer confusion. Rather, Defendants assert that they have an oral license to use the SALON SELECTIVES marks from one of Plaintiffs' predecessors-in-interest, and in the alternative, have a 50% ownership interest in those marks.
Prior to the events giving rise to this instant dispute, Unilever Supply Chain, Inc. ("Unilever") owned the SALON SELECTIVES marks. (Pls.' Resp. to Defs.' Mot. Dismiss, Ex. A.) Defendants say that in December 2006, Unilever granted Defendant River West an exclusive license to use those marks in exchange for "certain guaranteed annual minimum royalties." (Dkt. 11, Defs.' Resp. to Pls.' Mot. Prelim. Inj., Ex. A, Ashkenazie Decl. ¶ 10.) River West then teamed with Defendant Almar to relaunch the SALON SELECTIVES *1055 line of products. To this end, the two companies created Defendant SBB in 2007. Each owned a 50% share of SBB. (Ashkenazie Decl. ¶ 11.)
Defendants claim that late in 2007, Eugene Zeffren, SBB's CEO, granted an oral license to Almar to use the SALON SELECTIVES marks. (Ashkenazie Decl. ¶ 20.) Although shifting, it appears that Defendants' position is that SBB sub-licensed the marks to Almar using the rights Unilever granted River West. (See Defs.' Mot. Dismiss Reply at 1 n. 1.) Almar asserts that its license from SBB was fully paid-up and was for a term of five years that could be renewed at Almar's option for addition term of five years. (Ashkenazie Decl. ¶ 22; Defs.' Resp. to Pls.' Mot. Prelim. Inj., Ex. B, Zeffren Decl. ¶¶ 4-5.) Although Zeffren allegedly reported his grant of the license to SBB's board of directors, the Board took no formal action to approve the alleged license to Almar. (Zeffren Decl. ¶ 7; Defs.' Resp. to Pls.' Mot. Prelim. Inj., Ex. C, Thumann Decl. ¶¶ 3, 5.) A declaration submitted by Mark Thumann, then a member of SBB's board, states, "It was not my understanding that any further action was required by the board of directors in connection with the license, and in any event, I did not have any objection to the grant of the license under terms that Dr. Zeffren believed advisable." (Thumann Decl. ¶ 5.) The license is not reflected in any written document. (Zeffren Decl. ¶ 6.)
In February 2008, SBB (through River West) paid off the remaining royalties due to Unilever under the 2006 exclusive license, and obtained an "outright assignment" of the SALON SELECTIVES marks. (Ashkenazie Decl. ¶¶ 15-16; Pls.' Resp. to Defs.' Mot. Stay at 2, Ex. A.) Around that same time, however, it appears that SBB was having financial difficulties. (Defs.' Mot. Stay at 2-3.) On February 19, 2008, SBB entered into a credit agreement with non-party Hilco Financial, LLC, which granted Hilco a security interest in the SALON SELECTIVES marks. (Pls.' Resp. to Defs.' Mot. Dismiss at 2, Ex. A.) In October 2008, SBB's trustee sold the SALON SELECTIVES marks to Hilco. (Defs.' Mot. Stay at 2-3; Pls.' Resp. to Defs.' Mot. Dismiss, Ex. A.) It appears that a subsidiary of Hilco, HVB, actually acquired the marks. (Ashkenazie Decl. ¶¶ 27, 29.) This distinction is immaterial.
Following the sale to Hilco, Almar and River West sought to repurchase the assets of SBBincluding the SALON SELECTIVES portfolio of marks. (Defs.' Mot. Stay at 2-3.) The two Defendants enlisted the assistance of two other companiesnon-parties Beautology Brands and A.P. Deauvillewith the hope that the four companies would have "sufficient capital and market expertise to complete the purchase of [the] SBB assets and to continue the re-launch of the SALON SELECTIVES brand." (Id. at 3; Ashkenazie Decl. ¶¶ 30-32.)
According to Defendants, the four companies agreed that the assets would be purchased from Hilco in the name of Beautology Brands, and Beautology Brands would then place the assets into a new holding company, Salon Selectives, LLC. (Defs.' Mot. Stay at 3-4.) Defendants say that under this alleged agreement; each of the four companies would own 25% of Salon Selectives, LLC, in exchange for Almar and A.P. Deauville each contributing $75,000 toward the buy-back. (Defs.' Mot. Stay, Ex. 2, Prager Decl., Ex. A ¶¶ 9, 15.) Like the alleged SBB-Almar license, however, this agreement was not in writing. (See Defs.' Mot. Stay at 4; Prager Decl. ¶¶ 8, 13.) Instead, Defendants claim they reached an oral agreement, reflected in part by several emails. (Defs.' Mot. Stay at 4; Prager Decl. ¶¶ 8, 11, 13, Ex. B1.)
*1056 On February 27, 2009, Beautology Brands purchased the assets from Hilco and placed them into Salon Selectives, LLC. (See Defs.' Mot. Stay at 4; Pls.' Resp. to Defs.' Mot. Stay at 2.) However, Beautology Brands failed to distribute the respective 25% ownership interest to the other three companies. (Defs.' Mot. Stay at 4.)
Accordingly, on March 3, 2010, Almar, River West, and A.P. Deauville filed suit in Illinois state court, River West Brands, LLC et al. v. Beautology Brands Co., et al., No.2010 MR 279 (Illinois 18th Judicial Circuit 2010), seeking a declaration that they each own a 25% share of Salon Selectives, LLC. (Defs.' Mot. Stay, Ex. A, Illinois Compl. ¶ A.) The original state court complaint named Beautology Brands and Salon Selectives, LLC as defendants, and demanded that those two companies "cease and desist from exercising any control or asserting any right, title or interest over the Salon Selectives brand and inventory identified in [this] complaint ... pending the findings" of the Illinois state court. (Illinois Compl. ¶ B.)
About two-and-half months later, in a letter dated May 21, 2010, Salon Selectives, LLC, believing that it owned the SALON SELECTIVES marks outright, demanded that Almar cease and desist using the SALON SELECTIVES marks. (Compl., Ex. C.) More specifically, the letter says that Salon Selectives, LLC "is the owner of United States trademark registration for SALON SELECTIVES in association with a variety of hair care products," and that Almar "is, entirely without authorization, distributing and selling a variety of hair brushes and hair combs bearing a SALON SELECTIVES designation." (Id.)
In an agreement signed on June 28, 2010 (almost four months after the initiation of the Illinois action) Salon Selectives, LLC assigned the marks-at-issue to an Ontario corporation: Plaintiff 1177216 Ontario. (Prager Decl. ¶ 3, Ex. B.) Plaintiff CLT Logistics, also an Ontario corporation, has an exclusive license from 1177216 Ontario to use the SALON SELECTIVES marks. (Pls.' Resp. to Defs.' Mot. Dismiss at 1.)
On August 19, 2010, Plaintiffs filed this action, alleging that Defendants Almar, River West, and SBB, are infringing the SALON SELECTIVES marks that Plaintiff acquired from Salon Selectives, LLC in June, 2010.
On August 20, 2010, Almar and the other plaintiffs in the Illinois action, requested leave from the state court to amend their complaint to add as additional defendants, the two Plaintiffs who filed this suit. The state court granted leave to amend; Plaintiffs filed an amended state court complaint, naming both 1177216 Ontario and CLT Logistics as defendants, on September 16, 2010.
II. THE COURT DENIES DEFENDANTS' MOTION TO STAY
Defendants move, pursuant to the abstention doctrine set forth in Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 96 S. Ct. 1236, 47 L. Ed. 2d 483 (1976), to stay this case pending resolution of the Illinois action. In particular, Defendants say that because of the substantial overlap between this case and the Illinois case, abstention promotes judicial economy and avoids piecemeal litigation. (See Defs.' Mot. Stay at 6-7.) Plaintiffs disagree; they assert that the issues in this case are limited to trademark infringement, but the Illinois case "will focus upon contract issues and the dealings of certain parties in relation to the sale of IP assets on February 27, 2009." (Pls.' Resp. to Defs.' Mot. Stay at 8.)
When a court has subject matter jurisdiction, abstention "is the exception, *1057 not the rule." Colorado River Water, 424 U.S. at 817, 96 S. Ct. 1236. This is because federal courts have "a `virtually unflagging obligation ... to exercise the jurisdiction given them.'" Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 15, 103 S. Ct. 927, 74 L. Ed. 2d 765 (1983) (quoting Colorado River Water, 424 U.S. at 817, 96 S. Ct. 1236). With this in mind, a federal court may nonetheless defer to a parallel state-court proceeding in rare situations where abstaining would strongly promote judicial economy and a "comprehensive disposition" of the litigation. Colorado River Water, 424 U.S. at 817-18, 96 S. Ct. 1236; see also Romine v. Compuserve Corp., 160 F.3d 337, 339 (6th Cir. 1998).
The Court applies a two-step process to determine whether abstention is appropriate. First, it must decide whether or not the two proceedings are "parallel." See Romine, 160 F.3d at 340. If so, the analysis proceeds to a multi-factor balancing test laid out in Colorado River Water and subsequent Supreme Court decisions. See PaineWebber, Inc. v. Cohen, 276 F.3d 197, 206 (6th Cir.2001).
A. This Case is "Parallel" to the Illinois Case
Although Defendants fail to address the issue, and Plaintiffs provide only a cursory analysis, this Court has a duty to determine whether this case and the Illinois case are "parallel." Baskin v. Bath Twp. Bd. of Zoning Appeals, 15 F.3d 569, 571 (6th Cir.1994) ("A necessary requirement for application of this Colorado River doctrine... is the presence of a parallel, state proceeding."). Although the Supreme Court has not clearly defined the contours of this requirement, it has noted that parallelism presumes that "the ... state-court litigation will be an adequate vehicle for the complete and prompt resolution of the issues between the parties," and that "to invoke Colorado River necessarily contemplates that [an abstaining] federal court will have nothing further to do in resolving any substantive part of the case." Moses H. Cone, 460 U.S. at 28, 103 S. Ct. 927. The Sixth Circuit says the requirement is satisfied where the two cases, while less than identical, are "substantially similar." Romine, 160 F.3d at 340 (finding state and federal actions parallel where they were "predicated on the same allegations as to the same material facts").
Identity of parties in the federal and state actions is not necessary for parallelism, Bates v. Van Buren Twp., 122 Fed. Appx. 803, 806 (6th Cir.2004), but similarity between the two sets of parties is a relevant inquiry. See Baskin, 15 F.3d at 572 (finding no parallelism in part because the parties in the state and federal case differed); Crawley v. Hamilton County Comm'rs, 744 F.2d 28, 31 (6th Cir.1984) (same); see also Bates v. Van Buren Twp., 122 Fed.Appx. 803, 806 (6th Cir.2004) ("The state court proceedings need not be identical, merely `substantially similar.' There is also no requirement that the parties in the state court proceedings be identical to those in the federal case." (internal citation omitted)).
The similarity of parties in both cases favors a finding of parallelism. With the amended state court complaint filed, the Plaintiffs in this case (1177216 Ontario and CLT Logistics) are defendants in the state-court action. Almar and River West, Defendants here, are plaintiffs in the state-court case. The fact that Defendant SBB is not also a plaintiff in the state action is irrelevantRiver West and Almar, which are plaintiffs in the state case, each owned a 50% share in SBB and thus represent its interest. Cf. Nakash v. Marciano, 882 F.2d 1411, 1416-17 (9th Cir. 1989) (finding argument that parties were not identical "disingenuous," explaining that the parties in the federal suit "are all *1058 named in the [state-court] suit; the only difference is the absence of all of the corporate entities owned and operated by the parties."). Nor does the absence of A.P. Deauville in this case suggest that the proceedings are non-parallel. This merely indicates thatin terms of partiesthe state-court action is more comprehensive than this case; as such, A.P. Deauville's absence makes it no less likely that the state action will be an "adequate vehicle" to resolve the issues before this Court. Cf. Bates, 122 Fed.Appx. at 806 ("The fact that the state action is broader than the federal is no bar to Colorado River abstention, because this fact can only make it more likely that it will not be necessary for the federal courts to determine the federal question.").
A more difficult inquiry is whether there is substantial similarity of issues. This case does not fall within the more common situations where either the state case mirrors the claims of the federal case, or the state case is more comprehensive than its federal counterpart. The parties have not cited, and the Court did not find, any cases from this Circuit which address the issue presented here: whether a federal and state case are parallel where the federal case includes additional claims not asserted in the state case, but the two actions share a common, threshold issue that could dispose of all claims in both cases. See Bates v. Van Buren Twp., 122 Fed.Appx. 803, 806-07 (6th Cir.2004) (finding state and federal case parallel where state case encompassed all issues in federal case); PaineWebber, Inc. v. Cohen, 276 F.3d 197, 206 (6th Cir.2001) (not explicitly discussing the parallelism requirement); Romine v. Compuserve Corp., 160 F.3d 337, 340-41 (6th Cir.1998) (finding parallelism where "the state action is actually more comprehensive than the consolidated federal cases."); Baskin v. Bath Twp. Bd. of Zoning Appeals, 15 F.3d 569, 571 (6th Cir. 1994) (finding no parallelism where "[t]he two actions arise out of the same basic facts, but they each contest a different aspect of the variance granted by the Township zoning board and they seek different relief."); Crawley v. Hamilton County Comm'rs, 744 F.2d 28, 31 (6th Cir.1984) (finding no parallelism where parties were different and the federal case raised additional claims, including claims for conduct occurring after the date for which the state court case was concerned).
Viewed differently, this case and the Illinois case are undeniably parallel to a critical pointone which possibly disposes of the entire litigationbut after this point it may be necessary for this case to continue on its own track. Although case law on this issue is sparse, it does support that the purpose underlying Colorado River Water abstention justifies a finding that parallelism exists in this case.
Unlike other forms of abstention which are based on notions of federalism, comity, or the avoidance of unnecessary Constitutional interpretation, the primary, if not sole, justifications for Colorado River Water abstention are judicial economy and avoidance of piecemeal litigation:
Although [a] case falls within none of the abstention categories, there are principles unrelated to considerations of proper constitutional adjudication and regard for federal-state relations which govern in situations involving the contemporaneous exercise of concurrent jurisdictions, either by federal courts or by state and federal courts. These principles rest on considerations of "(w)ise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation."
Colorado River Water, 424 U.S. at 817, 96 S. Ct. 1236.
When there is a common threshold issue before both the federal and state court, such as the ownership of the trademarks at issue here, the aims of judicial economy *1059 and comprehensive disposition are forwarded if there is a substantial possibility that resolving the common issue will dispose of all claims. See Day v. Union Mines Inc., 862 F.2d 652, 656 (7th Cir. 1988) (noting that the parallelism inquiry "look[s] not for formal symmetry between the two actions, but for a substantial likelihood that the state litigation will dispose of all claims presented in the federal case." (emphasis added, internal quotation marks omitted)); One Up, Inc. v. Webcraft Technologies, Inc., No. 87 C 3041, 1989 WL 118725, at *3 (N.D.Ill. Sept. 22, 1989) (finding that parallelism requirement was satisfied where state court would adjudicate the threshold issue of patent ownership and, therefore, patent infringement claims before the federal court could become moot); cf. Romine, 160 F.3d at 340 (requiring substantial similarity but not identity of issues for parallelism to exist). This is not to say that this type of overlap between a federal and state case necessarily warrants abstention, but merely that there is sufficient parallelism for a court to reach the next step in the analysis, which involves, among other things, a further inquiry into whether abstention will avoid piecemeal litigation. This conclusion applies with particular force in this case: while Lanham Act claims are before this Court, the parties' dispute does not truly center around the likelihood of confusion analysis. Rather, the only asserted defenses to infringement in this case are license and ownershipthe latter issue being squarely before the state court.
Accordingly, the Court finds that the federal and state cases are parallel, and that the Colorado River Water abstention factors should be evaluated.
B. The Balance of the Colorado River Water Factors Does Not Justify Abstention
In Colorado River Water and subsequent decisions, the Supreme Court identified eight factors "that a district court must consider when deciding whether to abstain from exercising its jurisdiction due to the concurrent jurisdiction of a state court." PaineWebber, Inc. v. Cohen, 276 F.3d 197, 206 (6th Cir.2001) (citing Romine v. Compuserve Corp., 160 F.3d 337, 340-41 (6th Cir.1998)). These are:
"(1) whether the state court has assumed jurisdiction over any res or property; (2) whether the federal forum is less convenient to the parties; (3) avoidance of piecemeal litigation; ... (4) the order in which jurisdiction was obtained[;]... (5) whether the source of governing law is state or federal; (6) the adequacy of the state court action to protect the federal plaintiff's rights; (7) the relative progress of the state and federal proceedings; and (8) the presence or absence of concurrent jurisdiction."
Id. (quoting Romine, 160 F.3d at 340-41). A court is not to treat the factors as a checklist; rather, certain factors should be accorded more or less weight depending on the nuances of a particular case with "the balance heavily weighted in favor of the exercise of jurisdiction." Moses H. Cone, 460 U.S. at 16, 103 S. Ct. 927.
1. Whether the Illinois Court has Assumed Jurisdiction Over Any Res or Property
Defendants assert that this first factor favors abstention because the "Illinois state court has assumed jurisdiction over the trademarks at issue in the present case." The Court disagrees on both legal and factual grounds. As to the former, Defendants cite no authority that intangible property, such as a trademark, is considered "res or property" as that term is used in the Colorado River Water context. In fact, the authority is to the contrary. See Wells Fargo Century, Inc. v. Hanakis, No. 04CV1381, 2005 WL 1523788, at *10 n. *1060 3 (E.D.N.Y. June 28, 2005) ("[T]he first Colorado River factor looks to whether there is a particular piece of real or tangible property the rights to which are in dispute."); Morisada Corp. v. Beidas, 939 F. Supp. 732, 737 (D.Haw.1995) ("Consideration of [the first Colorado River] factor is unhelpful here as the claims at issue do not concern tangible physical property.").
Second, even if a trademark is "res or property" under Colorado River Water, in this case there are no facts suggesting that the state court took control of such property. The issue before the state court is one of contract formation and breach: whether Defendants here had a valid agreement with Beautology Brands for a 25% share in the SALON SELECTIVES marks, and whether Beautology Brands breached that agreement by unilaterally assigning the marks. Although the amended state-court complaint requests that the Illinois court "declare a constructive trust over the assets obtained by Ontario and CLT from Beautology and/or [Salon Selectives, LLC]," (Defs.' Mot. Stay, Ex. E, Illinois Am. Compl. ¶ 37), Defendants produce no state-court order evidencing that a trust was ever created. Moreover, Beautology Brands assigned the SALON SELECTIVES marks to 1177216 Ontario after the initiation of the state-court action; this is directly contrary to the notion that the state court took control of the marks-at-issue.
Accordingly, this factor disfavors abstention. Romine, 160 F.3d at 341 ("[W]hether the state court has assumed jurisdiction over any res or property ... is inapposite to the instant matter because no property is at issue; this factor thus weighs against abstention").
2. Whether the Federal Forum is Less Convenient to the Parties
This factor focuses on the geographic location of the federal and state forum, see Romine, 160 F.3d at 341, and, in this case, slightly favors abstention. Plaintiffs are located in Toronto, Canada. (Compl. ¶¶ 10-11.) This Detroit, Michigan, forum is closer-by-half for Plaintiffs than Dupage County, Illinois. Accordingly, this Court is presumptively the more convenient forum for Plaintiffs to litigate their claims.
On the other hand, Defendants River West and SBB have their principal offices in Illinois. (Compl. ¶¶ 12-13.) And, although not parties to this suit, Beautology Brands, its president, and Salon Selectives, LLC, are key witnesses on the issue of trademark ownership. Beautology Brands and Salon Selectives, LLC both have their principal place of business in Illinois. (Defs.' Mot. Stay, Ex. E, Illinois Am. Compl. ¶¶ 4, 5.) The geographic convenience to Almar between the two forums appears to be largely a wash: Almar is located in New York, and Jack Ashkenazie, its executive vice-president and a witness in this case, is also located there. (Illinois Am. Compl. ¶ 3.)
Because this forum is more geographically convenient for Plaintiffs, but most of the key witnesses in this and the state case are located in Illinois, this factor slightly favors abstention.
3. Whether Abstention Will Avoid Piecemeal Litigation
Defendants say that this factor favors abstention because at issue in the Illinois case is the dispute over the ownership of the SALON SELECTIVES marks, and, here, Defendants "will certainly raise the same issues of trademark ownership [and an] improper assignment to Plaintiffs herein." (Defs.' Mot. Stay at 9.) As stated in the parallelism analysis, there is overlap between this case and the Illinois case on a threshold issue, and, therefore, there is the potential to avoid piecemeal litigation through abstention. However, because the Illinois action does not encompass the *1061 trademark infringement claims at issue here, the Court finds that this factor only moderately favors abstention.
The gain in judicial economy which Defendants argue would result from abstention, is entitled to less significance than Defendants suggest. First, the appropriate inquiry is avoiding piecemeal litigationnot simply duplication of efforts. See Williams v. Oak Park City School Dist., No. 06-CV-12512, 2007 WL 1063346, at *2 (E.D.Mich. Apr. 6, 2007) ("[T]hese cases do not involve true `piecemeal litigation.' The federal and state cases involve the same plaintiff, the same defendants, and the same issue .... Thus, this parallel litigation is duplicative, not piecemeal. The prevention of duplicative litigation is not a factor to be considered in a state-versus-federal court abstention determination."). Rather, as Colorado River Water itself illustrates, the classic case of piecemeal litigation exists where the state court suit is more comprehensive than the federal suit. See 424 U.S. at 819, 96 S. Ct. 1236 (abstaining in part because Colorado law created "[a comprehensive] system for the adjudication and management of rights to the use of the State's waters" that would reach all claims "in the totality"). Under such a scenario, the federal court would duplicate state-court efforts yet resolve only a "piece" of a larger dispute, whereas the state court would resolve the entire case. This is not the situation here Plaintiffs have not filed a counter-claim in Illinois alleging trademark infringement; rather, that action appears to be limited to resolving ownership in Salon Selectives, LLC, and, in turn, ownership of the marks that Salon Selectives, LLC once held.
In short, by abstaining, the Court will avoid duplication of efforts on the ownership issue and potentially eliminate piecemeal litigation. However, because the state court case does not entirely encompass this case, there is also a substantial possibility that Plaintiffs will return to this Court to adjudicate their trademark infringement claims even if this Court abstains. Accordingly, this factor does not strongly favor abstention.
4. The Order In Which Jurisdiction Was Obtained and The Relative Progress of the State and Federal Proceedings
"This factor requires the court to look into not when each complaint was filed, but rather how much progress has been made on the cases." Mardale Specialty Foods, LLC v. Tarantino, No. 06-10014, 2006 WL 1328880, at *3 (E.D.Mich.2006); see also Inrecon, LLC v. Highland Ins. Co., 284 F. Supp. 2d 773, 780 (E.D.Mich.2003) ("Considering... the order in which jurisdiction was obtained, it is true that the proceedings in state court [began] first. However, the Supreme Court has counseled that the filing date is not what matters."); Moses H. Cone, 460 U.S. at 21, 103 S. Ct. 927 ("[P]riority should not be measured exclusively by which complaint was filed first, but rather in terms of how much progress has been made in the two actions."). That the first-to-file factor is largely subsumed in the relative progress factor is logical given that, as in Colorado River Water itself, the first-filed case may have made little or no progress, whereas the later-filed case may have significantly advanced. See 424 U.S. at 820, 96 S. Ct. 1236. In such a situation, it makes little sense to accord weight to the mere fact that a particular action was filed first.
Here, the Illinois case was filed on March 3, 2010over five months before this action was filed on August 19. However, it appears that the state-court case has not advanced significantly. A recent copy of the state-court docket reflects that no motions for summary disposition have been filed, and, although the first amended complaint was stricken by the state-court, a second amended complaint was filed as *1062 recently as January 21, 2011. Plaintiffs' response to Defendants' Motion to Stay in this case was filed on October 15, 2010, and there have been no updates from the parties regarding the status of the Illinois litigation since then. Accordingly, the Court requested the state-court docket sheet. See Passa v. City of Columbus, 123 Fed.Appx. 694, 697 (6th Cir.2005) (noting that a court may "take judicial notice of a public record whose existence or contents prove facts whose accuracy cannot reasonably be questioned.") A status conference is set for March 7, 2011, and the state-court docket does not reflect a trial date. It thus appears that the state-court is not close to resolving whether Almar and River West are entitled to an ownership interest in Salon Selectives, LLC.
Absent a strong showing that the state-court litigation is well in advance of this case, this factor slightly disfavors abstention. See Inrecon, LLC, 284 F.Supp.2d at 780 (jointly considering the priority of filing and relative progress factors, and holding that because the state case was at "essentially the same point" as the federal case, "this factor weighs against granting abstention, not for it"); cf. Romine, 160 F.3d at 341-42 (holding that where a state court proceeds has progressed "considerably" further than the parallel federal action, this fact "weighs strongly" in favor abstention).
5. Whether the Source of Governing Law is State or Federal
This factor slightly disfavors abstention. Defendants emphasize that the threshold issue of ownership of the marks will be decided under Illinois state law. While state law clearly governs the contractual dispute, it is equally plain that Plaintiffs' claims of infringement and dilution arise under the Lanham Act. Defendants are correct, however, that, where, as here, the state court has concurrent jurisdiction over the federal claims, "the source-of-law factor has less significance." Moses H. Cone, 460 U.S. at 25, 103 S. Ct. 927. Accordingly, this factor disfavors abstention but is not entitled to significant weight. See id. at 26, 103 S. Ct. 927 ("Although in some rare circumstances the presence of state-law issues may weigh in favor of ... surrender[ing jurisdiction], the presence of federal-law issues must always be a major consideration weighing against surrender."); Gentry v. Wayne County, No. 10-11714, 2010 WL 4822749, at *5 (E.D.Mich. Nov. 22, 2010) ("Concurrent jurisdiction may alleviate concerns about surrendering jurisdiction, but the presence of federal law `always' militates against abstention.").
6. Whether the State Court Action Will Be Adequate to Protect the Federal Plaintiff's Rights
"This factor involves the state court's adequacy to protect federal rights, not the federal court's adequacy to protect state rights." Travelers Indem. Co. v. Madonna, 914 F.2d 1364, 1370 (9th Cir.1990) (citing Moses H. Cone, 460 U.S. at 26, 103 S. Ct. 927). Defendants are correct that the Illinois state court has concurrent jurisdiction over Lanham Act claims. Further, there is no reason to believe that this Court is better suited to adjudicate Plaintiffs' federal trademark infringement claimsespecially given that court's familiarity with the Illinois Uniform Deceptive Trade Practices Act, which is similar to the Lanham Act. (See Defs.' Mot. Stay at 10-11.)
However, this is not the typical case where the federal claims are before both the state court and the federal court. Plaintiffs here have not filed counter-claims of trademark infringement in the Illinois court. When confronted with a similar situation, a court of this district reasoned that this factor disfavors abstention:
*1063 [C]onsider[ing] the adequacy of the state court proceeding ... suggests a stay is unwise. In the usual Colorado River abstention case, the federal law claims are before both the state and federal courts, and it is presumed that both systems are fully equipped to protect a plaintiff's federal rights.... That consideration is inapplicable here, because only the federal case contains federal constitutional claims, and it is not the Court's role to second-guess how [Plaintiff] structured his lawsuits.
Gentry, 2010 WL 4822749, at *6; cf. Crawley v. Hamilton County Comm'rs, 744 F.2d 28, 31 (6th Cir.1984) ("While it may be true ... that [the state court suit] could be modified so as to make it identical to the current federal claim, that is not the issue here. The issue is whether [the state court action], as it currently exists, is a parallel, state-court proceeding.").
The Court finds that this factor disfavors abstention.
7. Whether the State Court Has Concurrent Jurisdiction Over the Federal Claims
State and federal courts have concurrent jurisdiction over Lanham Act claims. While this favors abstention, it is not entitled to significant weight. PaineWebber, 276 F.3d at 208 ("The presence of concurrent jurisdiction only marginally, if at all, favors abstention"); UEI, Inc. v. Quality Fabricated Metals, Inc., No. 1:06-CV-122, 2006 WL 1541353, at *6 (W.D.Mich. June 1, 2006) ("The final factor, the presence or absence of concurrent jurisdiction, is of little significance as both courts have jurisdiction.").
8. Balancing the Colorado River Water Factors
In the circumstances of this case, the primary Colorado River Water factors appear to be the avoidance of piecemeal litigation, the relative convenience of the state and federal forums, and the relative progress of the two cases. Among these three key factors, the first favors abstention, the second slightly favors abstention, and the third disfavors abstention. In balance then, the three principal factors marginally favor abstention.
The remaining factors disfavor abstention, however. Because the abstention factors are largely in equipoise, this Court should not abstain. Gentry, 2010 WL 4822749, at *6 ("[The] relative equality of factors actually makes the decision to abstain appropriate, because there cannot be Colorado River abstention in a close case."). Abstention because of parallel state-court litigation is warranted only in "exceptional" circumstances and when a federal court has the "clearest of justifications." Colorado River Water, 424 U.S. at 817, 96 S. Ct. 1236. Further, a court must remain mindful that the balance of the factors is, "heavily weighted in favor of the exercise of jurisdiction," Moses H. Cone, 460 U.S. at 16, 103 S. Ct. 927; see also id. at 25-26, 103 S. Ct. 927 ("[W]e emphasize that our task in cases such as this is not to find some substantial reason for the exercise of federal jurisdiction[;] ... rather, the task is to ascertain whether there exist `exceptional' circumstances ... justify[ing] the surrender of that jurisdiction."). The facts of this case do not meet this high threshold for abstention. Accordingly, the Court DENIES Defendants' Motion to Stay.
III. PLAINTIFFS' MOTION FOR A PRELIMINARY INJUNCTION IS DENIED WITHOUT PREJUDICE
Plaintiffs assert that they are likely to succeed in demonstrating a likelihood of confusion at trial, and that Defendants' continued use of the SALON SELECTIVES marks is causing irreparable harm to the reputation and goodwill associated with those marks. Defendants respond by *1064 claiming that they have a valid license to use the marks, and thus, Plaintiffs cannot demonstrate a likelihood of success. Defendants also assert that Plaintiffs' delay in moving for an injunction undercuts their claim of imminent, irreparable harm. For the reasons provided below, Plaintiffs' Motion for Preliminary Injunction is denied without prejudice.
A. Preliminary Injunction Standard
"A preliminary injunction is an extraordinary remedy never awarded as of right." Winter v. Natural Res. Def. Council, 505 U.S. 7, 129 S. Ct. 365, 376, 172 L. Ed. 2d 249 (2008). It should be granted "only if the movant carries his or her burden of proving that the circumstances clearly demand it." Overstreet v. Lexington-Fayette Urban County Gov't, 305 F.3d 566, 573 (6th Cir.2002); Roghan v. Block, 590 F. Supp. 150, 153 (W.D.Mich.1984), aff'd 790 F.2d 540 (6th Cir.1986) ("There is no power the exercise of which requires greater caution, deliberation, and sound discretion, or more dangers in a doubtful case, than the issuance of an injunction.") (citation omitted). "[T]he proof required for the plaintiff to obtain a preliminary injunction is much more stringent than the proof required to survive a summary judgment motion." Leary v. Daeschner, 228 F.3d 729, 739 (6th Cir.2000). Thus, Plaintiffs here must affirmatively demonstrate entitlement to injunctive relief.
The preliminary injunction considerations are well known: Plaintiffs must establish (1) a strong likelihood of success on the merits; (2) that they are likely to suffer irreparable harm without an injunction; (3) that the injunction would not cause substantial harm to others; and (4) that the injunction is in the public interest. Winter, 129 S.Ct. at 374; ACLU of Ky. v. McCreary County, Ky., 354 F.3d 438, 445 (6th Cir.2003). Although the factors are to be balanced, a finding that there is no likelihood of irreparable harm, Winter, 129 S.Ct. at 375, or no likelihood of success on the merits, Gonzales v. Nat'l Bd. of Med. Exam'rs, 225 F.3d 620, 625 (6th Cir.2000), is usually fatal. It follows that a district court need not address all the preliminary injunction factors where fewer are dispositive of the issue. See In re DeLorean Motor Co., 755 F.2d 1223, 1229 (6th Cir. 1985).
B. Plaintiffs Have Not Demonstrated a Strong Likelihood of Success On The Merits
A plaintiff's burden on this factor ranges from requiring a "strong" likelihood of success, Mason County Medical Ass'n v. Knebel, 563 F.2d 256, 261 n. 4 (6th Cir.1977), to merely "raising questions going to the merits so serious, substantial, difficult, and doubtful as to make them a fair ground for litigation and thus for more deliberate investigation," Six Clinics Holding Corp. v. Cafcomp Sys., Inc., 119 F.3d 393, 402 (6th Cir.1997). The reason for this range is that a plaintiff has a lighter burden on this factor if the others strongly favor a preliminary injunction. In re DeLorean, 755 F.2d at 1229 ("The varying language applied to the likelihood of success factor can best be reconciled by recognizing that the four considerations applicable to preliminary injunction decisions are factors to be balanced, not prerequisites that must be met. Accordingly, the degree of likelihood of success required may depend on the strength of the other factors."); accord Little Caesar Enter., Inc. v. R-J-L Foods, Inc., 796 F. Supp. 1026, 1030 (E.D.Mich. 1992) ("[W]here the three factors other than the likelihood of success all strongly favor issuing the injunction, a district court is within its discretion in issuing a preliminary injunction if the merits present a sufficiently serious question to justify a further investigation."). As will be addressed below, the other preliminary injunction factors do not weigh in favor of *1065 awarding an injunction. Accordingly, Plaintiffs have the burden to demonstrate a strong likelihood of success on the merits.
Plaintiffs argue they are likely to succeed in establishing that Defendants' use will result in a likelihood of confusion with, and a dilution of, their SALON SELECTIVES mark. While demonstrating consumer confusion or "blurring" is necessary for Plaintiffs to ultimately succeed on their claims of trademark infringement, unfair competition, and dilution, it is not sufficient. Rather, under any of Plaintiffs' theories, they have the burden to establish that they own the SALON SELECTIVES portfolio of marks. Amazing Spaces, Inc. v. Metro Mini Storage, 608 F.3d 225, 235-36 (5th Cir.2010) ("There are two elements to a successful infringement claim under the Lanham Act. The plaintiff must first establish ownership in a legally protectible mark, and second show infringement by demonstrating a likelihood of confusion." (internal alterations, quotation marks, and citations omitted)); Doeblers' Pennsylvania Hybrids, Inc. v. Doebler, 442 F.3d 812, 821 (3d Cir.2006) ("Much of the permanent injunction is premised on the District Court's conclusion that defendants ... engaged in federal unfair competition ... in violation of 15 U.S.C. § 1125(a), federal dilution in violation of 15 U.S.C. § 1125(c), and common law unfair competition. The threshold premise underlying this outcome is the District Court's conclusion that plaintiff owns the ... mark"). In addition, Defendants raise the affirmative defense of holding a valid license to use the marks. The Court analyzes the license defense first, and then turns to the ownership inquiry.
1. There is Insufficient Argument and Evidence to Support Defendants' License Defense
Defendants argue somewhat inconsistently regarding the genesis of Almar's purported oral license. On the one hand, Defendants assert that "Almar was granted a license to use the SALON SELECTIVES trademarks by Dr. Zeffren, in his capacity as CEO of SBB at the time that SBB owned the marks." (Defs.' Resp. to Pls.' Mot. Prelim. Inj. at 5 (emphasis added).) Elsewhere, however, Defendants assert that if SBB did not own the marks, it granted Almar a sub-license based on River West's license from Unilever. (Defs.' Summ. J. Reply at 1 n. 1.) Both theories fail.
Defendants have not shown that SBB owned the marks at the time Zeffren allegedly granted a license to Almar. (See Pls.' Prelim. Inj. Reply at 1.) Defendants assert that in December 2006, River West entered into an agreement with Unilever "under which Unilever would exclusively license the SALON SELECTIVES portfolio of marks in exchange for certain guaranteed annual minimum royalties." (Ashkenazie Decl. ¶ 10.) Defendants further explain that toward the end of 2007, "SBB (through River West and with the assistance of Almar) wished to pay off the remaining royalties due to Unilever and wished to obtain an outright assignment of the SALON SELECTIVES portfolio of marks. This was accomplished in February 2008 ...." (Ashkenazie Decl. ¶¶ 15-16 (emphasis added).) Yet, Defendants assert that Zeffren (on behalf of SBB) granted Almar a license in "late 2007," and that Zeffren reported this grant to the SBB board of directors "in November 2007." (Ashkenazie Decl. ¶¶ 20-24.) Thus, based on Defendants' own evidence, SBB did not yet own the marks, when SBB purportedly licensed Almar to use the marks.
Apparently recognizing this problem, Defendantsin a single footnote in their briefingassert that even if SBB did not own the marks, Almar still has a viable defense to infringement because SBB *1066 granted it a sub-license derived from the Unilever-River West license. (Defs.' Summ. J. Reply at 1 n. 1.) This argument is not well developed, and moreover, appears to be fatally flawed.
Unless a licensor explicitly grants its licensee the right to sub-license the licensed mark, any putative sub-license is invalid as a matter of law. Tap Publ'ns, Inc. v. Chinese Yellow Pages (New York) Inc., 925 F. Supp. 212 (S.D.N.Y.1996); see also Miller v. Glenn Miller Prods., 454 F.3d 975, 992 (9th Cir.2006) ("[A] trademark licensee such as [defendant] may not sub-license without express permission from the original licensor ...."). "The reason [for this rule] is that because the trademark owner has a duty to control the quality of goods and services sold under the mark, it must have the right to pass on the abilities of new potential licensees." 3 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition (McCarthy) § 18.43 (4th ed. 2010); see also Miller, 454 F.3d at 992 ("Common sense suggests that if a trademark licensee could unilaterally sub-license a mark without notifying or obtaining consent from the licensor, then a trademark licensor would lose his ability to police his mark ....").
In Tap Publications, when presented with analogous facts, the court found that the sublicense rule barred the plaintiff's trademark infringement claim. There, the owner of the mark-at-issue, Asia Systems Media ("ASM"), entered into a settlement agreement with non-party Key Publications ("Key"), which granted Key the right to use ASM's trademark on its telephone directory. The plaintiff, Tap Publications ("Tap"), sued ASM claiming that it was the successor-in-interest to Key and, therefore, had the exclusive right to use the mark. The court disagreed. In particular, it applied the sub-license rule and held that nothing in the settlement agreement between ASM and Key granted Key the right to assign its rights in the mark, and, accordingly, "the rights conferred upon Key to use the mark in dispute were personal to Key, and ... were not assignable or otherwise transferable." Id. at 218. The court held that Tap, which asserted an interest in ASM's mark based on an assignment from Key, had "no rights to the mark." Id. (Although the sub-license holding was in the alternative, it was not dicta. See Tap Publications, 925 F.Supp. at 218 ("Tap's argument fails for two independent reasons. First, the [Key-ASM] settlement agreement did not give Tap [sic] the power to assign or transfer its rights in the mark. Second, the [subsequent] agreement between Tap and Key did not include any rights in the mark that Key may have had.")).
Under Defendants' sub-license theory, River West allegedly obtained an exclusive license from Unilever in December 2006, and in late 2007, SBB granted Almar a sub-license. There is a missing link, however. Defendants do not explain how, by late 2007, SBB had acquired its interest in the marks. The fact that River West owned a 50% interest in SBB does not warrant an inference that SBB also had a license from Unilever (or River West). A company may invest in another without giving its investment its assets. Thus, it appears that under Defendants' theory, not one, but two sub-licenses must exist: first, River West sub-licensed SBB to use the marks, then, in late 2007, SBB sub-sub-licensed Almar to use the marks.
Both steps are problematic for Defendants. First, there is no evidence suggesting that Unilever ever granted River West the authority to grant a sub-license to SBB. Indeed, it appears that SBB did not even exist in December 2006 when Unilever granted River West a license. (See Illinois Am. Compl. ¶¶ 9-10.) Nor is there evidence that River West gave SBB the *1067 right to sub-sub-license to Almar. Although Mark Thumann, CEO of River West, stated that he "did not have any objection to [Zeffren's] grant of the license" to Almar (Defs.' Resp. to Pls.' Mot. Prelim. Inj., Ex. B, Thumann Decl. ¶ 5), Thumann was not acting on behalf of River West in that capacity. Rather, he was acting as a member of SBB's Board of Directors. (Id.) Because Defendants produced insufficient evidence as to both the Unilever-River West license and the River West-SBB sub-license, the Court concludes that neither included express permission to sub-license. See Miller v. Glenn Miller Prods., 454 F.3d 975, 992 (9th Cir.2006) ("[B]ecause it is undisputed that the two agreements do not expressly authorize [defendant] to sub-license, as a matter of law, [defendant] lacks the unilateral authority to sub-license its right[s]."); 3 McCarthy § 18.43 ("The right of a licensee to sub-license others must be determined by whether the license clearly grants such a power.... Without specific authorization from the trademark owner, the licensee's right to use the licensed mark is personal and cannot be sold or assigned to another.").
Defendants' sub-license theory is problematic for another reason. Under Defendants' theory, SBB was a sub-licensee of the original Unilever-River West license. Then, in February 2008, River West paid off the remaining royalties owed to Unilever under the Unilever-River West license, and, the marks were assigned to SBB. (See Ashkenazie Decl. ¶¶ 15-16.) For the original royalty license to have survived, the Court must assume that, upon the assignment, SBB stepped into Unilever's shoes and thereby became the licensor. But this creates a circular relationship, because, as just stated, SBB was a (sub-)licensee of that very license. To the extent that SBB's sub-license was extinguished when it became the licensor, Defendants do not explain how Almar's license, itself derived from SBB's sub-license, survived. Cf. Donk v. Alexander, 117 Ill. 330, 338, 7 N.E. 672 (Ill.1886) (finding where company was assigned judgment and thus became creditor, but previously had acquired the judgment-debt, that "when the qualities of debtor and creditor become united in the same individual, there arises a confusion of rights which extinguishes both qualities"); Matter of Estate of Ozier, 225 Ill.App.3d 33, 167 Ill. Dec. 195, 587 N.E.2d 77, 80 (1992) ("The doctrine of merger provides that when the same person who is bound to pay is also entitled to receive, there is an extinguishment of rights, such that the debtor and creditor become the same person and there can be no right to put in execution."); Ellis v. McClung, 291 Ill. App. 3d 448, 225 Ill. Dec. 408, 683 N.E.2d 911, 918 (1997) ("A merger occurs when the dominant (benefited) estate and the servient (burdened) estates are owned by the same person, thereby extinguishing an easement by virtue of unity of title and possession, given that one has no need of an easement over one's own property.").
Finally, Defendants suggest that Almar's sub-license is a five-year, irrevocable license. Defendants never explicitly declare that the Almar license is irrevocable, but if not, nothing would prevent Plaintiffs from now revoking the alleged license. Indeed, Plaintiffs have argued that Salon Selectives, LLC revoked the alleged license by sending Defendants the May 2010 cease-and-desist letter. (Pls.' Resp. to Defs.' Mot. Dismiss at 6.)
Defendants also strenuously argue that, as a matter of basic property law, one cannot assign an interest greater than it owns. (Defs.' Mot. Dismiss Reply at 1-2.) Yet, Defendants neither assert nor produce any evidence suggesting that in late-2007 (when the SBB-Almar license was allegedly created,) that SBB itself had an interest equivalent-to or greater-than a five-year, *1068 irrevocable license. The same holds for River West under the Unilever-River West license. Indeed, given that River West was able to pay-off the remaining royalties on its license with Unilever (so that SBB could obtain an outright assignment of the marks) it does not appear that the Unilever-River West license was one for a fixed, multi-year term.
In sum, Defendants' license defense is not viable at this juncture of the litigation. In particular, Defendants have not produced the Unilever-River West license evidencing that (1) River West had the right to grant sub-licenses, and (2) the scope of that original license is equal-to or greater-than the scope of the license allegedly granted to Almar in late-2007. Similarly, Defendants have not demonstrated how and when SBB acquired its license, and the scope of that license. Further, Defendants do not explain how, as a matter of property law, Almar's sub-license survived the merger of all interests in the SALON SELECTIVES marks in SBB. Given the forgoing, Defendants' license claim has no adverse impact on Plaintiffs' claim of a likelihood of success on the merits. Although River West did not file a separate brief opposing Plaintiffs' Motion for Preliminary Injunction, the Court notes that the license theory does not appear to be viable as to River West, either. First, the Unilever-River West license appears to have terminated once the royalties due to Unilever were paid-off. Second, there is no allegation that SBB ever granted River West a licenselet alone a multi-year, irrevocable license.
2. Plaintiffs Have Not Carried Their Preliminary Injunction Burden on the Issue of Ownership
Plaintiffs do not address ownership in their preliminary injunction motion. Defendants do not do much better; while providing some basic facts regarding ownership as relevant to the abstention inquiry, Defendants do not argue the issue on the merits.
Although neither party adequately addresses ownership, it remains Plaintiffs' burden to demonstrate a strong likelihood of success on this issue. See Everett Labs., Inc. v. Vertical Pharm. Inc., 227 Fed.Appx. 124 (3d Cir.2007) (reviewing district court's denial of preliminary injunction and noting that plaintiff "had the burden before the District Court of showing... that [it] own[ed] the mark"). Accordingly, the Court evaluates whether Plaintiffs' evidence of ownership is plain enough on its face to carry Plaintiffs' preliminary injunction burden. The Court finds that it is not.
Plaintiffs produce evidence suggesting that the SALON SELECTIVES marks, first registered in the mid-1980s may have obtained incontestable status well before the events leading to this litigation. (Compl. Ex. A (Trademark Electronic Search System documents evidencing both a registration of SALON SELECTIVES marks in the mid-1980s and the filing of Section 15 affidavits pertaining to incontestability).) A registered mark obtains incontestable status if (1) there has been no final decision adverse to the trademark registrant's claim of ownership over the mark; (2) there is no pending adjudication involving ownership rights; (3) the registrant has filed a "Section 15" affidavit asserting that (a) the mark has been continuously used in commerce for five years post-registration, (b) is still in use, and (c) conditions (1) and (2) are met; and (4) the mark has not become a generic. See 15 U.S.C. § 1065(1)-(4).
An "incontestable" trademark provides "conclusive evidence ... of the registrant's ownership of the mark," subject to statutorily-enumerated defenses. 15 U.S.C. § 1115(b). Further, as relevant to 1177216 Ontario's acquisition of the marks, *1069 the Lanham Act provides that the term "registrant" includes the original registrant's "successors and assigns" of the mark. 15 U.S.C. § 1127.
Although it is possible to interpret the incontestability provisions of the Lanham Act to have established ownership in favor of Plaintiffs, this would be an incorrect understanding of those provisions. See Federal Treasury Enterprise Sojuzplodoimport v. Spirits Intern. N.V., 623 F.3d 61 (2d Cir.2010). In Federal Treasury Enterprise, the plaintiff sued claiming infringement of its famous STOLICHNAYA vodka trademarks. Id. at 62-63. The district dismissed the plaintiff's trademark infringement claims because it concluded (1) that the mark had become incontestable when held by one of the defendant's predecessors-in-interest, and (2), that, as set forth in 15 U.S.C. § 1127, the term "registrant" embraced the defendantan assignee. Id. at 67.
The Second Circuit Court of Appeals disagreed. It reasoned that the district court's application of the Lanham Act's incontestability provisions would lead to "perverse" results:
The district court was ... called upon to inquire whether a valid assignment had ever actually taken place. This inquiry was required because only after a valid assignment of trademarks does the assignee succeed to the rights of the assignor....
If the mere fact that the registrant satisfied the requirements for incontestability could preclude [plaintiff's] claim, then incontestability would transform recordinga ministerial actinto a mechanism for conclusively defeating allegations... challenging the legality of the assignment. [This] statutory interpretation would lead to a perverse result in cases such as this, where all parties agree that the trademarks became incontestable in 1974, but the disputed assignment comes from a series of transactions that occurred many years later.
Id. at 67-68. Accordingly, the appellate court held that "the question of the validity of the assignment is antecedent to the question of incontestability." Id. at 69.
The reasoning of Federal Treasury Enterprise is persuasive and its holding applies here. In particular, assuming, without deciding, that the SALON SELECTIVES marks are incontestable, the Court must still decide the antecedent question: whether the assignment from Salon Selectives, LLC to Plaintiff 1177216 Ontario was valid. Only if that assignment is deemed valid, would Plaintiffs be entitled to the statutorily mandated "conclusive evidence" of ownership. Thus, the fact that the SALON SELECTIVES marks may be incontestable, does not aid Plaintiffs in establishing that 1177216 Ontario is the owner of those marks.
In evaluating the evidence surrounding the alleged agreement between Almar, River West, A.P. Deauville, and Beautology Brands, and the subsequent assignment from Salon Selectives, LLC to Plaintiffs, it is undisputed that only Beautology Brands purchased the marks from Hilco, and that Beautology Brands placed the acquired assets into Salon Selectives, LLC. (Ashkenazie Decl. ¶ 37.) Further, Plaintiffs produce a "Confirmatory Assignment," executed by Stuart Strauss, the President of Beautology Brands and also, apparently, of Salon Selectives, LLC, which assigns the marks from Salon Selectives, LLC to Ontario 1177216. (Dkt. 12, Pls.' Prelim. Inj. Reply, Ex. A.) This evidence favors a finding that Plaintiffs are likely to succeed on the ownership issue at trial.
On the other hand, although the record is sparse, Defendants appear to have a plausible claim to ownership of the marks. *1070 First, Defendants produce a declaration from Jack Ashkenazie, Almar's Executive Vice President, which states that an oral agreement between the four companies had been reached, and that under the agreement, Defendants would each own a 25% share of Salon Selectives, LLC. (Ashkenazie Decl. ¶¶ 34-36, 38.) These statements are unrebutted by Plaintiffs. Second, although many critical details surrounding the agreement are absent, there is at least some support for the contention that the four companies reached an oral agreement after Beautology Brands acquired the marks and transferred the assets to Salon Selectives, LLC. In particular, on the day of Beautology Brands' purchase of the marks from Hilco, an email from Strauss stated that he was willing to split the ownership of Salon Selectives, LLC four ways if certain conditions were met:
It was a pleasure talking with you all[1] on the phone today. Although I feel that I have acted in good faith throughout this process and could proceed as planned, after additional consideration and in the spirit of fairness and partnership I will agree to the 25% split 4 ways. The only thing I ask in return is that Almar and AP Deauville each pay to Beautology $75,000 in consideration of me making this concession.... This amount will be paid when the 25% ownership interests in Salon Selectives LLC are transferred. If you are not able to agree to these terms, I will be forced to proceed on my own.... I imagine that we can take care of all of this and the many details we need to clarify very soon after closing and then put this all behind us and get to work on building the brand.
(Illinois Am. Comp., Ex. B1.) Further, it appears, based on an allegation in the Illinois complaint, that there was a second email in which Strauss stated, "I just want to let you know that the agreement between Beautology Brands Company and the bank has been completed. I look forward to completing our agreement and building the brand to even greater heights than before." (Illinois Am. Compl. ¶ 24.) The foregoing suggests that Defendants may each be entitled to a 25% share in Salon Selectives, LLC.
If Defendants can establish that they were members of Salon Selectives, LLC, the validity of the assignment to Plaintiffs is in doubt. Under Illinois law, it appears that unless a limited liability company agrees otherwise, the sale or transfer of "substantially all" of a limited liability company's assets requires approval from every LLC member. See 805 ILCS 180/15-1(b)(2), (c)(11) (providing that in a manager-managed LLC, "any matter relating to the business of the company may be exclusively decided by the [limited liability company's] manager," but that "the sale, lease, exchange, or other disposal of all, or substantially all, of the company's property with or without goodwill" requires "consent of all of the members"). Given that Salon Selectives, LLC, was merely a holding company for the SALON SELECTIVES portfolio of marks (and possibly the corresponding inventory), the reasonable inference is that the marks were "all, or substantially all" of its assets. Further, under Defendants' theory, Almar and River West would be considered members of the LLC prior to Salon Selectives, LLC's transfer to Plaintiffs. Accordingly, if Defendants can establish ownership in *1071 Salon Selectives, LLC, the assignment to Ontario 1177216 may be invalid.
In sum, while the record and legal arguments are far from sufficient to conclude that Defendants have an ownership interest in the marks, it is enough to say that Defendants' position is not implausible, and creates considerable doubt as to whether Ontario 1177216 owns the marks. Given that Plaintiffs provide no argument to the contrary, the Court cannot say that Plaintiffs carried their burden to establish a "strong" likelihood of success on the ownership of the marks. See Wells Fargo & Co. v. WhenU.com, Inc., 293 F. Supp. 2d 734, 757 (E.D.Mich.2003) ("It is because preliminary injunctive relief is such a `drastic' remedy that [Plaintiffs] must show circumstances [that] clearly demand its entry." (citations omitted)). Accordingly, this factor does not favor entry of a preliminary injunction.
C. Plaintiffs Have Not Demonstrated That They Are Likely To Suffer Irreparable Harm
Plaintiffs have the burden to show that "without [an] injunction [they] `will suffer actual and imminent harm rather than harm that is speculative or unsubstantiated.'" Cox v. Correctional Medical Servs., Inc., No. 06-10350, 2006 WL 3147733, at *4 (E.D.Mich. Oct. 25, 2006) (quoting Abney v. Amgen, Inc., 443 F.3d 540, 552 (6th Cir.2006)). Although Defendants' argument on this factor is unpersuasive, the Court nevertheless finds that Plaintiffs have not satisfied their burden.
Defendants assert that Plaintiffs' delay in moving for a preliminary injunction precludes a finding of irreparable harm. Defendants are correct that "`[s]ignificant delay in applying for injunctive relief in a trademark case tends to neutralize any presumption that infringement alone will cause irreparable harm pending trial, and such delay alone may justify denial of a preliminary injunction for trademark infringement.'" Blockbuster v. Laylco, Inc., 869 F. Supp. 505, 516 (E.D.Mich.1994) ((quoting Citibank, N.A. v. Citytrust, 756 F.2d 273, 275-76 (2d Cir. 1985))). However, Plaintiffs' delay is too brief to significantly alter the irreparable harm inquiry.
The Confirmatory Assignment, assigning Salon Selectives, LLC's interest in the SALON SELECTIVES marks to Ontario 1177216, was not executed until June 28, 2010. Plaintiffs moved for a preliminary injunction on August 19, 2010. Thus, Plaintiffs delay, measured from the time they first had standing to sue to when they moved for an injunction, was less than two months.
Defendants rely on cases suggesting that a two-month delay in seeking an injunction in a trademark infringement case can justify a finding of no irreparable harm. Gidatex, S.r.L. v. Campaniello Imports, Ltd., 13 F. Supp. 2d 417, 419 (S.D.N.Y.1998) (citing Southern District of New York cases for the proposition that "courts typically decline to grant preliminary injunctions in the face of unexplained delays of more than two months"); Weight Watchers Intern., Inc. v. Luigino's, Inc., 423 F.3d 137, 144 (2d Cir.2005) ("We have found delays of as little as ten weeks [in a trademark infringement case] sufficient to defeat the presumption of irreparable harm that is essential to the issuance of a preliminary injunction."). However, a broader review of the cases reveals that a two-month delay is on the extreme end of the spectrum, and, moreover, it appears that only courts in the Second Circuit hold plaintiffs to such a demanding standard. Sandra Edelman, Delay in Filing Preliminary Injunction Motions, 99 Trademark Rep. 1074, 1076 (2009) (surveying the effect of a plaintiff's delay on the irreparable harm inquiry in trademark cases and concluding *1072 that "[o]utside of the Second Circuit, the cases decided since 2002 indicate that plaintiffs who delay three months or less in seeking preliminary injunctive relief can ... be confident they can show irreparable harm...."). In the Sixth Circuit, it does not appear that trademark holders are held to such a high standard. Compare R.L. Polk & Co. v. infoUSA, Inc., 230 F. Supp. 2d 780, 795-96 (E.D.Mich.2002) (finding three-month delay did not weigh against a finding of irreparable harm) with Wells Fargo v. WhenU.com, Inc., 293 F. Supp. 2d 734, 771 (E.D.Mich.2003) (finding nine-month delay "undermines [plaintiffs'] allegation of irreparable harm"). Accordingly, while the Court acknowledges that Plaintiffs two-month delay in moving for an injunction raises some doubt as to whether they urgently need injunctive relief, that doubt is not significant.
For their part, Plaintiffs assert that a court may presume irreparable harm once a likelihood of success has been shown on consumer confusion. (Pls.' Mot. Prelim. Inj. at 12-13.) There is some controversy as to whether the presumption of irreparable harm in trademark cases survived eBay, Inc. v. MercExchange, 547 U.S. 388, 126 S. Ct. 1837, 164 L. Ed. 2d 641 (2006). There, the Supreme Court held that irreparable harm does not necessarily follow from a finding of patent infringement. Rather, when considering the remedy of a permanent injunction, a court must consider the four well-established equitable factors: "(1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction." Id. at 391, 126 S. Ct. 1837.
The Sixth Circuit has yet to address whether eBay applies to injunctions in trademark cases. The Second Circuit, however, recently held that eBay applies to a preliminary injunction for copyright infringement; it also noted, "although today we are not called upon to extend eBay beyond the context of copyright cases, we see no reason that eBay would not apply with equal force to an injunction in any type of case." Salinger v. Colting, 607 F.3d 68, 78 n. 7 (2d Cir.2010).
Nonetheless, it would be inappropriate to apply such a presumption in this case. In particular, given the questions surrounding ownership, and, consequently, Plaintiffs' failure to establish a likelihood of success, the asserted presumption is inapplicable. Trenton Corp. v. Superior Corrosion Control, Inc., No. 06-15699, 2007 WL 268792, at *5 (E.D.Mich. Jan. 25, 2007) (holding, in a trademark infringement case, that "because [plaintiff] has not shown a strong likelihood of success on the merits, it is not entitled to the presumption of irreparable harm."); Jimdi, Inc. v. Twin Bay Docks and Prods., Inc., 501 F. Supp. 2d 993, 1010 (W.D.Mich.2007) ("Because the Court has concluded that [plaintiff] has not shown that it is likely to succeed on its claims, [its] reliance upon Wynn Oil Co. v. American Way Service Corp., 943 F.2d 595 (6th Cir.1991), for the proposition that injunctive relief should normally follow upon a finding of likelihood of confusion, is misplaced.").
The evidence is insufficient to support a conclusion that Plaintiffs' established irreparable harm. Plaintiffs proffer no evidence of tangible harm such as lost sales or profits. Nor do they have any evidence of actual consumer confusion. Further, Plaintiffs have not produced any evidence that they intend to use the SALON SELECTIVES mark in a different manner than Defendants. Plaintiffs have not, for *1073 example, indicated that they intend to sell hairbrushes of a higher quality or a different style, or that they intend to discontinue marketing hairbrushes altogether. While Plaintiffs may ultimately have the right to control the application of the SALON SELECTIVES mark, the fact that there is no evidence of a present intent to do anything other than what Defendants are doing, suggests that maintaining the status quo until trial will not result in irreparable damage to the goodwill or reputation associated with the mark. Given the lack of evidence, irreparable harm remains speculative and does not appear imminent. Thus, the Court finds that this factor disfavors injunctive relief.
D. The Balance of the Hardships Slightly Favors Defendants
Although the foregoing two factors are dispositive of Plaintiffs' motion, this factor also disfavorsalbeit slightly awarding an injunction. "In considering this factor, the Court must (1) balance the harm Plaintiff would suffer if its request for a preliminary injunction were denied against the harm Defendant would suffer if an injunction were to issue, and (2) assess the impact the preliminary injunction might have on relevant third parties." Procter & Gamble Co. v. Georgia-Pacific Consumer Prods. LP, No. 1:09-318, 2009 WL 2407764, at *10 (S.D.Ohio Aug. 3, 2009); accord Trenton Corp. v. Superior Corrosion Control, Inc., No. 06-15699, 2007 WL 268792, at *6 (E.D.Mich. Jan. 25, 2007).
Plaintiffs ask this Court to enjoin Defendants from selling hair hairbrushes and combs bearing the SALON SELECTIVES mark. This would be a significant change to the status quo given that, as Plaintiffs themselves assert, Defendants' products are sold in "retail locations throughout the U.S." (Pls.' Mot. Prelim. Inj. at 2.) The removal of Defendants' products from store shelves would be costly to Defendants, as would the storage or destruction of the allegedly infringing products. Further, Defendants' business associatesretail stores or manufacturerswould presumably be notified that the reason for the court-ordered removal was because Defendants' products are likely infringing the SALON SELECTIVES marks. This may adversely impact Defendants' relations with those entities.
It is also noteworthy that the harm from denying an injunction is tempered by the fact that Plaintiffs purchased the marks while there was a cloud upon their title. In particular, Plaintiffs knew, actually or constructively, that there was ongoing state-court litigation regarding the ownership of Salon Selectives, LLC, when it received an assignment from that very company in June 2010. Further, by the time Plaintiffs acquired the marks, the seven-day deadline set forth in Salon Selectives, LLC's cease-and-desist letter had lapsed. Accordingly, prior to acquisition of the marks, Plaintiffs were fully aware that Defendants (1) believed they had the right to use the SALON SELECTIVES marks on hairbrushes and combs, and (2) would continue to use that mark upon those goods. In this way, Plaintiffs can be seen to have assumed some risk that they would not be awarded a preliminary injunction when they acquired the marks. This fact mitigates some of the harshness of denying an injunction.
On the other hand, Defendants also assumed certain risks. In 2008, SBB's assets were sold to Hilco because of SBB's financial troubles. At this point, Almar and River West must have considered the possibility that reacquisition of the SALON SELECTIVES marks may never occur. Yet, Defendants continued to sell hairbrushes and combs bearing those marks. See Midwest Guar. Bank v. Guaranty Bank, 270 F. Supp. 2d 900, 924 *1074 (E.D.Mich.2003) (holding, where defendant chose to enter Michigan market with a possibly confusingly similar mark, that defendant "cannot place itself in harms way, and then later claim that an injunction should not issue because of costs which it must incur in order to remedy its own misconduct").
Given the foregoing, in particular, the significant change in the status quo if an injunction issues, and the risks Plaintiffs assumed when acquiring the marks, the balance of hardships tips slightly in favor of denying injunctive relief.
E. Conclusion as to Plaintiffs' Motion for a Preliminary Injunction
Plaintiffs have not made the requisite showing of imminent, irreparable harm. This alone suffices to deny their Motion for Preliminary Injunction. Essroc Cement Corp. v. CPRIN, Inc., 593 F. Supp. 2d 962, 970 (W.D.Mich.2008) ("The failure to show irreparable harm, by itself, can justify the denial of preliminary injunctive relief without consideration of the other three factors."); see also Patio Enclosures, Inc. v. Herbst, 39 Fed.Appx. 964, 967 (6th Cir.2002) ("[T]he demonstration of some irreparable injury is a sine qua non ("Indispensable, absolutely necessary or essential." OXFORD ENGLISH DICTIONARY (2d ed. 1989)) for issuance of an injunction."). In addition, given the doubts raised by Defendants regarding Ontario 1177216's ownership of the marks, and no attempt by Plaintiffs to quell those doubts, a strong likelihood of success on the merits has not been demonstrated. This, too, is arguably dispositive of Plaintiffs' motion. Gonzales, 225 F.3d at 625 ("[A] finding that there is simply no likelihood of success on the merits is usually fatal.").
This denial of Plaintiffs' Motion for Preliminary Injunction is, however, without prejudice. To the extent they require discovery on that issue, they should file a motion for expedited discovery. Further, if either party believes that Beautology Brands and/or Salon Selectives, LLC is a necessary party, they should file the appropriate motion.
IV. DEFENDANTS' MOTION TO DISMISS OR FOR SUMMARY JUDGMENT
Defendant Almar moved, pursuant to Fed.R.Civ.P. 12(b)(6), to dismiss Plaintiffs' Complaint on the grounds that "Almar at all relevant times had and continues to have a valid license to sell grooming accessories under the marks-in-suit." (Dkt. 10, Defs.' Mot. Dismiss at 2, ¶ 2.) Defendants River West and SBB rely on Almar's Motion to the extent it applies to them. (Dkt. 14.) Because Defendants' arguments in their Motion to Dismiss are identical to the arguments asserted in their Response to Plaintiffs' Motion for Preliminary Injunction, their Motion is DENIED. (See Defs.' Mot. Dismiss at 1 ("Plaintiffs have also moved the Court for a preliminary injunction, and Almar is submitting a separate brief opposing that motion on the same basis [as this Motion to Dismiss]." (emphasis added)).)
A. Legal Standards
1. Motion to Dismiss Pursuant to Fed.R.Civ.P. 12(b)(6)
A complaint may be dismissed for failure "to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). In deciding whether a plaintiff has stated a cognizable claim, a court accepts as true all well-pleaded factual allegations, and reads the complaint in the light most favorable to the plaintiff. Gunasekera v. Irwin, 551 F.3d 461, 466 (6th Cir.2009). However, "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a *1075 cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, ___ U.S. ___, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009).
2. Summary Judgment Pursuant to Fed.R.Civ.P. 56(a)
Summary judgment is warranted "if the movant shows 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). The moving party has the initial burden demonstrate an absence of evidence to support the non-moving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). If the moving party carries this burden, the burden shifts to the party opposing the motion to cite to "particular parts of materials in the record" demonstrating that a fact "is genuinely disputed." See Fed.R.Civ.P. 56(c). Viewing the evidence in the light most favorable to the non-moving party, summary judgment may be granted only if the evidence is so one-sided that a reasonable fact-finder could not find for the non-moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-50, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986); Street v. J.C. Bradford & Co., 886 F.2d 1472, 1478-80 (6th Cir.1989).
B. The Court Denies Defendants' Motion to Dismiss or for Summary Judgment
Plaintiffs' Complaint asserts that "Defendants offer for sale and sell hair care products, including brushes and combs, bearing the trademark SALON SELECTIVES, which is identical to the incontestable federally registered trademark of Plaintiffs for Plaintiff's [sic] internationally famous hair care products." (Compl. ¶ 2.) Accompanying this allegation is a picture of a hairbrush, which Plaintiffs apparently include as an example of one infringing product produced or sold by Defendants. (Id.) The label on the hairbrush states:
© 2008 Salon Selectives
Salon Selectives is a registered trademark of Selective Beauty Brands LLC licensed for use by Almar Sales Co., Inc.
(Id.) Defendants argue that because this image includes a statement that SBB licensed the SALON SELECTIVES marks to Almar, Plaintiffs were required to plead the absence or invalidity of the referenced license. Because Plaintiffs have not so pled, Defendants conclude that dismissal under Rule 12(b)(6) is justified. The Court disagrees.
Defendants are correct that if their use of the SALON SELECTIVES marks is within the scope of a valid, enforceable license, they have an affirmative defense to a claim of trademark infringement. Burkitt v. Flawless Records, Inc., No. 03-2483, 2005 WL 6225822, at *12 (E.D.La. June 13, 2005) ("It is clearly established that a licensee has an affirmative defense to a claim of trademark infringement."); cf. Worldwide Church of God v. Philadelphia Church of God, Inc., 227 F.3d 1110, 1114 (9th Cir.2000) ("The existence of a license creates an affirmative defense to a claim of copyright infringement."). However, at least as a general matter, a plaintiff is not required to plead the absence or invalidity of a licenserather it is a defendant's burden to assert a license as an affirmative defense. See Fed.R.Civ.P. 8(c)(1) ("In responding to a pleading, a party must affirmatively state any avoidance or affirmative defense, including ... [a] license.").
Defendants suggest that Plaintiffs shifted the normal burden, by including the image in their allegations. To so conclude, however, requires the Court to draw inferences in favor of Defendants and against Plaintiffsexactly the opposite of what a Court is to do on a Rule 12(b)(6) motion. In particular, Defendants assert that by *1076 including the hairbrush image, "the Complaint acknowledges Almar's claim of a license." (Defs.' Mot. Dismiss at 5.) Drawing all reasonable inferences in favor of Plaintiffs, however, the purpose for including the image was merely to demonstrate that Defendants currently sell products bearing the SALON SELECTIVES marks. Thus, reading the Complaint in the light most favorable to Plaintiffs, their "statement" was neither a concession nor "acknowledg[ment]" of the validity or existence of a license.
Even assuming that Defendants are correct about Plaintiffs' pleading burden, the Court would not dismiss Plaintiffs' Complaint but instead would grant them leave to amend. As discussed in connection with Plaintiffs' Motion for Preliminary Injunction, there are evidentiary and analytical gaps regarding Defendants' license theory. In particular, (1) Defendants apparently did not own the marks when SBB allegedly granted Almar an oral license, (2) River West may not have had authority to grant a sub-license to SBB under the Unilever-River West license (which has not been produced), (3) any sub-license granted to SBB may not have survived the merger of interests when SBB was assigned the marks outright, and (4) River West, SBB or both, may not have an interest equivalent or greater than that granted to Almar under the purported license (a five-year, irrevocable license). Thus, granting Plaintiffs leave to plead the non-existence or invalidity of a SBB-Almar license would not be futile.
Because of these unaddressed issues, the Court denies Defendants' Motion for Summary Judgment. Summary judgment is also premature at this stage of the litigation. Defendants filed their motion less than a month after Plaintiffs filed their Complaint. Defendants' license defense relies on facts not readily available to Plaintiffs, for example, a copy of the Unilever-River West license. Further, Plaintiffs should have an opportunity to depose or serve interrogatories upon Ashkenazie, whose declaration is Defendants' primary evidence supporting their oral license theory. Moreover, given the parties' doubt as to whether this Court would abstain, Plaintiffs may have not believed it prudent to advance in discovery. See Tucker v. Union of Needletrades, Industrial and Textile Employees, 407 F.3d 784, 788 (6th Cir.2005) (noting that in contrast to a motion to dismiss, "a motion for summary judgment may not be granted until a plaintiff has had an opportunity for discovery."); Wells v. Corporate Accounts Receivable, 683 F. Supp. 2d 600, 602 (W.D.Mich.2010) (noting that "a motion for summary judgment filed before the close of discovery is often denied as premature in this circuit, either on the opposing party's Rule 56(f) affidavit and request or on the court's own initiative without an explicit request from the opposing party."); Jeffrey W. Stempel & Steven S. Gensler, 11 Moore's Federal Practice § 56.60 (3d ed. 2010) ("The better course for a court faced with a pre-discovery summary judgment motion will often be to deny the motion without prejudice or to defer consideration until some discovery has occurred.").
V. CONCLUSION
The Court:
(1) DENIES Defendants' Motion to Stay;
(2) DENIES Plaintiffs' Motion for Preliminary Injunction WITHOUT PREJUDICE; and
(3) DENIES Defendants' Motion to Dismiss and DENIES Defendants' Motion for Summary Judgment WITHOUT PREJUDICE.
NOTES
[1] Strauss' email was sent to Mark Thumann, CEO of River West, Jack Ashkenazie of Almar, and an "fhorowitz" at A.P. Deauville. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2468626/ | 765 F. Supp. 2d 53 (2011)
Michael FERRARO, Plaintiff,
v.
UNUM LIFE INSURANCE COMPANY, OF AMERICA, et al., Defendants.
No. 2:10-CV-384-GZS.
United States District Court, D. Maine.
February 23, 2011.
*54 Jon Holder, Holder & Grover, Bar Harbor, ME, for Plaintiff.
Avery T. Day, Pierce, Katharine I. Rand, Atwood LLP, Augusta, ME, Geraldine G. Sanchez, Pierce Atwood LLP., Portland, ME, for Defendants.
*55 ORDER ON MOTION TO REMAND
GEORGE Z. SINGAL, District Judge.
Before the Court is Plaintiff's Motion to Remand (Docket # 16) and Defendants' Motion for Summary Judgment (Docket # 20). The Court held oral argument on both motions on February 8, 2011. In accordance with the Court's earlier endorsement order, the Court must first determine whether there is a basis for federal jurisdiction over this case. As explained herein, the Court concludes that it does have jurisdiction and, therefore, DENIES the Motion to Remand and RESERVES RULING on the Motion for Summary Judgment.
I. STANDARD OF REVIEW
Generally, a defendant may remove a state court action to federal court if there is a basis for federal jurisdiction. 28 U.S.C. § 1441(a). When such a removal is contested, the removing defendant "has the burden of establishing that the court has subject matter jurisdiction over the case." Amoche v. Guarantee Trust Life Ins. Co., 556 F.3d 41, 48 (1st Cir.2009) (citing In re New Motor Vehicles Canadian Exp. Antitrust Litig., 522 F.3d 6, 14 (1st Cir.2008)). When federal question jurisdiction is invoked, as it is here, the well-pleaded complaint rule generally requires that federal question jurisdiction "must be determined from what necessarily appears in the plaintiff's statement of his own claim in the bill or declaration, unaided by anything alleged in anticipation of avoidance of defenses which it is thought the defendant may interpose." Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 10, 103 S. Ct. 2841, 77 L. Ed. 2d 420 (1983). However, "certain state claims are subject to removal, even if they purport to rest only on state law, because the subject matter is powerfully preempted by federal law, which offers some `substitute' cause of action." Negron-Fuentes v. UPS Supply Chain Solutions, 532 F.3d 1, 6 (1st Cir. 2008) (citations omitted); see also Warner v. Atkinson Freight Lines Corp., 350 F. Supp. 2d 108, 115 (D.Me.2004) ("Complete preemption propels a significant exception to the well-pleaded complaint rule the artful pleading doctrine.") (internal quotations omitted). As relevant to the pending matter, the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001-1461, is one federal statute that can completely preempt state law causes of action and provide a substitute cause of action. See Aetna Health Inc. v. Davila, 542 U.S. 200, 209, 124 S. Ct. 2488, 159 L. Ed. 2d 312 (2004); Negron-Fuentes, 532 F.3d at 6-7 (both discussing the broad reach of ERISA preemption).
In this case, the parties agree that the applicability of ERISA preemption turns on whether the long term disability insurance purchased by Plaintiff qualifies as an employee welfare benefit plan. The parties likewise agree that the answer to this question should be answered by first examining the Department of Labor's "safe harbor" regulation, which, in relevant part, provides:
[T]he terms "employee welfare benefit plan" and "welfare plan" shall not include a group or group-type insurance program offered by an insurer to employees or members of an employee organization, under which
(1) No contributions are made by an employer or employee organization;
(2) Participation in the program is completely voluntary for employees or members;
(3) The sole functions of the employer or employee organization with respect to the program are, without endorsing the program, to permit the insurer to publicize the program to employees or members, *56 to collect premiums through payroll deductions or dues checkoffs and to remit them to the insurer; and
(4) The employer or employee organization receives no consideration in the form of cash or otherwise in connection with the program, other than reasonable compensation, excluding any profit, for administrative services actually rendered in connection with payroll deductions or dues checkoffs.
29 C.F.R. § 2510.3-1(j) (hereinafter, the "safe harbor regulation"). As the First Circuit has explained, a plan that meets all four prongs of the safe harbor regulation "will be deemed not to have been `established or maintained' by the employer" for purposes of ERISA. Johnson v. Watts Regulator Co., 63 F.3d 1129, 1133 (1st Cir.1995).
II. FACTUAL BACKGROUND
In connection with the pending motions, the parties conducted limited discovery. Recognizing Defendants' burden to establish a basis for federal jurisdiction, the Court finds the following facts to be established in connection with the Motion to Remand:[1]
Since August 1, 2003, Defendant Unum Life Insurance Company and Unum Group (together, "Unum") have offered long term and short term disability coverage to employees of Berlin City Car Center, Inc. ("Berlin City" or "Summit")[2] under Group Policy No. 579169 (hereinafter "Policy"). (See Policy 579169 001, dated 7/1/2005 (PageID # 282-339) & Policy 579169 002, dated 7/1/2008 (PageID #353-409).)[3] The cover page on this Policy states, in relevant part: "This policy is delivered in and is governed by the laws of the governing jurisdiction and to the extent applicable by the Employee Retirement Income Security Act of 1974 (ERISA) and any amendments." (PageID # 353.) A later section of the Policy, titled "ERISA," includes a summary with multiple references to Summit. The Policy also includes a section titled, "Your Rights Under ERISA." (PageID # 404-05.) Andrew Bradford, Summit's Chief Financial Officer, was the named plan administrator and Summit had the right to amend, modify or terminate the Policy or request a policy change. (See, e.g., PageID # 260, 400-01, 927, 928, 931; Allen Dep. (Docket # 38-1) at 31 & 41.)
As the Policy makes clear, the insurance coverage was available to all Summit employees but was completely voluntary. A Summit employee who purchased long term disability coverage under this plan paid for the entire cost of coverage. To date, 254 of 884 Summit employees have purchased long term disability coverage under the Policy.
Summit's day-to-day role with respect to Policy 579169 is limited to remitting premiums withheld from the paychecks of employees and providing claim forms that can *57 be distributed to employees. Additionally, Summit's payroll administrators can answer basic questions regarding benefits, assist employees with claim forms, and input basic coverage changes for Summit employees directly into the Benefit Harbor billing system. (Allen Dep. at 36-37; Summit Responses to Written Questions (Docket #38-4) at 5.) Summit maintains two additional policies with Unum. One of those policies, Policy 121922, provides short-term disability insurance for Summit employees with more than five years of service. Summit pays the premiums for employees under this policy.
All of the insurance policies offered to Summit employees are arranged by Paul Allen of the Buckley Group, who has acted as the insurance broker for Berlin City/Summit since 2001. The Buckley Group is an independent insurance broker that works on behalf of clients, like Summit and Berlin City, to find insurance products from various carriers. While the Buckley Group recommends various insurance policies and carriers to its clients, each client ultimately decides what insurance products are offered to its employees. (Allen Dep. at 35.) To the extent the client chooses to offer a group policy, the rates and terms offered to employees under those group policies are more favorable than the rates and terms for similar types of individual coverage. (Allen Dep. at 26, 47-48.)
As Summit's insurance broker, Allen conducts annual employee meetings at various dealerships. During these meetings, Allen answers questions about the various insurance policies available and encourages employees to enroll in those policies. (Allen Dep. at 21-22.) The Buckley Group also coordinates most of ministerial functions related to all of Summit's insurance policies, including communicating with carriers, such as Unum, on Summit's behalf. On occasion, the Buckley Group has acted on behalf of Summit to request changes to the Unum policies. (See, e.g., Allen Dep. at 29-33.) Besides the Buckley Group, the Farmington Company and Benefit Harbor are involved in handling enrollments under Summit's various Unum policies. (Allen Dep. at 14.) Together, these entities have created a "paperless system" for handling enrollments and billing under the Unum policies available to Summit employees. (Allen Dep. at 17, 22-23.) Farmington Company is paid on commission by Unum on two of individual policies (whole life insurance and accident insurance) offered to Summit employees. (Allen Dep. at 18-19.) Benefit Harbor is paid by the Buckley Group. (Allen Dep. at 23.)
Plaintiff Michael Ferraro worked as a manager at Berlin City from September 2006 until April 8, 2009, at which time he was terminated due to an illness that prevented him from performing his job. Ferraro purchased long term disability coverage under the Policy in 2006. At the time Ferraro purchased long term disability coverage, he recalls that outside representatives came in and met one-on-one with him and filled out the application necessary for the long term disability coverage. Thus, Ferraro likely met with Allen and a Farmington Company representative in the course of purchasing long term disability coverage under the Policy.
The current record reflects that most Summit employees received two documents from Summit that discussed the various long term and short terms disability insurance policies. First, employees, including Ferraro, received the Summit Automotive Partners Personnel Policies and Procedures Handbook (Docket #22-1) (hereinafter, "Handbook"). In the Associate Benefits section of the Handbook, there is a section listing all of the benefit plans offered, including "Long-term Disability *58 Insurance / Short-term Disability Insurance" (PageID #228.) The Handbook goes on to explain: "Your Human Resources Representative will provide you with additional details concerning the benefit programs offered by your SUMMIT AUTOMOTIVE PARTNERS dealership and will be available to answer any questions you may have." (PageID #229.)
Second, employees generally received a booklet describing various types of insurance employees could elect to purchase. The 2008 version of this booklet was compiled by Unum, then approved by Summit or the Buckley Group acting as Summit's broker, and then distributed by Summit to its employees (hereinafter, the "Booklet"). The cover of the Booklet contains logos for both Unum and Berlin City Auto Group. The Booklet explains on its opening page: "Benefits are a valuable part of your compensation package. . . . That's why Berlin City Auto Group has made these valuable insurance products from Unum available for you and your family. The voluntary benefits described in this booklet can build on the benefits already provided by Berlin City Auto Group, giving you additional protection that you and your family may need." (PageID # 443.) The benefit overview in the Booklet lists short term disability insurance, long term disability insurance, various types of life insurance and accident insurance. It notes that group short term disability insurance is "100% employer paid" for full-time employees with "five or more years of service" and describes all of the other available insurance options as "100% employee paid." (PageID # 444.) In multiple places, the Booklet notes that applications for benefits will be handled via "one-on-one" meetings with Farmington Company benefit representatives. (PageID # 443 & 457.) Notably, a small print disclosure on the last page of the booklet refers the reader to other forms for complete details of coverage. (PageID # 457.) The Booklet contains no explicit references to ERISA.
The election form completed by employees who enrolled in any of the Unum plans indicated "BERLIN CITY OF PORTLAND" across the top and explicitly noted that the form should be "returned to the employer at the end of the enrollment period." (PageID # 901.)
III. DISCUSSION
Plaintiff Michael Ferraro initially filed his Complaint (Docket # 2-2) against Defendants in state court claiming breach of contract (Count I), tortious interference with contractual relationships (Count II), unfair claims settlement practices (Count III), intentional infliction of emotional distress (Count IV) and intentional interference with contract and economic expectation (Count V). The Unum Defendants removed the action claiming that all of these state claims are preempted by ERISA.[4] Plaintiff seeks remand arguing that his state law claims are not preempted because the Policy at issue falls within the safe harbor regulation.
With respect to whether the Policy at issue falls within the safe harbor regulation, two of the four factors are not in dispute; namely, participation in the Policy is completely voluntary and the employer receives no consideration. The Court is left to determine: whether Ferraro's employer made any contributions to the plan; as well as, what functions the employer performed and whether those functions rise to the level of employer endorsement *59 of the plan. See 29 C.F.R. § 2510.3-1(j)(1) & (3). The Court first considers the issue of employer functions and employer endorsement.
A. Employer Functions and Employer Endorsement
As the First Circuit explained in Johnson, "as long as the employer merely advises employees of the availability of group insurance, accepts payroll deductions, passes them on to the insurer, and performs other ministerial tasks that assist the insurer in publicizing the program, it will not be deemed to have endorsed the program under section 2510.3-1(j)(3)." Johnson, 63 F.3d at 1134. Ultimately, the First Circuit held that employer endorsement occurs "if, in light of all the surrounding facts and circumstances, an objectively reasonable employee would conclude on the basis of the employer's actions that the employer had not merely facilitated the program's availability but had exercised control over it or made it appear to be part and parcel of the company's own benefit package." Id. at 1135.
In this case, there is no doubt that Summit acted as the plan administrator and exercised control over Policy 579169 as well as the entire benefit package offered to Summit employees. Nonetheless, Plaintiff urges the Court to find that an objectively reasonable employee would not have reached this conclusion based on the materials distributed and the manner in which enrollments were handled. In the Court's assessment, an objectively reasonable Summit employee would view the long term disability coverage as part of the Summit benefit package. This conclusion flows from an objective review of the Handbook and the Booklet, which an employee would have received from Summit. A reasonable employee who reviewed these documents and had minimal interactions with Summit's payroll administrators would not view the long term disability coverage as distinct and separate from the other Summit benefits. Moreover, an objectively reasonable employee who took the time to request and review Policy 579169 would undoubtedly understand that: (1) Summit was the plan administrator thereby exercising ultimate control over the plan and (2) Policy 579169 is governed by ERISA. In short, an employee conducting reasonable due diligence could easily conclude that Summit was doing more than simply facilitating Unum's offer of long term disability coverage.
The fact that annual meetings were conducted by the Buckley Group (acting on behalf of Summit) and enrollments were handled by the Farmington Company (acting on behalf of Unum) simply does not change this conclusion. Ferraro indicated that he perceived the Buckley Group and the Farmington Company as "insurance representatives" when they came to the dealership, which is partially true. (Ferraro Decl. (Docket # 16-1) at 1-2.) However, at least with respect to the Buckley Group, this outside insurance representative was, in fact, acting as Summit's agent. Thus, an objectively reasonable employee could just as easily have seen the actions of Allen and the Buckley Group as actions done on behalf of the employer. In any event, the Court need not resolve whether an objectively reasonable employee viewed the Buckley Group as acting on behalf of Summit or Unum. For, based on the written materials received from Summit, the role of Summit's payroll administrators as well as the plain language of the Policy, which any employee could have requested, the Court concludes that an objectively reasonable Summit employee would believe Summit exercised control over the long term disability policy or made it appear *60 to be part and parcel of the company's own benefit package.
It is worth noting that this Court would be hard pressed to conclude that an employee who chose to bring an ERISA claim based on Policy 579169 was not entitled to do so. The language of the Policy clearly invokes ERISA and ties the policy to the employer. This fact further bolsters the Court's finding that the plan at issue in the case falls outside the safe harbor regulation. Alternatively, Policy 579169 would be susceptible to incompatible findings, e.g., an ERISA "employee welfare benefit plan" for one plaintiff wishing to bring an ERISA claim but outside of ERISA's coverage as to another plaintiff with an artfully pled state law complaint. See generally Helfman v. GE Group Life Assur. Co., 573 F.3d 383, 390 (6th Cir.2009) (holding that "a single plan may not be variously governed by both ERISA and state law, depending on the particular employee in question").
B. Contributions Made by the Employer
Unum also urges the Court to find that Summit as employer contributed to the plan at issue in this case on two bases: (1) by securing a more favorable group rate and (2) by its contribution to the short term disability coverage for employees with five or more years of service.[5] As to the group rate argument, Plaintiff counters that allowing every plan that simply secures a group rate (as compared to an individual rate) to be deemed an employer contribution would "nullify the safe harbor regulation." (Pl. Reply (Docket # 31) at 9.) The Court agrees and, on the record presented, declines to find that simply securing a group rate amounts to an employer contribution that takes a plan outside the safe harbor regulation.
Turning to the second basis, the Court is left to consider whether the short term disability coverage for employees with five or more years of service, which is actually offered under a different Unum policy, i.e., Policy 121922, is part of the same plan. The parties agree that the employer made contributions to Policy 121922. Thus, Defendants argue the Court should adopt a broad view of the "employee welfare benefit plan," under which the coverage under Policy 121922 and 579168 are deemed part of the same bundled plan or program. Ultimately, whether such a broad view is contemplated or required in the context of the employer contribution prong of the safe harbor regulation is a question that this Court need not answer in the context of the pending motion. Instead, having found that the actions of Summit exceed the functions allowed under the employer endorsement prong of the safe harbor regulation, 29 C.F.R. § 2510.3-1(j)(3), the Court leaves unanswered the more difficult, albeit interesting, question of whether an employer contribution to a separate short term disability plan available only to a defined subset of employees ought to be considered an employer contribution for each and every policy offered to the entire group.
In short, the Court holds that the Policy 579169 is an employee welfare plan that falls outside the safe harbor regulation; as such, there is federal jurisdiction over this case and it was properly removed by Defendants. As discussed at oral argument, *61 the Court believes the most efficient course is to provide Plaintiff an opportunity to amend his Complaint in light of this holding.
IV. CONCLUSION
Therefore, the Court hereby DENIES Plaintiff's Motion to Remand (Docket # 16). Based on the representations of the parties at oral argument, the Court will RESERVE RULING on Defendants' Motion for Summary Judgment (Docket # 20) and allow Plaintiff thirty days to amend his Complaint in light of the Court's ruling on the Motion to Remand.
SO ORDERED.
NOTES
[1] Given the early stage of these proceedings and the limited discovery conducted, the Court's findings are not intended to bind the parties in connection with any later proceedings that may be conducted after the factual record is more fully developed.
[2] In 2007, Berlin City was purchased by Summit Automotive, LLC ("Summit"). In the context of the pending motion, this change in ownership has no impact on the jurisdictional issue. However, the record contains some post-2007 employer references to Summit rather than Berlin City.
[3] Defendants have provided the bulk of the record to the Court in a single 695-page "Exhibit A," which is described as "the sales file for Group Policy 579169" as it is kept "in the regular course of business" (Leo Aff. (Docket # 23) ¶ 7.) To the extent the Court has located various relevant exhibits in the sales file, it refers to them by the "PageID" number created upon filing the document in CM/ECF.
[4] A third Defendant, Professional Disability Associated, LLC ("PDA") has joined Unum's Opposition to the Motion to Remand and similarly argues that Plaintiff's claims against them are preempted by ERISA. (See PDA Opp'n to Mot. to Remand (Docket # 27).)
[5] To the extent that the Unum Defendants initially argued that the Court could also find a constructive contribution based on the factual assertion that Summit, as the employer, withheld premiums on a pre-tax basis, the Court considers this argument to be formally withdrawn in light of the more fully developed record. (See Defs. Mot. for Summ. J. (Docket # 20) at 12; Second Leo Decl. (Docket # 47) ¶3.) | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2468480/ | 764 F. Supp. 2d 166 (2011)
UNITED STATES of America,
v.
Walter MARTINEZ, Defendant.
Criminal No. 09-58-1 (RCL).
United States District Court, District of Columbia.
February 15, 2011.
*168 Gilberto Guerrero, Jr., William John O'Malley, Jr., U.S. Attorney's Office, Washington, DC, for United States of America.
Joanne Roney Hepworth, Hepworth & Pendry, Washington, DC, for Defendant.
MEMORANDUM OPINION
ROYCE C. LAMBERTH, Chief Judge.
A federal grand jury indicted defendant Walter Martinez for conspiracy to distribute and possess with intent to distribute fifty grams or more of cocaine base and five kilograms or more of cocaine, in violation of 21 U.S.C. § 846.
Before the Court are the following motions: defendant's Motion to Disclose Identities of Each Confidential Informant Regardless of Whether They Will Be Called at Trial, June 29, 2010, ECF No. 89; defendant's Motion to Dismiss the Indictment for Failure to Provide Notice and Appropriately Charge the Alleged Offense, Oct. 1, 2010, ECF No. 98; defendant's Motion to Dismiss the Indictment for Improper Venue, Oct. 1, 2010, ECF No. 99; and defendant's Motion for a Bill of Particulars, Oct. 1, 2010, ECF No. 100. Upon consideration of the government's omnibus opposition thereto, Dec. 13, 2010, ECF No. 109, defendant's omnibus reply brief, Dec. 20, 2010, ECF No. 111, applicable law, and the entire record in this case, the Court will deny the motions. The Court will discuss them in turn.
I. THE COURT WILL DENY WITHOUT PREJUDICE DEFENDANT'S MOTION TO DISCLOSE IDENTITIES OF EACH CONFIDENTIAL INFORMANT REGARDLESS OF WHETHER THEY WILL BE CALLED AT TRIAL [89].
A. Legal Standard
The "informer's privilege" is "the Government's privilege to withhold from disclosure the identity of persons who furnish information of violations of law to officers charged with enforcement of that law." Roviaro v. United States, 353 U.S. 53, 59, 77 S. Ct. 623, 1 L. Ed. 2d 639 (1957). This privilege must give way when disclosure of an informant's identity would be "relevant and helpful to the defense of an accused," or "essential to a fair determination of a cause." Id. at 60-61, 77 S. Ct. 623.
There is "no fixed rule with respect to disclosure"; rather, the Court must "balance[e] the public interest in protecting the flow of information against the individual's right to prepare his defense. Whether a proper balance renders nondisclosure erroneous must depend on the particular circumstances of each case, taking into consideration the crime charged, the possible defenses, the possible significance of the informer's testimony, and other relevant factors." Id. at 62, 77 S. Ct. 623. Roviaro only requires disclosure of an informant who was "an actual participant in or a witness to the offense charged." United States v. Warren, 42 F.3d 647, 654 (D.C.Cir.1994) (citations and quotations omitted). "[D]efendants face a heavy burden to establish that the identity of an informant is necessary to the defense. *169 Speculation as to the information the informant may provide is insufficient." Id. (citations and quotations omitted).
Under Brady, a defendant only has a right to receive from the government exculpatory information, not inculpatory information. "There is no general constitutional right to discovery in a criminal case." United States v. Celis, 608 F.3d 818, 831 (D.C.Cir.2010) (quoting Weatherford v. Bursey, 429 U.S. 545, 559, 97 S. Ct. 837, 51 L. Ed. 2d 30 (1977)). Defendants have no right to a witness list in advance of trial. Id.
B. Analysis
First, neither defendant nor the government claims that disclosure of the confidential informants' names would be exculpatory information. The government assures the Court that it will continue to comply with its disclosure obligations under Brady, Giglio, and the Jencks Act. Gov't Opp'n 21, ECF No. 109.
Second, the Court must "balance[e] the public interest in protecting the flow of information against [defendant's] right to prepare his defense." Roviaro, 353 U.S. at 59, 77 S. Ct. 623. As to the public interest, the government states that disclosure of the confidential informants' names "would expose the informants to danger in the violent drug community," so their names are "being withheld for their safety." Gov't Opp'n 20, ECF No. 109. Safety of witnesses is, of course, an important public interest. As to defendant's right and ability to prepare his defense, defendant cites to the importance of these informants in the government's case, particularly in the context of the alleged controlled buys. Def.'s Reply 7-8, ECF No. 111. In all likelihood, these informants are "actual participant[s]" in the charged crimes, Warren, 42 F.3d at 654, and their knowledge about the charged crimes would be "relevant and helpful" to the defense, Roviaro, 353 U.S. at 60-61, 77 S. Ct. 623. Thus, at some point, the government will have to disclose their identities to the defense. But not yet. Under Roviaro, the defense must only have the opportunity to obtain their testimony in some manner during the trial. In that case, the informant did not testify at trial, and he was not available to the defense. In deciding that the government's refusal to disclose the informant's identity violated defendant's rights, the Supreme Court relied on the fact that defendant was neither able to cross-examine the informant nor call the informant as a witness. Here, that problem does not exist, because the informants will either testify at trial as part of the government's case-in-chief, or defendant will have an opportunity to call them in his own case as witnesses. The government assures the Court that "if any participating informant does not testify at trial, the government will make that informant available to the defendant at his request." Gov't Opp'n 20, ECF No. 109. This is sufficient under Roviaro. As a final matter, the government and defendant both acknowledge that defendant likely already knows the identities of most of the confidential informants.
Accordingly, because defendant does not at this stage have a right to know the identities of non-exculpatory confidential informants who may or may not testify against him at trial, the Court will deny this motion without prejudice.
II. THE COURT WILL DENY DEFENDANT'S MOTION TO DISMISS THE INDICTMENT FOR FAILURE TO PROVIDE NOTICE AND APPROPRIATELY CHARGE THE ALLEGED OFFENSE [98].
Defendant seeks to dismiss the indictment, because it fails to "allege with particularity *170 the elements of the charged offense or provide necessary facts," and because it fails to "comply with the notice and grand jury protections afforded to him under the Constitution." Def.'s Mot. 1, ECF No. 98.
A. Legal Standard
"The indictment or information must be a plain, concise, and definite written statement of the essential facts constituting the offense charged." Fed.R.Crim.P. 7(c)(1). "A valid indictment must: (1) allege the essential facts constituting the offense, (2) allege each element of the offense, so that fair notice is provided, and (3) be sufficiently distinctive that a verdict will bar a second prosecution for the same offense." United States v. Sunia, 643 F. Supp. 2d 51, 77 (D.D.C.2009) (quoting United States v. Bolden, 325 F.3d 471, 490 (4th Cir.2003)); see also Russell v. United States, 369 U.S. 749, 763-64, 82 S. Ct. 1038, 8 L. Ed. 2d 240 (1962).
B. Analysis
The indictment charges one count of conspiracy under 21 U.S.C. § 846. Indictment, Mar. 3, 2009, ECF No. 3. Specifically, it charges that "from on or about November 1, 2005 . . . and continuing thereafter up to and including at least March 3, 2009, in the District of Columbia, the state of Maryland, the State of Texas, and elsewhere," defendant and seven co-defendants "did unlawfully, knowingly and intentionally combine, conspire, confederate and agree together and with others known and unknown to the Grand Jury, to unlawfully, knowingly and intentionally distribute and possess with intent to distribute" 50 grams or more of crack cocaine and 5 kilograms or more of powder cocaine, in violation of 21 U.S.C §§ 841(a)(1), 841(b)(1)(A)(ii), and 841(b)(1)(A)(iii). Id.
First, the Court finds that the indictment alleges the essential facts constituting the offense. The indictment must "apprise the defendant with reasonable certainty of the nature of the accusation against him." Russell, 369 U.S. at 765, 82 S. Ct. 1038. The statutory language "must be accompanied with such a statement of the facts and circumstances as will inform the accused of the specific offense, coming under the general description, with which he is charged." Hamling v. United States, 418 U.S. 87, 117-18, 94 S. Ct. 2887, 41 L. Ed. 2d 590 (1974). "[A]n indictment under 21 U.S.C. § 846 is sufficient if it alleges a conspiracy to distribute drugs, the time during which the conspiracy was operative and the statute allegedly violated, even if it fails to allege any specific overt act in furtherance of the conspiracy." United States v. Sweeney, 688 F.2d 1131, 1140 (7th Cir.1982); United States v. Ramirez, 54 F. Supp. 2d 25, 30 (D.D.C.1999). "A count may allege that the means by which the defendant committed the offense are unknown or that the defendant committed it by one or more specified means." Fed.R.Crim.P. 7(c)(1). Here, the indictment sets forth the statute allegedly violated, all of the elements of that statute (as discussed blow), the time period during which the conspiracy took place, the location of the conspiracy, the names of the co-conspirators, and the types and quantities of drugs involved in the conspiracy. This is sufficient to apprise defendant "with reasonable certainty" of the charges against him. Further, because the indictment is sufficient, and because the government has provided defendant with ample discovery in this case, Gov't Opp'n 7 n. 5, ECF No. 109, the Court finds that defendant is not "prejudiced . . . in the preparation of his defense." United States v. McBride, 498 F.2d 683, 686 (D.C.Cir.1974).
Second, the Court finds that the indictment charges all of the required elements. *171 "It is accepted law that an indictment must contain the elements of the offense intended to be charged." United States v. Pickett, 353 F.3d 62, 66 (D.C.Cir.2004) (citations omitted). An indictment may track the language of the statute, so long as it includes every element of the offense. Id. at 67. 21 U.S.C. § 846 provides: "Any person who attempts or conspires to commit any offense defined in this subchapter shall be subject to the same penalties as those prescribed for the offense, the commission of which was the object of the attempt or conspiracy." This narcotics conspiracy statute requires proof of the following elements: (1) "an agreement to commit any offense(s) defined in the subchapter," United States v. Baugham, 449 F.3d 167, 171 (D.C.Cir.2006); United States v. Shabani, 513 U.S. 10, 115 S. Ct. 382, 130 L. Ed. 2d 225 (1994), and (2) "specific intent to further the common unlawful objective of the conspiracy," United States v. McCoy, 215 F.3d 102, 107 (D.C.Cir. 2000). Section 846 "dispenses with the usual requirement of an overt act." Baugham, 449 F.3d at 171; Shabani, 513 U.S. 10, 115 S. Ct. 382. The Court finds that the indictment charges both required elements, because it charges: (1) that defendant agreed with co-defendants to commit 21 U.S.C §§ 841(a)(1), 841(b)(1)(A)(ii), and 841(b)(1)(A)(iii), and (2) that defendant "knowingly and intentionally" agreed to violate these laws. As defendant acknowledges, the indictment does not charge an overt act in furtherance of the conspiracy, but it is not required to do so.
Third, the Court finds that the indictment is sufficiently distinctive that a verdict would bar a second prosecution for the same offense. As discussed, the indictment sets forth the essential facts of the offenseincluding most importantly the dates of the conspiracy and the object of the conspiracyas well as the elements of the offense. This is enough to prevent future prosecutions for the same offense.
Accordingly, because the Court finds that the indictment is sufficient, the Court will deny this motion.
III. THE COURT WILL DENY DEFENDANT'S MOTION TO DISMISS THE INDICTMENT FOR IMPROPER VENUE [99].
Defendant argues that "the few known events involving the District of Columbia did not involve Mr. Martinez, are not alleged to further a conspiracy involving Mr. Martinez, or otherwise fail to confer venue here for the lone conspiracy charge." Def.'s Mot. 2, ECF No. 99.
A. Legal Standard
The Constitution addresses venue twice. First, it provides: "The trial of all Crimes, except in Cases of Impeachment, shall be by Jury; and such Trial shall be held in the State where the said Crimes shall have been committed; but when not committed within any State the Trial shall be at such Place or Places as the Congress may by Law have directed." U.S. Const. art. III, § 2. It further provides: "In all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the State and district where the crime shall have been committed. . . ." U.S. Const. amend. VI. The Federal Rules of Criminal Procedure implement these constitutional provisions, providing: "Unless a statute or these rules permit otherwise, the government must prosecute an offense in a district where the offense was committed." Fed. R.Crim.P. 18.
"[A]ny offense against the United States begun in one district and completed in another, or committed in more than one district, may be inquired of and prosecuted in any district in which such *172 offense was begun, continued, or completed." 18 U.S.C. § 3237(a). "Venue may be proper in more than one district." United States v. Lam Kwong-Wah, 924 F.2d 298, 301 (D.C.Cir.1991). "[V]enue is proper in any district in which an overt act in furtherance of the conspiracy was committed, even where an overt act is not a required element of the conspiracy offense." Whitfield v. United States, 543 U.S. 209, 218, 125 S. Ct. 687, 160 L. Ed. 2d 611 (2005). "The government bears the burden of establishing by a preponderance of the evidence that venue is proper with respect to each count charged against the defendant." Lam Kwong-Wah, 924 F.2d at 301. Thus, if the Court finds that the government has shown by a preponderance of the evidence that either a part of the conspiracy or any overt act in furtherance of the conspiracy took place in the District of Columbia, then venue will be proper in the District.
B. Analysis
In support of its venue argument, the government cites to two overt acts in furtherance of the conspiracy that took place in the District of Columbia. First, as the government discusses in its opposition, in a related case before this Court, defendant pled guilty to possession with intent to distribute a mixture and substance containing a detectable amount of cocaine, in violation of 21 U.S.C. §§ 841(a)(1) and 841(b)(1)(C). Plea Agreement 1, United States v. Martinez, 05-cr-445-1 (D.D.C.), Aug. 10, 2006, ECF No. 63. Specifically, defendant admitted to attempting to sell three kilograms of cocaine in both Maryland and the District of Columbia on December 6, 2005. Proffer of Proof 3-5, United States v. Martinez, 05-cr-445-1 (D.D.C.), Aug. 10, 2006, ECF No. 64. Defendant admitted that his son/co-defendant, William Aguilar-Vargas, was a part of this planned drug transaction. Id. at 4. When defendant was arrested in the District of Columbia, officers found one kilogram of powder cocaine in the car that defendant was driving, and two kilograms of cocaine in the car that co-defendant Mr. Aguilar-Vargas was driving. Id. at 4-5. Notably, Mr. Aguilar-Vargas is a co-defendant in the conspiracy case now before the Court.
Second, the government proffers that on October 3, 2008, a confidential informant made a controlled purchase of narcotics from defendant and/or one of his conspirators in Washington, DC. Gov't Opp'n 6, ECF No. 109. On this occasion, the confidential informant purchased five ounces of powder cocaine for $5,000. Id.
The Court finds that the government has shown, by a preponderance of the evidence, that the first overt act took place in the District. The Court need not reach the second overt act. First, as a threshold matter, the Court finds that this first act was an overt act in furtherance of the charged conspiracy. The indictment charges that the conspiracy took place between November 1, 2005, and March 3, 2009. Indictment 1, ECF No. 3. December 6, 2005, falls during the time of the charged conspiracy. In the course of this overt act, defendant worked with his co-conspirator Mr. Aguilar-Vargas to possess with intent to distribute powder cocaine, and the goal of the conspiracy was to distribute and possess with intent to distribute powder and crack cocaine. This act, thus, was clearly in furtherance of the conspiracy. Second, the Court disagrees with defendant's assertion that "[t]he facts surrounding that act smack of manufactured venue." Def.'s Reply 5, ECF No. 111. The D.C. Circuit has not resolved what a claim of "manufactured venue" entails. See United States v. Spriggs, 102 F.3d 1245, 1250-51 (D.C.Cir.1996). The court suggests that it could mean "venue *173 entrapment," but then notes that "[i]t is a little hard to conceive of a person predisposed to commit a federal crimebut not in some specific district." Id. at 1250. The court then suggests that it could mean "a situation in which the conduct of law enforcement agents is so outrageous that due process principles would absolutely bar the Government from invoking judicial processes to obtain a conviction," which would likely entail trial in a distant district. Id. at 1251 (citations and quotations omitted). But then the court states: "obviously there is nothing distant about the District vis-à-vis its Maryland and Virginia suburbs." Id. Although the D.C. Circuit did not settle the law on what constitutes a "manufactured venue" claim, it affirmed the district court ruling that venue in the District is appropriate even when "agents `purposefully' arranged for defendants to pick-up cash in the District rather than at the suburban dealerships from which the cars were bought." Id. at 1250 (quoting language from defendant's argument). This fact pattern is nearly identical to the one now before the Court. Because the facts in Spriggs were sufficient to establish venue in the District, the Court finds that the facts in this case are sufficient to establish venue in the District. The Court notesas did the D.C. Circuitthe very close geographical proximity of the District and Marylanddefendant's preferred venue.
Accordingly, because the Court finds that venue is proper in the District, the Court will deny this motion.
IV. THE COURT WILL DENY DEFENDANT'S MOTION FOR A BILL OF PARTICULARS [100].
A. Legal Standard
"The court may direct the government to file a bill of particulars." Fed. R.Crim.P. 7(f). "A bill of particulars can be used to ensure that the charges brought against a defendant are stated with enough precision to allow the defendant to understand the charges, to prepare a defense, and perhaps also to be protected against retrial on the same charges." United States v. Mejia, 448 F.3d 436, 445 (D.C.Cir.2006) (quoting United States v. Butler, 822 F.2d 1191, 1193 (D.C.Cir. 1987)). "[I]f the indictment is sufficiently specific, or if the requested information is available in some other form, then a bill of particulars is not required." Butler, 822 F.2d at 1193. "A bill of particulars is not a discovery tool or a devise for allowing the government to preview the government's theories or evidence. It properly includes clarification of the indictment, not the government's proof of its case." Ramirez, 54 F.Supp.2d at 29.
B. Analysis
First, defendant argues that he is entitled to a bill of particulars disclosing the identities of his alleged co-conspirators. Def.'s Mot. 3-4, ECF No. 100. The Court discussed in detail above why defendant is not entitled to disclosure of the identities of confidential informants. In all likelihood, there is significant overlap between the identities of the confidential informants and the unknown co-conspirators. Accordingly, identical logic applies to why defendant is not entitled to know the identities of his co-conspirators at this time.
Second, defendant argues that he is entitled to a bill of particulars disclosing which co-conspirator engaged in which conspiratorial act alleged in Count One of the indictment. Def.'s Mot. 5-7. As the Court held above, the charges brought against defendant are "stated with enough precision to allow the defendant to understand the charges." Mejia, 448 F.3d at 445. The indictment alleges the essential facts, charges the required elements, and bars a second prosecution for the same *174 offense. It need not spell out which co-conspirator committed which conspiratorial act, and, as detailed above, need not allege any overt act in furtherance of the conspiracy. Furthermore, the Court finds that defendant has sufficient information to prepare his defense. The government has provided ample discovery to defendant. Of the 11,508 telephone activations between co-conspirators that agents intercepted and recorded in this case, "[t]he government has identified 146 calls that may be used at trial and provided a list of those calls to the defendant," along with draft transcriptions and translations of those calls. Gov't Opp'n 7, ECF No. 109. The government also summarized the factual background of this case at length in its opposition, which could indicate the facts that the government deems relevant to its prosecution. Id. at 2-14. Although the purpose of a bill of particulars is not to provide discovery to defendant, the fact that the government has provided this information to defendant shows that "the requested information is available in another form." Butler, 822 F.2d at 1193.
Accordingly, because the Court finds that a bill of particulars is not necessary for defendant to understand the charges and prepare a defense, the Court will deny this motion.
V. CONCLUSION
For the reasons stated, the Court will deny without prejudice defendant's Motion to Disclose Identities of Each Confidential Informant Regardless of Whether They Will Be Called at Trial [89], deny defendant's Motion to Dismiss the Indictment for Failure to Provide Notice and Appropriately Charge the Alleged Offense [98], deny defendant's Motion to Dismiss the Indictment for Improper Venue [99], and deny defendant's Motion for a Bill of Particulars [100].
A separate order consistent with this memorandum opinion shall issue this date. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2468509/ | 729 F. Supp. 2d 257 (2010)
Oscar SALAZAR, et al., Plaintiffs,
v.
DISTRICT OF COLUMBIA, et al., Defendants.
Civil Action No. 93-452 (GK).
United States District Court, District of Columbia.
August 5, 2010.
*258 April Isabel Land, University of New Mexico, Albuquerque, NM, Bruce J. Terris, Kathleen Lillian Millian, Terris, Pravlik & Millian, LLP, Paula D. Scott, Public Defender Service for the District of Columbia, Washington, DC, Lynn E. Cunningham, Dubois, WY, Robert I. Berlow, Crownsville, MD, for Plaintiffs.
Alan S. Block, Bonner, Kiernan, Treback & Crociata, Charles Luverne Reischel, Nancy S. Schultz, Arabella W. Teal, Marceline D. Alexander, Office of Corporation Counsel, Ellen A. Efros, Robert C. Utiger, Office of the Attorney General, Peggy Massey, Department of Human Services Office of General Counsel, Wanda Tucker, Department of Health, Washington, DC, for Defendants.
MEMORANDUM OPINION
GLADYS KESSLER, District Judge.
Plaintiffs are a class of poor children who are eligible for Medicaid services in the District of Columbia. Pursuant to 42 U.S.C. § 1983, they initiated this action almost two decades ago in order to ensure that Defendants provide those services. During the course of this long and difficult litigation, parties were able to resolve their dispute in the form of a Consent Decree agreed to in 1999. For the past ten years, the Court has overseen Defendants' compliance with the terms of that Consent Decree.
This matter is now before the Court on Defendants' Motion to Terminate Consent Decree and Subsequent Remedial Orders and to Dismiss the Case ("Defs.' Mot.") [Dkt. Nos. 1456, 1481]. Upon consideration of the Motion, Opposition, Reply, numerous supplemental briefs and surreplies, and the entire record herein, and for the reasons stated below, Defendants' Motion is denied as to the private right of action issue.
I. BACKGROUND
Prior opinions have described in some detail the lengthy and complicated history of this case. See, e.g., Salazar v. District of Columbia, 123 F. Supp. 2d 8 (D.D.C. 2000); Salazar v. District of Columbia, 954 F. Supp. 278 (D.D.C.1996) ("Salazar I"). The key pieces of the narrative are set forth herein.
In their Complaint, Plaintiffs brought seven claims against the District of Columbia.[1] Complaint ¶¶ 103-25. One of Plaintiffs' most far-reaching claims was that Defendants had failed to furnish "early and periodic screening, diagnostic, and treatment" ("EPSDT") services, as mandated *259 by the Medicaid program, 42 U.S.C. § 1396a(a)(43). Complaint ¶¶ 120-22. Such a failure, they claim, is actionable under 42 U.S.C. § 1983.
In 1994, Judge Norma Holloway Johnson, to whom the case was originally assigned, ruled that Plaintiffs were permitted to bring six of the seven Medicaid claims under § 1983. See Wellington v. District of Columbia, 851 F. Supp. 1, 3-6 (D.D.C.1994).[2] The Court held that "Section 1983 provides a private remedy for all of the Title XIX provisions except those in [P]laintiffs' third claim. All of [P]laintiffs['] Title XIX claims except Claim III are sufficient to withstand the motion to dismiss." Id. at 6.
On July 1, 1994, the case was transferred to this Court [Dkt. No. 74]. After extensive pre-trial litigation, a seven-day bench trial was held in 1996, to resolve the dispute over Plaintiffs' EPSDT claim, as well as three additional claims. At the conclusion of the trial, a lengthy opinion set forth the Court's findings of fact and conclusions of law. Plaintiffs prevailed, under 42 U.S.C. § 1983, on each of the four claims that went to trial.[3] After the Court entered remedial orders to effectuate this ruling, Defendants appealed the judgment.
While the case was proceeding before our Court of Appeals, parties engaged in settlement negotiations. On September 23, 1998, those negotiations produced a proposed Settlement Order [Dkt. No. 624]. The next day, parties asked the Court of Appeals to remove the case from its calendar and requested remand back to this Court. On January 22, 1999, the Settlement Order was approved by the Court. Order Modifying the Amended Remedial Order of May 6, 1997 and Vacating the Order of March 27, 1997 ("Settlement Order") [Dkt. No. 663]. Since that time, this agreement has governed the case. There have been various consensual amendments made to the Settlement Order, as well as Court Orders resolving disputes over Defendants' compliance with the Order's requirements.
In March of 2009, the District of Columbia filed the instant Motion.[4] In it, Defendants argue, inter alia, that Plaintiffs have no private right of action to enforce the EPSDT provisions under § 1983, and, even if they do, Defendants have achieved compliance with federal law governing provision of such services. Defs.' Mot. at 1-2. On May 26, 2009, the Court concluded, at the suggestion of Defendants, that "the most efficient way to resolve the Defendant[s'] pending Motion" would be to first consider the discrete legal question of whether or not Plaintiffs have a private right of action to enforce the EPSDT provisions. Order (May 26, 2009) [Dkt. No. 1489]. Accordingly, briefing was conducted on only this legal issue, and was completed on September 18, 2009.
II. ANALYSIS
Defendants argue that Rule 60(b) provides grounds for vacating the decision. *260 Their chief argument is that a 2002 Supreme Court decision, Gonzaga v. Doe, 536 U.S. 273, 122 S. Ct. 2268, 153 L. Ed. 2d 309 (2002), represents an intervening change in law that alters the legal landscape on which the Settlement Order rests. Such a significant change, they maintain, makes Rule 60(b) an appropriate vehicle for rearguing whether Plaintiffs have a private right of action to enforce the EPSDT provisions of Medicaid, a point previously decided in favor of Plaintiffs. See Wellington, 851 F.Supp. at 6.
Rule 60(b) permits a party to seek relief from a "final judgment, order, or proceeding" for various reasons. Fed. R. Civ. P. 60(b). Defendants seek relief under 60(b)(5) and (6). Defs.' Mot. at 5. Rule 60(b)(5) allows a court to grant relief where "the judgment has been satisfied, released or discharged; it is based on an earlier judgment that has been reversed or vacated; or applying it prospectively is no longer equitable." Rule 60(b)(6) is a catch-all provision that permits a court to grant relief for "any other reason that justifies relief." The party seeking modification of a consent decree bears the burden of showing that "a significant change in circumstances" warrants relief. Rufo v. Inmates of the Suffolk County Jail, 502 U.S. 367, 383, 112 S. Ct. 748, 116 L. Ed. 2d 867 (1992).
"Modification is an extraordinary remedy, as would be any device which allows a partyeven a municipalityto escape commitments voluntarily made and solemnized by a court decree." Twelve John Does v. District of Columbia, 861 F.2d 295, 298 (D.C.Cir. 1988) (discussing Rule 60(b)(5)). The district court has discretion to grant or deny a motion brought under Rule 60(b). See id.; see also United Mine Workers of Am.1974 Pension v. Pittston Co., 984 F.2d 469, 476 (D.C.Cir.1993).
A. Defendants Are Time-Barred from Seeking Rule 60(b) Relief.
A party seeking relief under Rule 60(b)(5) or (6) must do so "within a reasonable time." Fed. R. Civ. P. 60(c)(1). This standard must be applied to the specific facts of each case, after considering "whether the party opposing the motion has been prejudiced by the delay in seeking relief and . . . whether the moving party had some good reason for his failure to take appropriate action sooner." 11 Charles A. Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure, § 2866 (2d ed. 2009); see also Expeditions Unlimited Aquatic Enterprises, Inc. v. Smithsonian Inst., 500 F.2d 808, 810 (D.C.Cir.1974); Evans v. Fenty, 701 F. Supp. 2d 126, 157 (D.D.C.2010) ("Factors to consider include `the length of the delay, the explanations for the delay, the prejudice to the opposing party caused by the delay and the circumstances warranting relief.'") (citations omitted). In this case, Defendants filed their Motion in March of 2009. The Supreme Court issued its opinion in Gonzagathe asserted basis for Defendants' private right of action argumentin June of 2002. Nearly seven years separate the two dates.
Defendants argue that ongoing enforcement of the decree in the intervening time has minimized actual prejudice to the Plaintiffs. Defs.' Reply to Pls.' Partial Opp'n to Defs.' Mot. at 6-7 ("Defs.' Reply") [Dkt. No. 1503]; cf. Order (May 26, 2009) (finding no prejudice to Plaintiff in bifurcating consideration of Defendants' Motion to Terminate because "all parts of the consent decree [would] remain in order"). That may well be true to some extent. However, underlying the limitation on Rule 60(b) relief are the important interests of finality and repose. See Randall v. Merrill Lynch, 820 F.2d 1317 (D.C.Cir.1987) (noting that 60(b) is "a tool *261 which trial courts are to use sparingly," as it is the "mechanism by which courts temper the finality of judgments with the necessity to distribute justice"); Summers v. Howard Univ., 374 F.3d 1188, 1193 (D.C.Cir.2004) ("Under Rule 60(b), a court must balance the interest in justice with the interest in protecting the finality of judgments."). Allowing Defendants to file a motion that strikes at the legal foundation of a ten-year-old decree, based on an issue decided seven years ago, surely prejudices Plaintiffs' interests in finality and repose.
Courts in this Circuit have found far shorter delays to be unreasonable. See, e.g., Gilmore v. Hinman, 191 F.2d 652, 652-53 (D.C.Cir.1951) (concluding that a 60(b) motion filed 16 months after final judgment was not filed within a reasonable time); Karim-Panahi v. Washington Metro. Area Transit Auth., Civ. No. 08-7093, 2008 WL 5640693, at *1 (D.C.Cir.2008) (finding no abuse of discretion where district court denied motion as untimely because filed after 18 months and without justification); see also Emily Q. v. Shrewy, 203 Fed.Appx. 35 (9th Cir.2006) (affirming district court denial of 60(b) motion on timeliness grounds, as Defendant in an institutional-reform case waited four years before making argument based on Gonzaga) (unpublished).
Defendants argue that because the "priorities of public officials" overseeing the litigation for the District of Columbia may change from one municipal administration to another, a decision not to challenge a consent decree entered into by an earlier administration should not prevent the current administration from doing so. Defs.' Reply at 4-6. In this particular case, the current administration took office in January of 2007. See Elected Officials, http:// www.grc.dc.gov/grc/cwp/view,a,1203,q, 447121,pm,1,grcNav-GID,1424,grcNav-GID,1421.asp. The current Attorney General assumed his position in November of 2008, after serving as Interim Attorney General since January of 2008 and as General Counsel to the Mayor since January of 2007. See OAG: AG BioPeter Nickles, http://occ.dc.gov/occ/cwp/view,a,3,q, 638711.asp. Thus, over two years passed between this administration's initial handling of the case and its decision to file a 60(b) Motion in March of 2009 based on Gonzaga. Defendants' asserted excuse is hardly compelling and does not justify such a delay in filing.
Defendants come perilously close to asserting that the finality of a case involving a municipality in an institutional-reform context depends upon the policies and tenure of the administration litigating it at any given time. See Defs.' Reply at 4-5 ("The `reason' for the asserted `delay' goes to the heart of the democratic process the priorities of public officials responsible for advancing their conceptions of the public interest. While one administration did not raise the issue, a different administration, elected by the citizens of the District of Columbia well after the Gonzaga decision, made the decision to raise this argument in a filing that simultaneously asserts that the District is in compliance with the law."). To read the Rule's "reasonable time" requirement to allow a complete change of position with each election of a new administration would completely undermine the interests of finality and repose that the Rule is designed to protect.[5]
Defendants urge the Court to consider the institutional-reform context of the litigation and approach the issue with greater flexibility. Rufo, they maintain, articulates *262 a public interest in allowing public officials in institutional-reform cases to focus on "the sound and efficient operation of [the public's] institutions," Rufo, 502 U.S. at 381, 112 S. Ct. 748. Defs.' Reply at 7-8. Therefore, the delay in filingas well as continued enforcement of the Settlement Orderhas actually prejudiced the District of Columbia by prohibiting it from running its programs as it sees fit. Id. at 8.
Tellingly, no such interpretation of the "reasonable time" requirement is even discussed, no less adopted, in Horne v. Flores, ___ U.S. ___, 129 S. Ct. 2579, 174 L. Ed. 2d 406 (2009), a recent Supreme Court case addressing this issue, or in any other cases relied on by Defendants. In Horne, the Supreme Court observed that in "institutional reform litigation," Rule 60(b)(5) "serves a particularly important function." 129 S. Ct. at 2593. The Rule allows courts to reexamine judgments or orders that "often raise sensitive federalism concerns." Id. Accordingly, the Horne Court took care to emphasize its earlier holding in Rufo that courts should take a "flexible approach" to Rule 60(b)(5) motions addressing consent decrees. Id. at 2594-95. However, the Supreme Court also stated that "[i]t goes without saying that federal courts must vigilantly enforce federal law and must not hesitate in awarding necessary relief." Id. at 2595. The Horne Court went on to explain that the appropriate inquiry under Rufo "takes the original judgment as a given and asks only whether `a significant change either in factual conditions or in law' renders continued enforcement of the judgment `detrimental to the public interest.'" Id. at 2596-97.
Defendants cite two appellate decisions from other circuits that have applied Rufo's "flexible approach" in considering motions to vacate. In Shakman v. City of Chicago, 426 F.3d 925 (7th Cir.2005), the Seventh Circuit held that it was reversible error for a district court not to factor in the "public nature of the litigation in reaching its conclusion that the City's motion was untimely." Id. at 933-34. More recently, the Sixth Circuit upheld a district court's ruling that a Rule 60(b) motion brought 30 years late was timely, because it appropriately considered more than simply the amount of time which had passed it looked as well at the explanations for the delay, the prejudice to the opposing party, and the circumstances of the case. Doe v. Briley, 562 F.3d 777, 781 (6th Cir.2009).
These cases, which of course are not binding on this Court, certainly do not require a conclusion, taking into account the Rufo factors, that the Motion in this case was filed within a reasonable amount of time. At most, they counsel courts to take more than a rigid numerical view of delay in cases that implicate institutional reform and are of great public concern. See Shakman, 426 F.3d at 933-34; see also Briley, 562 F.3d at 781.
In this case, parties have actively litigated the matter throughout the time period in question. In the ten years since the Settlement Order was entered, the Court has issued numerous orders enforcing the Order's terms. As was true in Evans, Defendants "have been in Court continually and repeatedly" since agreeing to the Settlement Order. Evans, 701 F.Supp.2d at 157. They cannot, therefore, claim that they were unaware of the "existence of the [Settlement Order] or its impact." Id. To the contrary, the District of Columbia has met regularly with Plaintiffs and the Court to narrow issues of dispute and to work throughand aroundbureaucratic stumbling blocks to ensure compliance with the terms of the Settlement Order. While Defendants have sought to vacate portions of that Order, they have not, until their filing in 2009, relied on Gonzaga to attempt to *263 undue the lawsuit by challenging whether a private right of action exists. To allow Defendants to do so nearly seven years after that decision was issued would deny the Plaintiffs their bargained-for interest in finality, and would put them in a position where judicial decisions made many years ago could, at any time, be set aside by a different city administration with different political priorities.
Given the circumstances of this case, and the prejudice that Plaintiffs would suffer, seven years of delay does, in the Court's judgment, fall outside the limits of "flexibility" discussed in Rufo, and represents an unreasonable time under Rule 60(b). Therefore, the Court concludes that Defendants did not file their Motion "within a reasonable time" under Rule 60(b).
B. Even if Defendants' Motion Is Timely, They Have Not Satisfied the Requirements of Rule 60(b) by Showing Either the Existence of Extraordinary Circumstances or a Significant Change in Law.
Timeliness is only one of the requirements that must be met in order to justify Rule 60(b) relief. Even if Defendants' Motion to Terminate was timely, they would still need to demonstrate that applying the Settlement Order prospectively is no longer equitable, or that "any other reason justifies relief." Fed. R. Civ. P. 60(b)(5), (6).
1. Rule 60(b)(6) Relief Is Not Appropriate.
The Supreme Court has ruled that relief under Rule 60(b)(6) is appropriate only in "extraordinary circumstances." Ackermann v. United States, 340 U.S. 193, 199, 71 S. Ct. 209, 95 L. Ed. 207 (1950). Our Court of Appeals has made it clear that "plaintiffs [and presumably Defendants as well] must clear a very high bar to obtain relief under Rule 60(b)(6)." Kramer v. Gates, 481 F.3d 788, 791-93 (D.C.Cir.2007).
Changes in the law, "by themselves[,] rarely constitute the extraordinary circumstances required for relief" under this subsection of the Rule. Agostini v. Felton, 521 U.S. 203, 239, 117 S. Ct. 1997, 138 L. Ed. 2d 391 (1997). In Gonzalez v. Crosby, 545 U.S. 524, 125 S. Ct. 2641, 162 L. Ed. 2d 480 (2005), the Supreme Court held that a "change in the interpretation of the AEDPA statute of limitations" did not represent such an extraordinary circumstance. 545 U.S. at 536, 125 S. Ct. 2641. Thereafter, our Court of Appeals interpreted Crosby to mean that "`extraordinary circumstances' are not present when. . . there has been an intervening change in case law." Kramer, 481 F.3d at 792. Other courts of appeals have adopted the same position. See, e.g., Bailey v. Ryan Stevedoring Co., Inc., 894 F.2d 157, 160 (5th Cir.1990); McKnight v. United States Steel Corp., 726 F.2d 333, 336 (7th Cir. 1984); Title v. United States, 263 F.2d 28, 31 (9th Cir.1959).
In this case Defendants' private right of action argument rests solely on the assumption that Gonzaga represents a significant change in intervening law. Defs.' Mot. at 4-6. As the case law makes overwhelmingly clear, Rule 60(b)(6) provides no avenue for relief where the motion is based solely on a change in intervening law. Therefore, Defendants cannot rely on this section of the Rule to raise their private right of action argument.
2. Rule 60(b)(5) Relief Is Not Warranted Because Gonzaga Does Not Represent a Significant Change in Decisional Law.
Thus, Defendants are left only with Rule 60(b)(5) as a possible justification for relief. See Defs.' Mot. at 5 (citing subsections 60(b)(5) and (6) as sole bases of relief for their assertion of private right of action argument). According to Rufo, parties *264 may be entitled to relief under this subsection if they can show "a significant change either in factual conditions or law." 502 U.S. at 384, 112 S. Ct. 748. Defendants assert a change only in decisional law: they insist that Gonzaga rejected the analysis in cases that this Court relied on when it concluded that Plaintiffs have a private right of action, a conclusion which went on to serve as one of the legal bases for Salazar I and the Settlement Order. See Defs.' Mot. at 5-6 (citing Wellington, 851 F.Supp. at 3-4). Plaintiffs deny that Gonzaga represents a significant change in law, and insist that it merely clarifies prior Supreme Court precedent in private right of action cases. Pls.' Opp'n to Defs.' Mot. at 11-14 ("Pls.' Opp'n") [Dkt. No. 1499].
In Agostini, a Supreme Court case that dealt with the provision of remedial assistance by public school teachers to students enrolled in religious schools, the Court's 60(b)(5) analysis "hinge[d] on whether [its] later Establishment Clause cases have so undermined [Aguilar v. Felton, 473 U.S. 402, 105 S. Ct. 3232, 87 L. Ed. 2d 290 (1985)] that it is no longer good law." 521 U.S. at 217-18, 117 S. Ct. 1997. Addressing the issue in the context of a consent decree, the Supreme Court stated that "a decision that clarifies the law will not, in and of itself, provide a basis for modifying a decree." Rufo, 502 U.S. at 390, 112 S. Ct. 748.
The question, therefore, is whether the 2002 opinion in Gonzaga sufficiently undermines the validity of those Supreme Court cases this Court relied upon in Wellington, where it held that a private right of action exists to enforce Medicaid's EPSDT provisions under § 1983, so "that [they are] no longer good law." Agostini, 521 U.S. at 217, 218, 117 S. Ct. 1997; Wellington, 851 F.Supp. at 6 (analyzing 42 U.S.C. §§ 1396a(a)(10)(a) and (a)(43)).
In order to determine whether a private right of action existed under § 1983, Wellington applied the test set forth in Wilder v. Virginia Hospital Association, 496 U.S. 498, 110 S. Ct. 2510, 110 L. Ed. 2d 455 (1990). See Wellington, 851 F.Supp. at 3-4 (applying Wilder and Suter v. Artist M., 503 U.S. 347, 112 S. Ct. 1360, 118 L. Ed. 2d 1 (1992)). Wilder required that courts inquiring into the existence of a private right of action must determine if 1) the statutory "provision was intended to benefit the putative plaintiff"; 2) the statute reflects an unenforceable "congressional preference for a certain kind of conduct rather than a[n actionable] binding obligation on the governmental unit"; and 3) the "interest plaintiff asserts is `too vague and amorphous'" to be judicially enforceable. Wellington, 851 F.Supp. at 3 (quoting Wilder, 496 U.S. at 509-10, 110 S. Ct. 2510) (internal citations and quotations omitted)). The word "benefit" used in Wilder proved to be the culprit creating much confusion in lower court decisions.
The first of the Supreme Court's two holdings in Gonzaga focused on the language used in Wilder and related cases to determine whether the statute provides an enforceable right.[6]See 536 U.S. at 283, 122 S. Ct. 2268. Gonzaga aimed to resolve ambiguities within earlier private right of action cases that the Court admitted had hardly been "models of clarity." Id. at 278, 122 S. Ct. 2268. The Court did clarify its precedents by holding that only "an unambiguously conferred right [will] support a cause of action brought under § 1983." Id. Because "Section 1983 provides a remedy only for the deprivation of *265 `rights, privileges, or immunities secured by the Constitution and laws' of the United States," it is "rights, not the broader or vaguer `benefits' or `interests,' that may be enforced under the authority of that section." Id. (emphasis in original).
Part of the "confusion" that the doctrine created was due to language from Wilder and a later Supreme Court case, Blessing v. Freestone, 520 U.S. 329, 117 S. Ct. 1353, 137 L. Ed. 2d 569 (1997), both of which dealt with private rights of action under § 1983. See Gonzaga, 536 U.S. at 282-83, 122 S. Ct. 2268. Both cases suggested that the provision of "benefits," rather than the creation of "rights," might be sufficient to create an enforceable private right of action. See id.
As noted earlier, Wilder set forth a test in which the key inquiry was "whether `the provision in question was intend[ed] to benefit the putative plaintiff.'" Wilder, 496 U.S. at 509, 110 S. Ct. 2510 (quoting Golden State Transit Corp. v. Los Angeles, 493 U.S. 103, 110 S. Ct. 444, 107 L. Ed. 2d 420 (1989)). The Wilder Court concluded that the Boren Amendment to the Medicaid Act does "create[] a right enforceable by health care providers under § 1983" because of the "benefits" it conferred upon those eligible for Medicaid. Id. at 509-10, 110 S. Ct. 2510.
In Blessing, the Supreme Court conducted a similar inquiry but arrived at a different conclusion. It held that Title IV-D of the Social Security Act, 42 U.S.C. §§ 651-669b, "does not give individuals a federal right to force a state agency to substantially comply with" that Title's provisions. Blessing, 520 U.S. at 333, 117 S. Ct. 1353. Using nearly the same language as Wilder, Blessing began its analysis by stating "[f]irst, Congress must have intended that the provision in question benefit the plaintiff." Blessing, 520 U.S. at 340-41, 117 S. Ct. 1353 (emphasis added).
The school teacher who brought suit under FERPA in Gonzaga attempted to use these two cases to support his argument that a private right of action is created where a statute merely "benefits" putative plaintiffs. Gonzaga, 536 U.S. at 282, 122 S. Ct. 2268. However, as the Court discussed, other Supreme Court cases focused on whether it was a right, rather than a benefit, was created in order to determine whether a private right of action exists.
The Gonzaga Court examined several of these cases, which held that for a right to be enforceable under § 1983, that right must be unambiguously conferred by statutory language. See id. at 279-80, 122 S. Ct. 2268. Pennhurst State School and Hospital v. Halderman, 451 U.S. 1, 101 S. Ct. 1531, 67 L. Ed. 2d 694 (1981), "made clear that unless Congress `speak[s] with a clear voice,' and manifests an `unambiguous' intent to confer individual rights, federal funding provisions provide no basis for private enforcement by § 1983." Gonzaga, 536 U.S. at 280, 122 S. Ct. 2268 (quoting Pennhurst). Similarly, Wright v. Roanoke Redevelopment and Housing Authority, 479 U.S. 418, 107 S. Ct. 766, 93 L. Ed. 2d 781 (1987), held that tenants could bring a private lawsuit under § 1983 for violations of the Public Housing Act where a provision of that statute "conferred entitlements `sufficiently specific and definite to qualify as enforceable rights under Pennhurst.'" Gonzaga, 536 U.S. at 280, 122 S. Ct. 2268 (quoting Wright). Finally, in Suter, the Court also grounded its inquiry in "rights" language, and found that the Adoption Assistance and Child Welfare Act of 1980 did not "unambiguously confer an enforceable right upon the Act's beneficiaries." Gonzaga, 536 U.S. at 281, 122 S. Ct. 2268 (quoting Suter).
Gonzaga resolved the confusion in the case law between "benefits" and "rights" *266 by concluding that the "relatively loose" "benefits" standard advocated by respondents in that case was incorrect. The Supreme Court clarified that courts must examine whether the statute unambiguously conferred a right, instead of focusing on whether the statute granted benefits. Gonzaga, 536 U.S. at 282-83, 122 S. Ct. 2268. In short, the Court clarified the standard to be applied in determining the existence of a private right of action.
Turning to the instant case, it is clear that Gonzaga does not represent a significant change in the law applied in Wellington.
First, the Wellington decision did not turn on application of the "benefits" language that produced the confusion resolved in Gonzaga. Defendants in this case never contested the issue of whether Plaintiffs were beneficiaries of Medicaid, under the first prong of the Wilder test; instead, they argued only that the statutory provisions in question did not impose a "binding obligation" on the governmental unit. Wellington, 851 F.Supp. at 3. Because Gonzaga said nothing about this aspect of the Wilder test, it does not represent a significant change in the law relied on in this case which established a private right of action for Plaintiffs. In sum, Judge Johnson did not rely on the "benefits" test in determining whether these Plaintiffs had a private cause of action.
This fact therefore distinguishes Johnson v. City of Detroit, 446 F.3d 614 (6th Cir.2006), which Defendants argue supports adoption of a "more rigorous standard" for establishing enforceable rights under § 1983. Defs.' Mot. at 7. In that case, the Sixth Circuit stated that "any cases premised upon a `benefits' analysis must be reexamined in light of Gonzaga."[7]Johnson, 446 F.3d at 624. Wellington was not based on a "benefits analysis," and therefore the Sixth Circuit's instruction to reexamine such cases does not apply.
Second, the Supreme Court itself, in Gonzaga, essentially said that its decision does not represent a significant change in law. The Court characterized its analysis of the private right of action question as one designed to "resolve the conflict among the lower courts and in the process resolve any ambiguity in our own opinions." Gonzaga, 536 U.S. at 278, 122 S. Ct. 2268. The "ambiguity" that the Court intended to resolve sprang from "[s]ome language in [its] opinions [that] might be read to suggest that something less than an unambiguously conferred right is enforceable by § 1983." Id. at 282, 122 S. Ct. 2268. The Court clarified that only unambiguously conferred rights are actionable, thereby dispelling any confusion on the matter. Id. at 282-83, 122 S. Ct. 2268.
In explaining its ruling, the Court in Gonzaga noted that the Blessing opinion used benefits language alongside language that focused on whether "rights" were created, thereby producing confusion. Gonzaga, 536 U.S. at 283, 122 S. Ct. 2268. The Wilder decision also used "benefits" language and "rights" language in crafting its test, which generated the same confusion as did the language in Blessing. See Wilder, 496 U.S. at 509-10, 110 S. Ct. 2510. Gonzaga merely clarified that the first prong of these tests requires the right to be unambiguously conferred: "it is rights, not the broader or vaguer `benefits' or `interests,' that may be enforced." Id. at 283, 122 S. Ct. 2268 (emphasis in original). The Court did not disturb or limit Pennhurst or Golden State, upon which Wilder relied in announcing its test. In addition, *267 it did not abandon Blessing, as discussed further below.[8]
Third, many courts which have addressed, in the Medicaid context, whether or not plaintiffs can enforce a private right of action for a state's failure to comply with that statute's provisions, have agreed that Gonzaga simply "resolve[d] any ambiguity in [the Supreme Court's] own opinions." Gonzaga, 536 U.S. at 278, 122 S. Ct. 2268. The Ninth Circuit, in a post-Gonzaga decision, was faced with the question of whether 42 U.S.C. §§ 1396a(a)(10) and (a)(17) of the Medicaid Act create private rights of action. Watson v. Weeks, 436 F.3d 1152, 1159 (9th Cir.2006). That court began its inquiry by stating the Blessing test. Id. at 1158. According to the Ninth Circuit, "the Supreme Court clarified the first prong of [this] test in [Gonzaga]." Id. at 1159. The Weeks decision stated that Gonzaga requires a right to be "unambiguously conferred" in order to be enforceable under § 1983, and that it is only rights, and not "benefits" or "interests" that can be enforced. Id. The Ninth Circuit then went on to apply the rest of the Blessing test, and concluded that § 1396a(a)(10) creates an enforceable right. Id. at 1159-60.
In a similar case, the Third Circuit explicitly explained that the Supreme Court in Gonzaga "carefully avoided disturbing, much less overruling, Wright and Wilder." Sabree v. Richman, 367 F.3d 180, 184 (3d Cir.2004). According to the Third Circuit, Gonzaga "did not abandon [the Blessing] test"which, again, contains language similar to Wilderbut did "dispel" confusion in the case law. Id. at 186-87. See also Westside Mothers v. Olszewski, 454 F.3d 532, 541 (6th Cir.2006) ("Westside Mothers II") (finding that Gonzaga "clarified" Blessing requirement regarding "benefits"); S.D. ex rel. Dickson v. Hood, 391 F.3d 581, 602-03 (5th Cir.2004) (same); Hunter ex rel. Lynah v. Medows, Civ. No. 08-2930, 2009 WL 5062451, at *2 (N.D.Ga. Dec. 16, 2009) (noting that Gonzaga "clarified" case law, and ruling that plaintiffs could enforce private right of action for violations of 42 U.S.C. § 1396a(a)(43)).
Finally, many other courts, construing Gonzaga in contexts other than the Medicaid statute, have characterized it as doing no more than clarifying the Supreme Court's private right of action jurisprudence. See, e.g., Ball v. Rodgers, 492 F.3d 1094, 1105 (9th Cir.2007) (reasoning that Supreme Court "clarified" first prong of test for determining federal rights under § 1983); Day v. Apoliona, 496 F.3d 1027, 1035-36 (9th Cir.2007) (characterizing Gonzaga as "[c]larifying a potential tension in earlier cases" and "offer[ing] guidance"); 31 Foster Children v. Bush, 329 F.3d 1255, 1269 (11th Cir.2003) (Gonzaga "clarified" first prong of Blessing test); Judicial Watch, Inc. v. Nat'l Energy Policy Dev. Group, 233 F. Supp. 2d 16, 22 (D.D.C.2002) (Gonzaga "clarified" precedent with respect to enforcement of federal rights under § 1983).[9]
*268 Based on the reasoning set forth above, the Court agrees with Sabree, Westside Mothers II, and Hood, among other decisions, that Gonzaga merely clarified Supreme Court doctrine. By the same token, the Court disagrees with Equal Access and Long Term Care to the extent that they regard Gonzaga as a significant change in private right of action case law that renders earlier Supreme Court precedents as "no longer good law" under Agostini. Consequently, the Court does not adopt the reasoning of the Fifth or First Circuits as persuasive.
C. Even if Intervening Case Law Does Provide a Basis for Re-Examination of the Private Right of Action Question, Plaintiffs Have Established, Under Gonzaga, Their Private Right of Action to Enforce Medicaid's EPSDT Provisions.
Had Defendants filed a timely motion, and had Gonzaga represented a significant change in decisional law, Defendants would still need to establish under Gonzaga that Plaintiffs have no private right of action to enforce the relevant Medicaid provisions.
1. Statutory Provisions
Parties dispute exactly which Medicaid provisions should be analyzed under Gonzaga. Plaintiffs insist that the private right of action analysis must be based on the EPSDT allegations made in the Complaint. Pls.' Opp'n at 20. They alleged that the District of Columbia violated 42 U.S.C. §§ 1396a(a)(10)(a), (a)(43)(a), 1396d(a)(4)(B), and 1396d(r). Accordingly, these provisions formed the basis of the Settlement Order. See Pls.' Surreply at 4 [Dkt. No. 1508-3]. They further argue that these EPSDT provisions, though not all cited to in Salazar I, are the provisions that the Court referred to in Wellington. Pls.' Opp'n at 27, 27 n. 2 (citing Salazar I, 954 F.Supp. at 328-33, and Wellington, 851 F.Supp. at 6).
Defendants maintain that the Complaint is not the source of the statutory provisions at issue. In their view, 42 U.S.C. § 1396a(a)(10) is irrelevant to the Gonzaga analysis because it was not ruled on in Salazar I and was not incorporated into the Settlement Order. Defs.' Reply at 14. Defendants argue that without a finding that Defendants violated this statutory provision, and because it "did not form the basis for the portion of the consent decree at issue," the Court cannot look to § 1396a(a)(10) as the basis of the Gonzaga analysis. Defs.' Sur-Surreply at 1.
There appears to be little case law on point. Plaintiffs attempt to patch together pieces of dicta from Supreme Court cases to support their position, but none of the cases they rely on involved a consent decree or settlement agreement. Therefore, they ultimately are unhelpful in resolving whether the Complaint or the Settlement Order is the governing text. See Pls.' Surreply at 2 (citing Blessing and Gonzaga).
The Court need not decide, however, whether § 1396a(a)(10) applies. Assuming that Defendants are correct, and that only § 1396a(a)(43) can provide the basis for Plaintiffs' private right of action, that statutory provision does, under Gonzaga, establish such a right.
2. Plaintiffs Can Enforce 42 U.S.C. § 1396a(a)(43) Under § 1983.
Gonzaga requires that, in order to find a federal right enforceable under § 1983, that right must have been "unambiguously" conferred. 536 U.S. at 283, 122 S. Ct. 2268. To guide analysis in this area, Gonzaga *269 instructs us to examine whether Congress used "rights-creating" language. Id. at 284, 122 S. Ct. 2268. As an example of this type of language, the Gonzaga Court looked to the provisions of Title VI of the Civil Rights Act of 1964 and Title IX of the Education Amendments of 1972, which both provide in relevant part that "no person. . . shall . . . be subjected to discrimination." Id. at 287, 122 S. Ct. 2268 (quoting statutory text). In addition to the text, courts should assess the structure of the statute to determine if Congress intended to confer individual rights. Id. at 286, 122 S. Ct. 2268. If there is an unambiguously conferred right, courts then must look to the remaining factors articulated in Blessing: "the plaintiff must demonstrate that the right assertedly protected by the statute is not so `vague and amorphous' that its enforcement would strain judicial competence"; and, last, "the statute must unambiguously impose a binding obligation on the States." Blessing, 520 U.S. at 340-41, 117 S. Ct. 1353; see Gonzaga, 536 U.S. at 295, 122 S. Ct. 2268.
Beginning with the text, § 1396a(a)(43) states in part that a State plan "must . . . provide for . . . informing all persons in the State who are under the age of 21 and who have been determined to be eligible for medical assistance including services described in section 1396d(a)(4)(B) of this title, of the availability of early and periodic screening, diagnostic, and treatment services as described in section 1396d(r) of this title and the need for age-appropriate immunizations against vaccine-preventable diseases . . ." 42 U.S.C. § 1396a(a)(43)(A).
The portion of that statutory section which contains "rights-creating" language under Gonzaga is that "a State plan must provide for . . . informing all persons . . . of the availability of [EPSDT services] . . . and the need for age-appropriate immunizations against vaccine-preventable diseases." Id. This language, like that in Titles VI and IX of the Civil Rights Act, which the Gonzaga Court offered as examples of statutes that create private rights of action, is "individually focused." Gonzaga, 536 U.S. at 287, 122 S. Ct. 2268. The State is required to inform "all persons" under the age of 21 who are Medicaid-eligible of the services specified in § 1396d (A)(4)(B) to which they are entitled, clearly indicating that the focus of the provision is on the "individuals protected," as opposed to the "persons regulated." Alexander v. Sandoval, 532 U.S. 275, 289, 121 S. Ct. 1511, 149 L. Ed. 2d 517 (2001).[10] Therefore, under prong one of the appropriate tests, the Court concludes that the federal right is "unambiguously" conferred.
Other courts have adopted a similar textual analysis in deciding whether § 1396a(a)(43) creates a private right of action. For example, in Memisovski ex rel. Memisovski v. Maram, Civ. No. 92-C-1982, 2004 WL 1878332, at *10-11 (N.D.Ill. 2004), the court held that § 1396a(a)(43) of the Medicaid Act is enforceable under § 1983. The court reasoned that the EPSDT services mandated by this section "provide[] several specific entitlements that plaintiffs `must' be provided." Id. (enumerating required services). Similarly, in Hunter, the district court found that the EPSDT requirements of § 1396a(a)(43) were focused on the individual receiving the services. 2009 WL 5062451, at *2. See also John B. v. Goetz, 661 F. Supp. 2d 871, 874 (M.D.Tenn.2009) *270 (denying defendants' motion to vacate in part because § 1396a(a)(43) confers private right of action); Clark v. Richman, 339 F. Supp. 2d 631, 640 (M.D.Pa.2004) (holding that "§ 1396a(a)(43) affords plaintiffs vindicable private rights"); Westside Mothers II, 454 F.3d at 544 (reversing lower court and ruling that plaintiffs "stated a cognizable claim under § 1983 for violations of § 1396a(a)(43)(A)"); but see Charlie H. v. Whitman, 83 F. Supp. 2d 476 (D.N.J.2000).
Defendants insist that the framework of the statute belies the conclusion that § 1396a(a)(43) confers a privately enforceable right.[11] Defs.' Mot. at 8-15; Defs.' Reply at 15-20. They cast the EPSDT provisions as merely "plan requirements," the fulfillment of which is only one of the many conditions that a state must meet in order to receive funding.[12] Defs.' Mot. at 9.
As the Supreme Court made clear in Gonzaga, the text is central to determining whether Congress intended to convey a privately enforceable right. Gonzaga, 536 U.S. at 286, 122 S. Ct. 2268. Defendants do not focus their analysis on the language in § 1396a(a)(43); instead, Defendants concentrate on that section's surrounding provisionsand not the actual text of § 1396a(a)(43)to argue that no enforceable private rights exist. As the Third Circuit concisely put it, "[a]dmittedly, plumbing for congressional intent by balancing the specific language of a few discrete provisions of Title XIX against the larger structural elements of the statute is a difficult task. Nonetheless, it is evident, at least to us, that the statutory language, despite countervailing structural elements of the statute, unambiguously confers rights which plaintiffs can enforce." Sabree, 367 F.3d at 192.
In sum, the Court concludes that § 1396a(a)(43) does "unambiguously" confer a private right of action as required by Gonzaga. The remaining prongs of the private right of action testwhether the right asserted is so "vague and amorphous" that its enforcement "strain[s] judicial competence," and whether the statute imposes an unambiguous obligation on Defendantsalso favor Plaintiffs' position.
The right is not too vague and amorphous to be enforced. It plainly requires Defendants to inform eligible individuals of certain services available to them. The services are delineated in § 1396d(r), a *271 sub-section referred to specifically in § 1396a(a)(43). Section 1396d(r) sets forth in detail the types and timing of treatment that shall be provided as part of the screening, vision, dental, and hearing services due to the patient. 42 U.S.C. § 1396d(r).
These statutory provisions establish that Defendants' obligation is both clear and enforceable; further, courts can competently determine whether such statutory guidance is being followed. The Court agrees with the Fifth Circuit's assessment in Hood that "[t]he EPSDT provisions at issue are no more `vague and amorphous' than other statutory terms that . . . courts. . . have found capable of judicial enforcement." 391 F.3d at 605. For instance, the right at issue in this case is no more unenforceable, and does no more to strain judicial competence, than the right to reimbursement at "reasonable and adequate rates," upheld in Wilder, 496 U.S. at 511-12, 110 S. Ct. 2510.
In satisfaction of the third prong, the statutory language creates a binding obligation. The statute speaks in terms that are clearly mandatory, as it says that states "must . . . provide." 42 U.S.C. § 1396a(a)(43); 42 U.S.C. § 1396d(r) (describing services in detail, including what those services "shall at a minimum include").
Courts look to such language to determine whether a binding obligation has been created. See Blessing, 520 U.S. at 340, 117 S. Ct. 1353 ("[T]he provision giving rise to the asserted right must be couched in mandatory, rather than precatory, terms."); Richman, 339 F.Supp.2d at 640 ("Section 1396a(a)(43) speaks in mandatory terms, as it mandates that a state plan `must' provide for informing eligible individuals of EPSDT services, as well as mandates that a state plan `must' provide or arrange for the provision of EPSDT services."). For instance, in Wilder, the Supreme Court concluded that, for purposes of § 1983, a binding obligation arose from the language, "a state plan `must' `provide for payment . . . of hospital[s].'" 496 U.S. at 512, 110 S. Ct. 2510 (emphasis in original).
For all the reasons just discussed, the Court concludes that the statutory text imposes a binding obligation on Defendants to provide EPSDT services.
D. Plaintiffs' Private Right of Action Is Not Foreclosed by Their Status as Third-Party Beneficiaries.
Defendants also argue that, because Plaintiffs are only third-party beneficiaries of what is essentially a contract between the federal government and the District of Columbia, they cannot enforce Medicaid's provisions under § 1983. Defs.' Mot. at 15-17. To support this far-reaching position, Defendants cite a concurrence by Justice Scalia in Blessing suggesting that the only rights that can be secured under § 1983 are those that would have been recognized as rights when § 1983 was originally enacted in 1871. He reasoned that because a third-party beneficiary had no enforceable right to compel "a State to make good on its promise to the Federal Government" in 1871, at the time of the Section's enactment, beneficiaries in such cases may have no right to sue in 2010. 520 U.S. at 349-50, 117 S. Ct. 1353 (Scalia, J., concurring).
Obviously, Justice Scalia's view is not that of the Supreme Court. Further, he stresses in the remainder of his concurrence that the argument above was not even raised before the Court, and that he addresses it only because he "is not prepared without further consideration to reject the possibility that third-party-beneficiary suits simply do not lie." Id. at 350, 117 S. Ct. 1353. In short, he was simply *272 giving an advisory opinion, without even having the benefit of briefing.
III. CONCLUSION
For the foregoing reasons, Defendants' Motion to Terminate is denied as to the private right of action issue. An Order shall issue with this Memorandum Opinion.
NOTES
[1] Three of the allegations in the Complaint were either resolved before trial or dismissed as a matter of law. Salazar I, 954 F.Supp. at 280 n. 4.
[2] After Judge Johnson issued this Opinion, the lead Plaintiff became Salazar.
[3] The Court held that Defendants failed to "issue decisions and provide Medicaid coverage within 45 days after initial applications are submitted" (Claim 4); "provide advance notice of the discontinuance or suspension of Medicaid benefits" (Claim 5); "provide or arrange for the provision of [EPSDT] services to Medicaid recipients who request such services" (Claim 6); and failed to "effectively notify individuals of the availability of EPSDT services" (Claim 7). Salazar I, 954 F.Supp. at 280.
[4] On May 20, 2009, Defendants re-filed the entire Motion, along with a complete set of numerous exhibits, as an Errata Motion [Dkt. No. 1481]. See Pls.' Mot. to Take Discovery, at 1 n. 1 [Dkt. No. 1472].
[5] Indeed, such a reading would undoubtedly prejudice many interests in a community and raise doubts about whether commitments made and relied upon could be trusted for the future.
[6] The Court's second holding resolved the narrow question presented in that case, regarding whether nondisclosure provisions in the Family Educational Rights and Privacy Act ("FERPA"), 20 U.S.C. § 1232g, confer enforceable rights. The Court concluded that those provisions do not confer such rights. Gonzaga, 536 U.S. at 287, 122 S. Ct. 2268.
[7] Johnson also described Gonzaga as having simply "allay[ed] . . . confusion" in the case law. Johnson, 446 F.3d at 618-19.
[8] Indeed, after clarifying its analysis, Gonzaga then relied on Blessing's reasoning in conducting its analysis of FERPA's language, thereby further suggesting that the analysis in Blessing had not been changed so significantly as to no longer qualify as good law. See Gonzaga, 536 U.S. at 287-88, 122 S. Ct. 2268.
[9] Defendants attempt to cast Gonzaga as a "conclusive adoption of a more rigorous standard" for meeting the first prong of the Wilder private right of action test. Defs.' Mot. at 7. Admittedly, there are some appellate decisions that lend support to this position. For instance, the Fifth Circuit acknowledged that Gonzaga may have "partially overruled" one of its own earlier decisions. Equal Access for El Paso, Inc. v. Hawkins, 509 F.3d 697, 701 n. 4 (5th Cir.2007). The First Circuit treated Gonzaga as an intervening decision that justified departure from circuit precedent. Long Term Care Pharmacy Alliance v. Ferguson, 362 F.3d 50, 57 (1st Cir.2004). That same decision, however, was itself not clear on whether Gonzaga constituted "a tidal shift or merely a shift in emphasis" in private right of action case law. Id. at 59.
[10] Although Sandoval is an implied right of action case and not a § 1983 case, its reasoning can be applied when determining whether an enforceable right exists in the § 1983 context. See Gonzaga, 536 U.S. at 284-85, 122 S. Ct. 2268 ("[T]he initial inquiry [in a § 1983 case]determining whether a statute confers any right at allis no different from the initial inquiry in an implied right of action case.").
[11] Defendants also argue that the EPSDT language tracks closely the type of language that our Court of Appeals found insufficient to create a private right of action in Doe by Fein v. District of Columbia, 93 F.3d 861 (D.C.Cir. 1996) (per curiam). Defs.' Mot. at 13-14; Defs.' Reply at 21-22. That case involved a statute requiring states, as a condition of funding, to "provide that upon receipt of a report of known or suspected instances of child abuse or neglect an investigation shall be initiated promptly to substantiate the accuracy of the report." Doe by Fein, 93 F.3d at 865 (quoting 42 U.S.C. § 5106(b)(2) (1994)). This language is plainly different in focus and content from the language at issue here. It is programmatic language that targets the persons regulated, i.e., those who administer a state's child abuse programs, and not any individual beneficiary.
[12] In terms of the statute's structure, § 1396a(a)(43) appears in the same section, § 1396a, as provisions that are individually focused, as well as those that are focused on more systemic state obligations. Courts have found that surrounding provisions both do support a private right of action, see, e.g., Sabree, 367 F.3d at 182 (finding private right of action under §§ 1396a(a)(8), (a)(10), and 1396d(a)(15)), and that some provisions do not support a private right of action, see, e.g., Equal Access, 509 F.3d at 703 (construing § 1396a(a)(30)). The framework argument therefore is not dispositive of the question, and does not deserve the great weight that Defendants have placed upon it. While the inquiry into the statute's structure is indeed important, it cannot ignore the actual language Congress used in the statute. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2468539/ | 755 F. Supp. 2d 639 (2010)
Duane MORGAN
v.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA.
Civil Action No. 10-1000.
United States District Court, E.D. Pennsylvania.
November 18, 2010.
*640 Richard J. Heleniak, Messa & Associates, P.C., Philadelphia, PA, for Duane Morgan.
*641 Allison N. Suflas, Jeremy P. Blumenfeld, Sarah Elise Pontoski, Morgan Lewis & Bockius LLP, Philadelphia, PA, for The Prudential Insurance Company of America.
MEMORANDUM OPINION
SAVAGE, District Judge.
In this action brought pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA"), Duane Morgan ("Morgan") challenges The Prudential Insurance Company of America's ("Prudential") denial of his claim for long term disability benefits. The factual issue is not whether Morgan is disabled, but what caused his disability. Morgan contends his disability is caused by fibromyalgia. Prudential argues the cause is anxiety and depression. The cause of Morgan's disability is critical because if it is a mental illness, his long term benefits are limited to 24 months.
After a thorough examination of the administrative record and applying a deferential standard of review, we find Prudential's determination that Morgan's disability was the result of anxiety and depression, a condition triggering the plan's 24-month mental illness limitation, is not supported by substantial evidence. Consequently, we conclude that Prudential acted arbitrarily and capriciously when it terminated Morgan's disability benefits. Therefore, judgment will be entered in favor of Morgan and against Prudential.
Background
Morgan was employed by Prudential as a senior life representative. As part of his employment, he was covered under a long term disability plan ("Plan") governed by ERISA.
Morgan stopped working in September 2005 after complaining of chest pain, palpitations, dizziness, sweating, shaking, numbness in his arms, high blood pressure, difficulty sleeping, and diarrhea. Having determined that Morgan was suffering from a major depressive disorder anxiety and hypertension, Prudential began paying him disability benefits on October 15, 2005. On March 28, 2006, his short term disability benefits were converted to long term benefits.
After paying long term disability benefits for two years, Prudential terminated Morgan's benefits. In its denial letter, Prudential advised Morgan that it determined that the cause of his disability was the "mental health diagnosis of depression and anxiety." Citing the Plan's mental illness limitation, which caps benefits for "mental illnesses" at 24 months, Prudential terminated his long term disability benefits as of March 28, 2008. Under the Plan, a "mental illness" is defined as "[a] psychiatric or psychological condition regardless of cause, including but not limited to ... depression [and] ... anxiety." Plan, Art. 7.7(a)(8). A disability due to a mental illness is subject to a "limited pay period of 24 months." Plan, Art. 7.7(a)(7)(B).
Morgan appealed Prudential's decision, claiming that his disability was due to fibromyalgia, not depression. In support of his appeal, he provided, among other things, a letter from his treating rheumatologist, Dr. Andrew Mermelstein, who confirmed the diagnosis of fibromyalgia.
Relying on a record review by Dr. Paul F. Howard, Prudential denied Morgan's appeal. Prudential concluded that Morgan's disability resulted from depression, not fibromyalgia.
The parties have filed cross-motions for summary judgment. Morgan claims that Prudential's decision was arbitrary and capricious, and seeks reinstatement of his long term benefits. Prudential claims that *642 its decision was supported by substantial evidence in the administrative record. It also asserts a cross claim against Morgan for reimbursement of overpayment of disability benefits.[1]
ERISA Standard of Review
The denial of benefits under an ERISA qualified plan is reviewed using a deferential standard. Where the plan administrator has discretion to interpret the plan and to decide whether benefits are payable, the exercise of its fiduciary discretion is judged by an arbitrary and capricious standard. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 111, 109 S. Ct. 948, 103 L. Ed. 2d 80 (1989). A court may not substitute its judgment for that of the administrator. Vitale v. Latrobe Area Hosp., 420 F.3d 278, 286 (3d Cir.2005) (quoting Abnathya v. Hoffmann-La Roche, Inc., 2 F.3d 40, 45 (3d Cir.1993)). Accordingly, in deference to the plan administrator, the decision will not be reversed unless it is "without reason, unsupported by substantial evidence or erroneous as a matter of law." Doroshow v. Hartford Life & Accident Ins. Co., 574 F.3d 230, 234 (3d Cir.2009).
Morgan initially requested that we apply the heightened standard of review used in Pinto v. Reliance Standard Life Ins. Co., 214 F.3d 377 (3d Cir.2000). At oral argument, he acknowledged that the sliding-scale standard of review has been rejected by the Supreme Court. Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105, 128 S. Ct. 2343, 171 L. Ed. 2d 299 (2008). See Doroshow, 574 F.3d at 233-34; Schwing v. The Lilly Health Plan, 562 F.3d 522, 525 (3d Cir.2009). A financial conflict arising from the administrator's dual role as evaluator and payor of claims no longer may be used to raise the level of scrutiny. Nevertheless, it remains a factor to consider along with other factors in determining whether there has been an abuse of discretion. Ellis v. Hartford Life and Accident Ins. Co., 594 F. Supp. 2d 564, 567 (E.D.Pa.2009).
Where an employer funds its benefit plan through a trust with fixed contributions, there is no conflict of interest. See Bluman v. Plan Adm'r and Trustees for CNA's Integrated Disability Program, No. 08-0415, 2010 WL 2483884, at *5 (D.N.J. June 4, 2010) (citing Smathers v. Multi-Tool, Inc./Multi-Platics, Inc. Emp. Health and Welfare Plan, 298 F.3d 191, 198-99 (3d Cir.2002)). On the other hand, a conflict of interest does arise where trust payments vary depending on the rate at which claims are approved. Id.
Here, the administrative committee, which is appointed and controlled by Prudential, has discretionary authority to interpret the terms of the Plan and to determine eligibility for benefits. The Plan is funded by the Prudential Welfare Benefits Trust ("Trust"). Trust assets may not be used for any purpose "other than for the exclusive benefit" of participants and for the cost of administering the Plan. Trust Agreement, Sec. 2. No part of the principal or income may revert to Prudential. Id.
The fact that the trust assets cannot be used for any purpose other than paying claims and administrative expenses is only one part of the equation. Prudential must fund the trust to maintain its solvency. If the payment of claims and expenses exceeds the contributions and the investment performance of the trust assets, Prudential must increase its contributions. In such circumstances, there could be an incentive to minimize the payment of claims.
*643 During oral argument, Prudential's counsel confirmed that the Trust is funded by Prudential on an "as needed basis." Because contributions to the Trust will vary depending on the number of claims paid, a financial conflict of interest is present. Therefore, we shall consider the conflict as one, but not significant, factor in determining whether there has been an abuse of discretion.
Procedural bias in the review process is another factor to examine. Post v. Hartford Ins., Co., 501 F.3d 154, 164 (3d Cir.2007). Procedural anomalies that call into question the fairness of the process and suggest arbitrariness include: relying on the opinions of non-treating over treating physicians without reason, Kosiba v. Merck & Co., 384 F.3d 58, 67-68 (3d Cir. 2004); Ricca v. Prudential Ins. Co. of Am., No. 08-257, 2010 WL 3855254 *7 (E.D.Pa. Sept. 30, 2010); failing to follow a plan's notification provisions, Lemaire v. Hartford Life & Acc. Ins. Co., 69 Fed. Appx. 88, 92-93 (3d Cir.2003); conducting self-serving paper reviews of medical files, Post, 501 F.3d at 166; relying on favorable parts while discarding unfavorable parts in a medical report, id. at 165; denying benefits based on inadequate information and lax investigatory procedures, Porter v. Broadspire, 492 F. Supp. 2d 480, 485 (W.D.Pa.2007); and, ignoring the recommendations of an insurance company's own employees, Post, 501 F.3d at 165.
Evidence Available to Prudential
On September 28, 2006, Morgan's claim was initially evaluated by Prudential's medical director, Dr. Albert A. Kowalski,[2] who reviewed the records of Morgan's treating physicians. These records included: a May 20, 2006, mental status examination by Morgan's neuropsychiatrist, Dr. Miguel Aguilo-Seara, noting that Morgan had a major depression disorder; various mental status examinations conducted between 2005 and 2006 by Dr. Lisa Rooney confirming a major depression diagnosis; an attending physician statement, dated October 3, 2005, completed by Morgan's primary care physician, Dr. David Peet, listing anxiety as one obstacle to Morgan's returning to his position with Prudential; a letter from Morgan's neurologist, Dr. Tonya Stephenson, dated February 9, 2006, stating that she suspected Morgan's medical problems were related to depression and lack of sleep; and, a 2005 evaluation form and notes prepared by Morgan's psychologist, Bonnie Stewart, indicating that Morgan had an anxiety disorder. After reviewing Morgan's medical records, Dr. Kowalski opined that "the only primary reason" for Morgan's functional impairment is depression and anxiety.
On July 2, 2007, Dr. Kowalski undertook a reevaluation of Morgan's claim, considering updated medical records of Morgan's treating physicians. These included a neuropsychological evaluation by psychologist Steven Berk, dated September 16, 2006, which showed significant psychological deficits; records from the Neuropsychiatric Group noting that Morgan was being treated with Zoloft and Cymbalta; and, a December 4, 2006 letter from Dr. Lawrence Kerson, M.D., reporting that Morgan's neuromuscular complaints appeared real and his depression does not fully explain them.[3] Dr. Kowalski also reviewed records from Dr. Mermelstein, who, after examining Morgan on December 29, 2006, February 9, 2007, and March 23, 2007, diagnosed him with fibromyalgia.
*644 After reviewing the new medical records, Dr. Kowalski noted, without citing any medical authority, that fibromyalgia rarely prevents a claimant from performing light or sedentary work. He opined that continuous impairment from fibromyalgia was "unlikely."
On March 11, 2008, after receiving updated medical records from Dr. Mermelstein, Dr. Kowalski undertook a third and final evaluation of Morgan's claim. He was provided Dr. Mermelstein's treatment notes, including those for May 24, 2007, September 27, 2007, and January 31, 2008, where Dr. Mermelstein stated that Morgan has some good days and bad days, but was receiving medication for his pain which has helped "a lot." Dr. Mermelstein also noted that his patient had 18 of 18 fibromyalgia tender points, but no muscle weakness.
At the conclusion of his review of Dr. Mermelstein's updated medical records, Dr. Kowalski opined that the records do not support a conclusion that Morgan is sufficiently impaired "from any physical condition" that would prevent him from performing light or sedentary work. At the same time, while acknowledging the severity of Morgan's symptoms, he framed the issue as whether he has a sustained and regular work capacity, "excluding his mental nervous condition." He wrote, "this question can not be answered with any degree of medical certainty with the information provided." Hence, Dr. Kowalski recommended three additional steps to determine if Morgan had any physical condition that would prevent him from engaging in sustained and regular work: (1) have Dr. Mermelstein complete a functional capacity questionnaire and identify any physical obstacles to his return to work; (2) consider an independent medical examination by a rheumatologist; and (3) surveillance.
On March 24, 2008, at Prudential's request, Dr. Mermelstein completed a functional capacity questionnaire. He verified that Morgan did not have the capacity for full or part time employment and could not estimate when he would be able to return to work. He reported that Morgan could not stand or walk for more than five minutes at a time or sit for more than ten minutes at a time. He also reported, among other limitations, that Morgan could lift only up to 10 pounds occasionally, and never more than 20 pounds; and had limited ability to stoop, kneel, and reach overhead. The questionnaire did not inquire whether Morgan's restrictions were caused by fibromyalgia, depression, or both.
On May 5, 2008, Dr. Sheldon Solomon, a rheumatologist, examined Morgan at Prudential's request. He opined that Morgan had no functional abnormality caused by a musculoskeletal disease. He also concluded that Morgan's chronic pain is "not documented by any objective findings." Dr. Solomon cautioned that it was beyond his expertise to determine whether Morgan's disability was related to anxiety or depression.
In its May 22, 2008 denial letter, Prudential advised Morgan that Dr. Kowalski's record reviews and Dr. Solomon's physical examination indicated that his disability was the result of depression and anxiety. Thus, his claim was subject to the Plan's 24-month mental health limitation period which expired on March 28, 2008.
On August 12, 2008, Morgan appealed Prudential's decision. He argued that his disability was caused by fibromyalgia and not depression. He included three updated letters from his treating physicians. Drs. Mermelstein and Peet diagnosed Morgan's condition as fibromyalgia. Dr. Aguilo-Seara, Morgan's treating neuropsychiatrist, *645 concluded that Morgan had "anxiety secondary to his fibromyalgia which prevents him from working."
Prudential then hired Dr. Howard, a board certified rheumatologist, to review Morgan's medical records. After reviewing Morgan's medical records, Dr. Howard agreed that Morgan had fibromyalgia, but concluded that he was not functionally impaired as a result of the disorder. He based his conclusion "on the absence of motor weakness, loss of muscle strength and tone, abnormalities in station and gait... [or] any focal neurologic abnormalities." He also relied on Dr. Solomon's report to conclude that Morgan's underlying psychiatric disorder is the cause of his impairment. Thus, he concluded that Morgan has no work restrictions or limitations based on his fibromyalgia and can perform physical activities involving sitting, standing, walking, reaching, lifting, carrying, and fine motor hand skills.
Based on Dr. Howard's record review, Prudential denied Morgan's appeal. Although it did not dispute that Morgan had fibromyalgia, Prudential concluded that the condition did not cause his functional impairment. It attributed Morgan's impairment to anxiety and depression, and not to any physical restriction. Thus, according to Prudential, because Morgan's impairment is based on a mental condition, he was not entitled to long term disability benefits after March 28, 2008.
Analysis
There is no question that Morgan has fibromyalgia and also suffers from anxiety and depression. The issue is whether there was substantial evidence from which Prudential could have reasonably concluded that Morgan's disability was caused by mental illness, in whole or part, and not fibromyalgia.
If Morgan's fibromyalgia and mental illness are independent of each other, the mental illness limitation applies. On the other hand, if the cause of Morgan's disability is fibromyalgia, which in turn caused his anxiety and depression, the limitation does not apply. A mental illness secondary to a physical condition is not the cause of the physical condition and the resulting disability. If but for the physical condition there would be no mental illness, the latter cannot be considered a cause of an impairment. Even if the mental illness contributes to the impairment causing the disability, it is the physical condition, not the mental condition, that is the cause of the disability. Otherwise, whenever a claimant's physical disease or condition causes anxiety and depression, the mental illness limitation would always apply. Thus, we conclude that in a claim such as Morgan's, where a mental condition is a sequelae or component of a physical disease or condition, a mental illness limitation will not apply.
Prudential concluded that Morgan's mental illness was an independent cause of his disability, separate from his fibromyalgia. Therefore, we will consider the evidence that it relied upon in reaching this conclusion in order to determine if it acted arbitrarily.
In light of Prudential's reliance on the opinions of its staff physician and its hired consultants, we shall examine how it viewed their conclusions in comparison with those of Morgan's treating physicians. In doing so, we look to the bases of their respective conclusions, the extent of their analyses, the information available to them, and their treatment of that information.
If Prudential accorded undue deference to the opinions of consultants who never examined Morgan or gave them, without a sufficient basis, substantially more weight than the conclusions of Morgan's *646 treating physicians, a procedural anomaly arises. Kosiba, 384 F.3d at 67-68. If its consultants' opinions are not founded on reliable evidence, they will not be given conclusive effect. Addis v. Limited Long-Term Disability Program, 425 F. Supp. 2d 610, 617 (E.D.Pa.2006).
Although he is neither a psychiatrist nor a rheumatologist, Dr. Kowalski concluded that Morgan's anxiety and depression, not fibromyalgia, caused his impairment. In his final record review, Dr. Kowalski admitted that he could not rule out fibromyalgia as a separate cause of Morgan's incapacity. He only speculated that it was "unlikely that fibromyalgia alone would... prevent [him] from working," and suggested a medical examination be conducted by a rheumatologist. (emphasis added).
Interestingly, Dr. Kowalski had already determined that Morgan was disabled. In his July 2, 2007 note, he wrote that the "medical records continue to suggest impairment from a psychiatric perspective." He then concluded that "his prognosis for return to work is poor."
Dr. Solomon was the rheumatologist selected by Prudential to perform the examination. His opinion is based on the fact that he could not find an "organic musculoskeletal disease" to explain Morgan's pain. Fibromyalgia is not a disease; it is a syndrome. See, e.g., Stackhouse v. Barnhart, 435 F. Supp. 2d 28, 30 (D.D.C.2006) (citations omitted). According to the National Institute of Arthritis and Musculoskeletal and Skin Diseases at the National Institute of Health, a "syndrome is a collection of signs, symptoms, and medical problems that tend to occur together but are not related to a specific, identifiable cause. A disease, on the other hand, has a specific cause or causes and recognizable signs and symptoms."[4] Dr. Solomon could not identify an organic disease causing Morgan's pain because fibromyalgia is not a disease and has no identifiable cause. Thus, his analysis erroneously conflated Morgan's syndrome with a disease.
Similarly, Dr. Solomon's statement that Morgan's chronic pain is "not documented by any objective findings" does not support a conclusion that he does not have a disabling condition. Fibromyalgia is a condition based on subjective complaints of pain. Steele v. Boeing Co., 225 Fed.Appx. 71, 74-75 (3d Cir.2007); Kuhn v. The Prudential Ins. Co. of Am., 551 F. Supp. 2d 413, 428 (E.D.Pa.2008). A fibromyalgia disability claim can not be denied on the basis of a lack of objective findings. Steele, 225 Fed.Appx. at 74-75. Yet, that is what Prudential, using Dr. Solomon's report, did.
In his report to Prudential, Dr. Solomon discounted the basis for Morgan's treating rheumatologist's conclusion that his patient was disabled. He claimed that Dr. Mermelstein's opinion "was based on the patient's self reporting of severity of symptoms" alone and not objective findings. This statement is misleading because fibromyalgia defies diagnosis by objective findings. It also ignores that Dr. Mermelstein, in his reports, clearly stated that he found fibromyalgia tender points, 14 out of 18 on February 9, 2007, 18 out of 18 on March 23, 2007, and 14 out of 18 on May 29, 2008.
Although Prudential had Morgan examined by Dr. Solomon, its unequivocal reliance on his conclusions was not warranted. In the Steele case, the Third Circuit stated that requiring objective evidence of fibromyalgia would arbitrarily and capriciously eliminate all disability claims based on the disorder. Steele, 225 Fed.Appx. at 74-75. *647 Likewise, in Kuhn the district court warned Prudential that it could not require physical findings or objective evidence of fibromyalgia as a basis for disability. Kuhn, 551 F.Supp.2d at 431. Nevertheless, having been previously warned that fibromyalgia is not an organic disease that can be diagnosed on the basis of objective findings, Prudential still adopted Dr. Solomon's conclusion that Morgan's chronic pain was not documented by any objective findings.
Dr. Solomon's findings, as far as they go, confirmed that Morgan has no objective signs. Relying on this fact alone is arbitrary. It reflects a bias to find any reason to deny the claim.
Dr. Howard's finding that Morgan's mental condition is the cause of his incapacity is not credible. His opinion relied substantially on Dr. Solomon's findings. However, as described above, Dr. Solomon's findings were unreliable and misleading. In fact, Dr. Solomon himself had warned that he was not competent to determine whether Morgan's disability was caused by anxiety and depression. Thus, to the extent his opinion relied on Dr. Solomon's findings, it is questionable.
Among the records Dr. Howard reviewed and considered in reaching his opinions were Prudential's SOAP notes which he characterized as "a chronologic summary of the claimant's medical records and decision making concerning his disability," and Dr. Kowalski's file review. Howard was hired to render an independent opinion. Yet, rather than supplying him with only the medical records, Prudential provided him with documents that alerted him to what it had decided and why. Consequently, Howard was pointed in the direction where Prudential was heading. Indeed, Dr. Howard adopted the findings of Prudential's in-house doctor that Morgan's condition was psychiatric in nature and Dr. Solomon's suspicion that his condition had a "probable psychiatric cause."
Although he concludes that Morgan can complete all physical activities without restriction or limitation, Howard points to no evidence to support this conclusion. Nowhere in his report can one find a verifiable basis for this conclusion. He recites, but discounts, the medical history which is replete with medical causes. A close look at his opinion reveals that like Dr. Solomon, he excludes disability only on the lack of objective findings. He limits his opinion by saying that Morgan is not functionally impaired "on the absence of motor weakness, loss of muscle strength and tone, abnormalities in station and gait ... [or] any focal neurologic abnormalities." Even Drs. Kowalski and Solomon do not dispute that Morgan has a disabling impairment.
Dr. Howard did not physically examine Morgan. The absence of an examination is a factor in analyzing the differences in the opinions of the consultant and the treating physician. There is no obligation on the insurer to have an insured examined by a physician. However, where the insured's treating physician's disability opinion is unequivocal and based on a long term physician-patient relationship, reliance on a non-examining physician's opinion premised on a records review alone is suspect and suggests that the insurer is looking for a reason to deny benefits. Kaufmann v. Metro. Life Ins. Co., 658 F. Supp. 2d 643, 650 (E.D.Pa.2009).
Giving the impression that Morgan's condition is mental, Dr. Howard cites Dr. Stephenson, saying "[s]he felt his problems related to depression and poor sleep" and that "[s]he felt his cognitive difficulties were related to severe depression." Howard ignores Dr. Stephenson's unequivocal statement in her response in August, 2006 *648 to Prudential's questionnaire that "physical fatigue" is what is preventing Morgan from working. In her response to an earlier questionnaire in April, 2006, Dr. Stephenson had reported that "chronic fatigue, intolerance to activity, minor muscle weakness and memory difficulties" prevented Morgan from working. She further stated in her May 12, 2006 report that she suspected that his fatigue may be partially responsible for his depression. Dr. Howard either failed to consider or cast aside Dr. Stephenson's ultimate conclusion that it was "physical fatigue," not a mental illness, that prevented him from working.
Likewise, in summarizing Dr. Aguillo-Seara's findings, Dr. Howard selected only those portions of the documents that support a mental health finding. He notes that Dr. Aguillo-Seara listed depression and muscle weakness as preventing Morgan from working. He mentions that the neuropsychiatrist had listed the diagnosis as major depression.
Dr. Howard failed to consider evidence that Morgan's mental illness is secondary to his fibromyalgia. Dr. Aguilo-Seara's letter dated June 19, 2008, states that Morgan has "increased anxiety secondary to his fibromyalgia which prevents him from working." Dr. Howard received this letter, but concluded that it is "unclear as to which diagnosis is preventing him from working." He made no effort to contact Dr. Aguilo-Seara to clarify what he claims was unclear.
Dr. Howard apparently did not have all the records of Dr. Aquillo-Seara. In his report to Prudential, he lists the records as those dating from September 10, 2006 to June 7, 2007. Prudential did not provide Dr. Howard with the mental status examination that had been performed on May 20, 2006. That document reported that Morgan suffered from "multiple medical problems." Although Dr. Aquillo-Seara diagnosed Morgan with major depression, he never opined that the condition caused his disability. Either Dr. Howard was not provided with the May 20, 2006 report or he ignored it. In either event, critical information that was favorable to Morgan was not factored into the analysis.
Commenting on Dr. Mermelstein's conclusion, as stated in the Functional Capacity Questionnaire, that Morgan was not capable of working full or part time, Dr. Howard questioned the validity of that conclusion because it "was based on the patient's self-reported symptoms and not based on [Mermelstein's] observations or objective findings." Again, Dr. Howard inappropriately focuses on the absence of objective findings. Also, his conclusion that Dr. Mermelstein's opinions were not based on his observations is a misstatement. Dr. Mermelstein was a treating physician who saw his patient over time and examined him on multiple occasions.
The record before Dr. Howard and Prudential demonstrates that Dr. Mermelstein's opinions are based on his findings and personal observations. Indeed, he treated and examined Morgan beginning in December, 2006. In his report of June 20, 2008, Dr. Mermelstein noted that Morgan had "undergone a thorough medical work-up to exclude other cause of his pain and his work-up has been negative." Dr. Peet also relied on "[c]linical and laboratory testing by Dr. Mermelstein." R. 60.
Dr. Howard selects only those medical sources that support his opinion. In diagnosing Morgan with fibromyalgia, Dr. Howard cites the American College of Rheumatology's ("ACR") diagnostic criteria. However, in concluding that Morgan's mental illness is the independent cause of his disability, he ignores the ACR's definition *649 of fibromyalgia which lists depression and anxiety as symptoms.[5]
Prudential relied on Dr. Howard's record review in determining that Morgan was subject to the Plan's mental health limitation. In his report, Dr. Howard acknowledged that Morgan had fibromyalgia, but denied that it was debilitating or caused physical restrictions. However, he dismissed Dr. Mermelstein's functional capacity questionnaire indicating that Morgan had no work capacity on the impermissible ground that there were no objective findings. He opined that there was "no evidence of functional impairment associated with fibromyalgia based on the absence" of objective findings. He also ignored Dr. Stephenson's finding that "chronic fatigue and intolerance to activity" were preventing Morgan from working. Drs. Mermelstein and Stephenson have been treating Morgan since December 9, 2006, and February 9, 2006, respectively. Dr. Howard made no attempt to reconcile his conclusion with the contradictory findings of Morgan's long-time physicians. Nor did Prudential.
Dr. Howard's conclusion is founded on the opinions of Prudential's consultant and its medical director, and ignores the contrary findings of Morgan's treating physicians. It also ignores the medical definition of fibromyalgia which undermines his conclusions. Prudential's acceptance of Dr. Howard's findings, without explaining why it accepted them over Morgan's treating doctors, suggests that it was searching for a reason to deny Morgan's benefits.
Based on the evidence in the record, Prudential's decision to credit the unqualified conjecture of Dr. Kowalski, the unreliable opinion of Dr. Solomon, and the groundless findings of Dr. Howard over Drs. Mermelstein and Stephenson was not reasonable. Although we do not automatically defer to treating physicians, Prudential's decision strongly suggests a procedural bias. It did not explain why it chose to ignore the credible findings of Drs. Mermelstein and Stephenson, except to rely on the absence of objective findings. Prudential's selectivity in what medical evidence it accepted and what it rejected or ignored casts doubt on the fairness of the decision making process.
Early in the claims process, Prudential's in-house doctor recognized that depression is commonly associated with fibromyalgia and increases the impairment resulting from fibromyalgia. He suggested that a psychiatrist be consulted. Nevertheless, despite his recommendation, Prudential did not have a psychiatrist review the medical records and examine Morgan to determine the cause of his depression and anxiety. On March 11, 2008, Dr. Kowalski wrote to the file that "[t]he primary issue is, from a physical perspective, does the claimant have sustained and regular work capacity, excluding his mental nervous condition? Based on the chronicity of the claimant's illness and the lack of medical records, this question can not be answered with any degree of medical certainty with the information provided. Additional steps are appropriate." Yet, Prudential never consulted a psychiatrist or obtained a psychiatric evaluation.
Prudential has been warned that it cannot reject fibromyalgia claims for lack of objective evidence. See, e.g., Steele v. Boeing Co., 225 Fed.Appx. at 74; Kuhn v. The Prudential Insurance Company of America, 551 F.Supp.2d at 428. Faced with this restriction, it now seeks to avoid paying these claims by isolating symptoms of fibromyalgia-anxiety *650 and depression[6] and characterizing those symptoms as the disabling condition. By segregating symptoms from the disease, Prudential is choosing those that fit into a category that limits benefits.
Although Morgan may suffer from anxiety and depression, the cause of those symptoms, and, thus, the cause of the disability is fibromyalgia. Because his mental condition is merely a sequelae or component of the disorder, the mental illness limitation does not apply.
Prudential contends that Morgan simultaneously received disability benefits under the Plan and Social Security disability benefits between March 1, 2006 and March 27, 2008. Accordingly, because the Plan failed to offset Social Security benefits as it can under the Plan, Morgan was overpaid $3,667.11[7] in short and long term benefits.
There is no dispute that both short term and long term benefits are offset by Social Security benefits. Plan, Art. 7.7(i). Beneficiaries must reimburse the Plan for any overpayment that arises from a retroactive award of Social Security benefits. Id. In addition, Morgan executed a Reimbursement Agreement on April 22, 2006, in which he agreed to reimburse the Plan for any retroactive Social Security benefits paid.
Morgan does not dispute the simultaneous receipt of Social Security benefits and short term benefits from March 1, 2006 through March 27, 2006. He argues that he is not responsible for reimbursing Prudential because Prudential advised him in a letter that he would be responsible for reimbursing the Plan for overpayments in long term disability benefits only. The letter is not a contract and contains no language restricting Prudential's ability to be reimbursed for short term benefits. Moreover, the terms of the Plan and the Reimbursement Agreement both confirm Morgan's obligation to reimburse the Plan for overpayment in short term reimbursements.
With respect to long term benefits, Prudential contends that because Morgan received both Social Security benefits and long term benefits from March 28, 2006 through March 27, 2008, he was required to reimburse it for 24 months in overpayments, but only reimbursed it for 23 months. Morgan argues that he only received 23 months of long term benefits, and that there is nothing in the administrative record proving otherwise. However, he contradicted his own argument by admitting that he received 24 months of long term benefits in his response to Prudential's Statement of Undisputed Facts. Pl. Resp. to Def. Facts, ¶ 68.
Based on the record and Morgan's own admission, we conclude that he was overpaid a total of $3,667.11 in short term and long term benefits. Therefore, Prudential is entitled to reimbursement of the overpayment.
Conclusion
Considering the administrative record and applying a deferential standard of review, we find that Prudential's decision to deny Morgan long term benefits is not supported by substantial evidence. Instead, it was arbitrary and capricious. Therefore, Morgan's motion for summary judgment will be granted and Prudential's *651 motion for summary judgment will be denied.[8]
NOTES
[1] Given our determination that Morgan is entitled to long term benefits, Prudential may deduct the overpayment from the past due benefits.
[2] Dr. Kowalski is board certified in occupational medicine.
[3] Dr. Kerson had Morgan undergo a muscle biopsy. The results were "mild to non-specific." Kerson Ltr. 12/22/06.
[4] See "Questions and Answers about Fibromyalgia," http://www.niams.nih.gov/Health_Info/Fibromyalgia/default.asp (last visited November 10, 2010).
[5] See "What is Fibromyalgia," http://www. rheumatology.org/practice/clinical/patients/diseases_and_conditions/fibromyalgia.asp (visited November 18, 2010).
[6] Symptoms of fibromyalgia include depression and anxiety. See "What is Fibromyalgia," http://www.rheumatology.org/practice/clinical/patients/diseases_and_conditions/fibromyalgia.asp (visited November 18, 2010)
[7] This figure includes overpayment of $2,494.85 in short term benefits, and $1,172.26 in long term benefits.
[8] With respect to Prudential's counter claim, we find that Morgan was overpaid $3,667.11 in short term and long term disability benefits. Prudential may deduct that amount from past due benefits. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2471427/ | 129 F. Supp. 2d 1273 (2000)
Victoria AGUAYAO, Regional Director of the Twenty-First Region of the National Labor Relations Board, for and on the behalf of the NATIONAL LABOR RELATIONS BOARD, Petitioner,
v.
QUADRTECH CORPORATION, Respondent.
No. CV 00-11039 CM MANX.
United States District Court, C.D. California.
November 21, 2000.
*1274 Julie B. Gutman, Neial A. Warheit, William M. Pate, Los Angeles, CA, for petitioner.
Gregory G. Kennedy, Deborah H. Petito, Douglas H. Hoang, Goldstein, Kennedy & Petito, Los Angeles, CA, for respondent.
ORDER GRANTING PRELIMINARY INJUNCTION
MORENO, District Judge.
The Court, having considered the moving papers, the opposition, and all further evidence and argument submitted in support of the parties' papers, grants the Petitioner's motion for a preliminary injunction.
I. Background
The instant case concerns a labor dispute between Respondent Quadrtech, Inc. ("Quadrtech" or "Respondent") and Maria A. Venegas ("Venegas") and the International Union of Electronic, Electrical, Salaried, Machine Furniture Workers, AFL CIO ("IUE" or "the Union"). Venegas and IUE have filed charges against Quadrtech in cases that are before the Petitioner, National Labor Relations Board ("NLRB" or "the Board"). The NLRB brings this case pursuant to 29 U.S.C. § 160(j). The NLRB petitions this Court to enjoin Respondent from relocating to Mexico pending resolution of the aforementioned labor dispute.
Respondent manufactures jewelry and piercing machines. In or about January 2000, Quadrtech opened shop in Gardena, California. It is alleged that Quadrtech's owner, Vladimir Reil ("Reil"), owns a jewelry company in Harbor City, California called Onyx. Prior to January, 2000, Reil's entire business operation was located in Harbor City. Respondent allegedly initiated a "lock-out" on May 18, 2000 following employee protests over working conditions. On May 18, 2000 Venegas filed a charge with the Board in Case 21-CA-339997. Also on May 18, 2000, IUE filed a petition with the Board for a union election at the Respondent's Gardena facility. The election was set for June 29, 2000.
*1275 Between May 18 and June 29, 2000, Respondent engaged in various activities to discourage Quadrtech employees from unionizing. The Petitioner alleges that Quadrtech's activities were unlawful. The Board submits voluminous affidavit evidence suggesting that, inter alia, Quadrtech's owner and agents interrogated Quadrtech employees as to their union sympathies and activities; threatened employees with job loss and reductions in benefits if they voted in favor of the Union; suggested the plant would relocate if employees voted in favor of the Union; and promised benefits to employees if they voted against the Union.
On June 29, 2000, the approximately 118 eligible unit employees at the Gardena facility voted in favor of the Union. On July 12, 2000, the Union was certified as the exclusive collective bargaining representative of the unit. On July 13, 2000, Respondent's attorney, Gregory Kennedy, dispatched a letter to the Union indicating that Quadrtech would be relocating certain production jobs to Mexico. The letter stated that, as a consequence of the relocation, Quadrtech would lay off up to 80 unit employees between November 3 and November 17, 2000. The letter articulates the Respondent's willingness to engage in "good faith" bargaining with the Union regarding the effects of Respondent's decision. Respondent did not in any way indicate prior to July 13, 2000 that it was planning to relocate. On July 13, 2000, the Union filed a charge against Quadrtech with the Board in Case 21-CA-34084.
The Board argues that if Respondent is not enjoined from relocating to Mexico, the NLRB's ability to adjudicate Cases 21-CA-33997 and 21-CA-34084 will be irremediably harmed.
II. Standard
Section 10(j) of the NLRA, 29 U.S.C. § 160(j), authorizes the NLRB to petition United States district courts for injunctions against unlawful labor practices pending their adjudication before the Board. District courts are, in turn, empowered to grant injunctions where they appear "just and proper."[1] There is variation between circuits as to the standard for granting a Section 10(j) injunction. Until recently, the Ninth Circuit embraced a standard that was rather generous to the NLRB. See Scott ex rel. NLRB v. El Farra Enters., Inc., 863 F.2d 670, 673-74 (9th Cir.1988) (promulgating a two-part test that first asked whether the Board had reasonable cause to believe the employer violated the NLRA and, second, whether an injunction was necessary to prevent frustration of the NLRA's remedial purpose); Aguayo ex rel. NLRB v. Tomco Carburetor Co., 853 F.2d 744, 747 (9th Cir.1988) (same). Other circuits continue to embrace this standard. See, e.g., Kaynard v. Mego Corp., 633 F.2d 1026, 1033 (2d Cir.1980). Hirsch v. Dorsey Trailers, Inc., 147 F.3d 243, 247 (3d Cir.1998).
The Ninth Circuit has overruled Tomco and El Farra and deployed a more stringent standard in their stead. Miller v. California Pacific Medical Center, 19 F.3d 449, 457 (1994) (en banc). This, more stringent standard, interprets Section 10(j)'s "just and proper" language through the lens of traditional equitable principles.[2]*1276 Miller, however, does not instruct district courts to rely on traditional equitable principles as understood in non-labor contexts. Rather, the Ninth Circuit has instructed that lower courts apply traditional equitable principles in a manner that is ensitive to Section 10(j)'s primary purpose: "to protect the integrity of the collective bargaining process and to preserve the Board's remedial power while it processes the charge." Id. at 459-60. Section 10(j) seeks to "ensure that an unfair labor practice will not succeed because the Board takes too long ... to adjudicate the charge." Id. at 460.
This Court will not simply sign off on the Board's request for equitable relief. Id. at 458. The Board must demonstrate that it has at least a fair chance of winning its case on the merits. Id. at 460. The Court will determine whether the Board has met its burden in light of the Court's lack of jurisdiction over the unfair labor practice in question and the appellate deference accorded to NLRB determinations. Id. (citing NLRB v. City Disposal Sys., Inc., 465 U.S. 822, 829, 104 S. Ct. 1505, 79 L. Ed. 2d 839 (1984)). The Board can "make a threshold showing of likelihood of success by producing some evidence to support the unfair labor practice charge together with an arguable theory." Id.
If the Board demonstrates that it is likely to prevail on the merits, the Court shall presume that irreparable injury would result absent the preliminary injunction. Id. If the Board has only a fair chance of prevailing on the merits, the Court must consider the possibility of irreparable injury. Id.
III. Analysis
A. The Merits
The NLRB argues that Respondent's decision to relocate production facilities to Mexico violates Sections 8(a)(1), (3), and (5) of the NLRA. For reasons discussed below, the Court concludes that the NLRB is likely to prevail on its claim.
1. Defendant's Decision to Lay off Employees and Relocate
Section 8(a)(3) of the NLRA, 29 U.S.C. § 158(a)(3), defines an unfair labor practice by an employer as one which is discriminatory in a manner that discourages membership in a labor organization.[3] An employer may not relocate a plant in order to thwart the unionization of its workers. See, e.g., NLRB v. Taylor Machine Products, Inc., 136 F.3d 507, 515 (6th Cir.1998). Courts have held that even where a relocation is lawful, an employer may not use it as a vehicle by which to rid itself of unionized employees. See, e.g., Dunbar v. Colony Liquor and Wine Distr., LLC., 15 F. Supp. 2d 223, 234 (N.D.N.Y. 1998).
*1277 Section 8(a)(3) only prohibits relocations that are motivated by unlawful intentions. Presently, the Respondent asserts that legitimate, economic concerns precipitated its decision to relocate. In ascertaining the relocation's cause, the NLRB has promulgated a standard based upon the Supreme Court's opinion in Mt. Healthy City Sch. District Board of Ed. v. Doyle, 429 U.S. 274, 97 S. Ct. 568, 50 L. Ed. 2d 471 (1977):
First, we shall require that the General Counsel make a prima facie showing sufficient to support the inference that protected conduct was a "motivating factor" in the employer's decision. Once this is established, the burden will shift to the employer to demonstrate that the same action would have taken place even in the absence of the protected conduct.
Wright Line, 251 N.L.R.B. 1083, 1089 (1980), enf'd 662 F.2d 899 (1st Cir.1981).
The Supreme Court has approved the NLRB's burden shifting scheme. NLRB v. Transportation Management Corp., 462 U.S. 393, 398, 103 S. Ct. 2469, 76 L. Ed. 2d 667 (1983).[4] In the course of affirming Wright Line, the Court also stated that Section 7(c) of the Administrative Procedure Act ("APA") "determines only the burden of going forward, not the burden of persuasion." Id. at 403-04 n. 7, 103 S. Ct. 2469. In Director, Office of Workers' Compensation Programs v. Greenwich Collieries 512 U.S. 267, 114 S. Ct. 2251, 129 L. Ed. 2d 221 (1994), the Court overruled this interpretation of Section 7(c). Section 7(c) does determine the "burden of persuasion," and thus requires that the burden perpetually remain with the action's proponent. Nevertheless, the Greenwich Court concluded that Wright Line was appropriate because it did no more than impose the burden of proving an affirmative defense on the employer. Greenwich, 512 U.S. at 278, 114 S. Ct. 2251. Greenwich, however, does suggest that the proponent must make a somewhat greater showing than just a prima facie one. See Southwest Merchandising Corp. v. NLRB, 53 F.3d 1334, 1340 n. 8 (D.C.Cir.1995).
Presently, the NLRB has adduced considerable evidence indicating that anti-union animus motivated Quadrtech's decision to relocate to Mexico. First, the timing of Quadrtech's decision is suggestive. In January, 2000 Quadrtech moved its machinery and 118 employees from a facility in Harbor City, California to Gardena, California. Am.Pet.Exh. 8. The NLRB advances evidence suggesting that Quadrtech's owner, Vladmir Reil, invested significant time and money in the relocation. Numerous employees have testified that, a few weeks before the union election, Reil stated that he would not relocate the plant on account of having invested so much in the move from Harbor City. Am.Pet.Exhs. 12, 14, 32.
On May 18, 2000, the Union filed a petition for the Board to sanction a union election among Quadrtech's employees. Am.Pet.Exh. 35. Quadrtech chose not to contest any of the issues precluding or otherwise affecting the election. Rather, on May 25, 2000, it entered into a Stipulated Election Agreement. Am.Pet.Exh. 36. At no point prior to the union election did Quadrtech announce or otherwise suggest that it was planning a relocation that would result in a substantial reduction of its personnel. Yet, on July 13, 2000, one day after the Union was certified, Respondent, through its attorney, sent a letter to the Union announcing Quadrtech's plans to relocate production to Mexico. In the letter, Respondent stated that it would lay off up to 80 of the approximately 117 employees in the bargaining unit. Decl. Gregory G. Kennedy Exh. 1.
The timing of Quadrtech's announcement strongly supports the inference that anti-union animus motivated its relocation calculus. This inference is bolstered by evidence of an anti-union campaign orchestrated by the Respondents. The NLRB advances evidence that, up and until the *1278 union election on June 29, 2000, Respondent, inter alia, engaged in the following conduct: 1) a two-and-a-half-day lock-out in May, 2000; Am.Pet.Exhs. 6, 10, 17, 19; 2) hiring "labor consultants" who, inter alia, told employees that the Union was malevolent and that the employees would receive less pay and benefits if they unionized; Am.Pet.Exhs. 8, 18, 24, 29; 3) through supervisors, individually and collectively threatening employees with discharge and reductions in pay and benefits if they voted for the union; Am.Pet.Exh. 15; and 4) that on the day before the union election, Reil, in a meeting with all day shift employees, stated that Quadrtech would not be able to compete if it had to pay higher wages; Reil also distributed a letter stating that there would be no retaliation against Union supporters if the Union lost; Am.Pet.Exhs. 7, 14, 32.
In its defense, Quadrtech states that its relocation decision was entirely predicated upon legitimate economic considerations.[5] Given imminent increases in California's minimum wage, Respondent contends that it simply will not be able to bear the competitive pressures of an increasingly "globalized" economy. In support of its argument, Respondent submits sundry articles and statements attesting to the competitive pressures generated by goods made outside the United States by low-wage workers. Respondent, however, submits scant empirical evidence as to its current and/or projected financial health. Rather, Quadrtech simply rests on the unsupported suggestion that spectral, low-wage Chinese workers haunt its business related decision-making. The rhetoric of "cheap foreign labor" is a shibboleth that employers may not rely upon to justify unlawful, anti-union conduct. See First National Maintenance Corp. v. NLRB, 452 U.S. 666, 682, 101 S. Ct. 2573, 69 L. Ed. 2d 318 (1981) ("An employer may not simply shut down part of its business and mask its desire to weaken and circumvent the union by labeling its decision `purely economic.'"). Quadrtech's evidence is perilously inadequate.
Respondent also argues that its allegedly anti-union activity was actually conduct protected by section 8(c) of the NLRA, 29 U.S.C. § 158(c). Section 8(c) permits employers to express their views regarding unionization provided that they do not threaten employees with any sort of reprisal.[6] The Supreme Court has stated that:
[A]n employer is free to communicate to his employees any of his general views about unionism or any of his specific views about a particular union, so long as the communications do not contain a threat of reprisal or force or promise of benefit. He may even make a prediction as to the precise effects he believes unionization will have on his company. In such a case, however, the prediction must be carefully phrased on the basis of objective fact to convey an employer's belief as to demonstrably probable consequences beyond his control or to convey a management decision already arrived at to close the plant in case of unionization. If there is any implication that an employer may or may not take action solely on his own initiative for *1279 reasons unrelated to economic necessities and known only to him, the statement is no longer a reasonable prediction based on available facts but a threat of retaliation....
NLRB v. Gissel Packing, Co., 395 U.S. 575, 618, 89 S. Ct. 1918, 23 L. Ed. 2d 547 (1969) (citations omitted).
Quadrtech argues that statements made by its owner, Reil, to Quadrtech employees are protected by Section 8(c). Reil's statements to Quadrtech employees on June 21 and 28, 2000 are not outwardly threatening. They are, however, thick with suggestion. The NLRB adduces evidence indicating that Reil asked Quadrtech employees to consider the effects of unionizing in the same breath that he asserted a union shop's inability to compete against non-U.S. producers who rely upon low-wage workers. Reil exhorted Quadrtech employees to return home and look where their household appliances and wares had been made. Exhs. 7, 12, 14. The NLRB's evidence suggests that Reil's statements were menacingly portentous, in part, because they were uttered in the context of what was an on-going anti-union campaign.
Quadrtech also proffers thin evidence in support of its explanation for what the NLRB alleges to have been an unlawful lock-out. Respondent does not advance any significant argument or evidence concerning the other conduct constituting the anti-union campaign. In short, this Court finds it likely that the NLRB will succeed on the merits of its claims under Sections 8(a)(1) and (3). As such, the Court may presume that irreparable injury will result if this preliminary injunction is not granted.
2. Good Faith Bargaining
Section 8(a)(5) of the NLRA, 29 U.S.C. § 158(a)(5), provides that it shall be unlawful for an employer to refuse to bargain collectively with its employees' representatives. Unions do not have a right to participate in employers' decision making as to whether or not to close a facility. First National 452 U.S. at 681, 101 S. Ct. 2573. Employers, however, must bargain over the effects of a plant closure. Id. In this way, unions may indirectly ensure that closure decisions are deliberately considered. Id. Unions are also thereby able to protect themselves against plant closure decisions that are animated by anti-union sentiment. Id.
Presently, the NLRB contends that Quadrtech failed to bargain in good faith regarding the effects of its relocation decision. Quadrtech was required to bargain over its decision in a meaningful manner and at a meaningful time. Id. To the extent that Quadrtech's decision was unlawful, it is not clear that any bargaining gesture would have been adequate. That said, Respondent's "good faith" overture came in the form of a letter dated July 13, 2000, the day after the Union's certification. In the letter, Respondent's attorney announced Respondent's decision to relocate and consequential plans to terminate the majority of its workers at the Gardena facility.
The Respondent's letter is patently pro forma. It was dispatched in the immediate wake of the Union's certification. Moreover, the letter presents a prefabricated scheme for going about the termination. In short, Quadrtech's bargaining gesture seems to fall short of the "meaningful manner" and "meaningful time" requirements. The Court concludes that the Board is likely to succeed in proving a violation of Section 8(a)(5). As such no showing of irreparable injury is necessary.
B. Balancing Equities
For reasons stated above, the Court concludes that irreparable injury is likely to result if an injunction is not granted. Respondent asserts that it has already suffered substantially as a result of the Temporary Restraining Order this Court granted against it. Quadrtech's Mem. P & A 2. Quadrtech, however, adduces no meaningful evidence as to the dimensions of its suffering.
*1280 Conclusion
Pending final disposition of Cases 21-CA-3397 and 21-CA-34084 before the Board, the Court grants the following interim relief:
1. Quadrtech Corporation, its officers, representatives, agents, servants, employees, attorneys and all persons acting in concert with it are enjoined and restrained from:
(a) Refusing to recognize and bargain in good faith with District Council 8, IUE, the Industrial Division of the Communications Workers of America, AFL CIO, CLC (IUE-CWA) as the exclusive bargaining representative of the Unit employees about wages, hours and other terms and conditions of employment of Unit employees, including, but not limited to, any decision to lay off employees, and/or to subcontract or relocate Unit work that is a mandatory subject of collective bargaining under the Act. The appropriate Unit is:
All full-time and regular part-time production and maintenance employees, bulk department employees, and shipping and receiving employees employed by Respondent at its facility located at 521 West Rosecrans Boulevard, Gardena, California; excluding all other employees, office clerical employees, professional employees, guards and supervisors as defined in the Act.
(b) Laying off or discharging Unit employees and subcontracting or relocating their work, or deciding to lay off or discharge Unit employees and to subcontract or relocate their work, in retaliation for employees' union activities and/or their selection of the Union as their collective-bargaining representative.
(c) Transferring, selling, relocating, removing, or otherwise alienating any of the assets, equipment, fixtures, inventory, supplies or work in progress involved in Unit work, pursuant to any relocation or subcontracting of Unit work from its Gardena, California facility in retaliation for employees' union activities and/or their selection of the Union as their collective-bargaining representative.
(d) Making implied threats to relocate its operations if employees choose the Union as their representative;
(e) Telling employees that Respondent decided to relocate its operations to Mexico because employees chose the Union as their representative;
(f) Threatening employees with stricter enforcement of work rules and discipline for mistakes, up to and including termination, if employees choose the Union as their representative;
(g) Threatening employees with loss of benefits if they choose the Union as their representative;
(h) Telling employees that union supporters are to blame for the stricter enforcement of work rules, loss of benefits, and other problems and changes at the Company;
(i) Threatening that it would be futile for employees to select the Union as their representative;
(j) Threatening employees with the inevitability of strikes if they choose the Union as their representative;
(k) Coercively interrogating employees about their Union support and sympathy and the Union support and sympathies of co-workers;
(l) Soliciting employee grievances in order to dissuade union support;
(m) Promising to confer benefits if employees abandon their support for the Union;
(n) Conferring benefits on employees to dissuade union support; and
(o) In any other manner interfering with, restraining or coercing its employees in the exercise of the rights guaranteed by Section 7 of the Act, 29 U.S.C. § 157.
2. Respondent, its officers, representatives, agents, servants, employees, attorneys, and all other persons acting in concert with it are affirmatively ordered to:
(a) Restore to the Gardena, California facility any Unit work which has been *1281 subcontracted or relocated after July 13, 2000, as well as any equipment, fixtures, inventory, supplies and work in progress that have been relocated or subcontracted from that facility since July 13, 2000; and reinstate any employees who have been laid off pursuant to any removal of work from its Gardena, California facility after July 12, 2000.
(b) Within twenty (20) days from the date of this order, rescind any outstanding agreements to subcontract Unit work to Tijuana, Mexico;
(c) Recognize and bargain in good faith with District Council 8, IUE, the Industrial Division of the Communications Workers of America, AFL CIO, CLC (IUE-CWA) as the exclusive collective-bargaining representative of the Unit employees about wages, hours and other terms and conditions of employment of Unit employees, including, but not limited to, any decision to subcontract or relocate Unit work from Respondent's Gardena, California facility that is a mandatory subject of bargaining under the Act.
(d) Post copies of the District Court's opinion and order, translated into Spanish, at Respondent's facility where Respondent's notices to its employees are customarily posted; these postings to be maintained for the duration of the Order, and to remain free of all obstructions and defacements;
(e) Grant reasonable access by the Regional Director's agents to Respondent's facility to monitor compliance with the posting requirements;
(f) Within twenty (20) days of the issuance of the order, file with the District Court, with a copy submitted to the Regional Director, a sworn affidavit from a responsible Respondent official setting forth with specificity the manner in which Respondent has complied with the terms of this decree.
3. That this case remain on the docket of this Court, and on compliance by Respondent with its obligations undertaken hereto, and upon final disposition of the matters pending before the Board, the Petitioner shall cause this proceeding to be dismissed.
IT IS SO ORDERED.
NOTES
[1] 29 U.S.C. § 160(j) provides that:
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 any United States district court, within any district wherein the unfair labor practice in question is alleged to have occurred or wherein such person resides or transacts business, 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.
[2] The traditional test requires "(1) a strong likelihood of success on the merits, (2) the possibility of irreparable injury to plaintiff if the preliminary relief is not granted, (3) a balance of hardships favoring the plaintiff, and (4) advancement of the public interest[.]" Johnson v. California State Bd. of Accountancy, 72 F.3d 1427, 1430 (9th Cir.1995). Under the so-called "alternative test," a party seeking preliminary injunctive relief must demonstrate either (1) a combination of probable success on the merits and the possibility of irreparable injury; or (2) that serious questions are raised and the balance of hardships tips sharply in the moving party's favor. Stanley v. University of Southern California, 13 F.3d 1313, 1319 (9th Cir.1994). Taken together, the two tests reflect "a sliding scale in which the required degree of irreparable harm increases as the probability of success decreases." MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511, 516 (9th Cir.1993) (citations and internal quotation marks omitted).
[3] Section 158(a)(1) provides that it shall be an unfair labor practice for an employer "to interfere with, restrain or coerce employees in the exercise of the rights guaranteed in section 157 of this title."
Section 158(a)(3) provides that it shall be an unfair labor practice for an employer, "by discrimination in regard to hire or tenure of employment or any term or condition of employment to encourage or discourage membership in any labor organization ..."
Section § 158(a)(1), "is the blanket provision that shields employees from unfair labor practices. In most unfair labor practice cases, the Board has rested its decisions primarily on the particularized provisions of [158(a)(2)-(5) ]; in such cases, the Board has found that the employer has violated section [158(a)(1) ] only derivatively." Microimage Display Div. Of Xidex Corp. v. NLRB, 924 F.2d 245, 250 (D.C.Cir.1991).
[4] Section 7(c) provides that "[e]xcept as otherwise provided by statute, the proponent of a rule or order has the burden of proof." 5 U.S.C. S 556(d).
[5] In oral argument, Respondent invoked similar logic in urging this Court, to the extent it is willing to enjoin Respondent at all, to do so only in a limited manner. In particular, Respondent urges this Court to enjoin Quadrtech from laying-off workers in the relevant bargaining unit (as opposed to enjoining the company from relocating its facilities). Respondent, however, cites no authority to suggest that this Court is precluded from enjoining an unlawful relocation. Nor does Respondent challenge Petitioner's assertion that the NLRB's adjudicatory purpose will be irremediably frustrated with anything less than an injunction that does not preclude relocation.
[6] In particular, Section 8(c) of the NLRA, 29 U.S.C. § 158(c), provides that:
The expressing of any views, argument, or opinion, or the dissemination thereof, whether in written, printed, graphic, or visual form, shall not constitute or be evidence of an unfair labor practice under any of the provisions of this subchapter, if such expression contains no threat of reprisal or force or promise of benefit. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2471441/ | 759 F. Supp. 2d 882 (2010)
David RIVERA, Plaintiff,
v.
Eric H. HOLDER, Jr., Attorney General, U.S. Department of Justice, Federal Bureau of Prisons, Defendant.
No. EP-09-CV-350-PRM.
United States District Court, W.D. Texas, El Paso Division.
December 30, 2010.
Enrique Lopez, Law Office of Enrique Lopez, El Paso, TX, for Plaintiff.
Eduardo R. Castillo, Assistant United States Attorney, El Paso, TX, for Defendant.
ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT BASED ON JUDICIAL ESTOPPEL
PHILIP R. MARTINEZ, District Judge.
On this day, the Court considered Defendant Eric H. Holder, Jr.'s (Defendant) "Motion for Summary Judgment Based on Judicial Estoppel" (Docket No. 35) [hereinafter Motion], filed on December 7, 2010; Plaintiff David Rivera's (Plaintiff) "Response to Defendant's Motion for Summary Judgment Based on Judicial Estoppel" (Docket No. 38) [hereinafter Response], filed on December 22, 2010; and Defendant's "Reply to Plaintiff's Response to Defendant's Motion for Summary Judgment Based on Judicial Estoppel" (Docket No. 39) [hereinafter Reply], filed on December 23, 2010 in the above-captioned cause. After due consideration, the Court *883 is of the opinion that Defendant's Motion should be granted for the reasons set forth below.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. Complaint
On September 24, 2009, Plaintiff David Rivera (Plaintiff) filed his "Complaint." Docket No. 1. Therein, Plaintiff represents that he is a Correctional Officer with the Federal Bureau of Prisons, Federal Correctional Institute in La Tuna, Texas, and claims that he was retaliated against because he assisted a co-worker in filing a complaint with the Equal Employment Opportunity Commission (EEOC). Compl. ¶ 11, 16.
Plaintiff identifies two specific instances of alleged retaliation. First, Plaintiff states that he was rated unfairly in one area[1] of his quarterly performance evaluation for the period ending on June 30, 2007. Id. ¶ 20. Plaintiff claims that he objected to this rating but failed to get it changed. Id. Second, Plaintiff claims he was unjustifiably placed on Absent Without Leave (AWOL) status for a trip he took to Virginia.
Plaintiffs AWOL status followed a series of communications that he had with supervising officers in June and July of 2007 in which he requested two weeks of unscheduled Annual Leave to attended a court proceeding in Virginia involving a property that he owned. Id. ¶ 22. Plaintiff recounts that he was initially denied the two-week request but was approved for the week of July 8-14. Id. ¶ 29. Plaintiff continued to seek an extension of this period and asked the union president "to act of his behalf during [his] absence to arrange for the leave." Id. ¶ 28. While in Virginia, the union president allegedly informed him that one of Plaintiffs supervisors had authorized an extension of the leave for July 15 and 16. Id. ¶ 31.
Plaintiff then claims that, during his trip, his son suffered an injury and required hospitalization when a motel television fell on him. Id. ¶ 30. As a result, Plaintiff called a supervisor and requested Family Leave for July 17-19. Id. ¶ 32. Plaintiff claims that the supervisor "stated okay" and that, as a result, he "was under the impression [that] he would be covered for [leave] that second week as well." Id. ¶ 33.
On July 31, 2007, Plaintiff learned that he was placed on AWOL status for July 16-19 because he was not authorized for Family Leave, nor was his extended leave authorized for July 16, despite what he learned from the union president. Plaintiff claims that the decision to place him on AWOL status for 32 hours was done in retaliation for his actions as an EEOC representative. Id. ¶ 36.
Plaintiff alleges that Defendant's actions constitute a violation of Title VII of the Civil Rights Act of 1964, as amended by the Civil Rights Act of 1991, and asks the Court to award him compensatory damages for his "pain, suffering, emotional distress, humiliation and for any resulting physical and emotional damages, in the amount of $300,000.00." Id. ¶ 57.
B. EEOC Complaint and Bankruptcy Proceedings
On August 29, 2007, Plaintiff filed his own formal complaint with the EEOC as a result of the aforementioned series of events.[2] Mot. Ex. A. Then, on June 20, *884 2008, while the EEOC claim was still pending, Plaintiff filed for bankruptcy with the U.S. Bankruptcy Court for the District of New Mexico. Id. Ex. B. However, in the section of the bankruptcy petition where Plaintiff was to list "all suits and administrative proceedings to which the debtor is or was a party within one year immediately preceding the filing of the bankruptcy case," Plaintiff checked the box marked "None," and signed the petition under penalty of perjury. Id. Ex. B, at 31, 37.
As a result of this omission, Defendant argues that Plaintiff is judicially estopped from bringing the above-captioned case. Plaintiff's responds that he did not intentionally mislead the bankruptcy court when he "inadvertently did not disclose his pending EEO[C] complaint on the Voluntary Petition." Pl.'s Resp. 1. The following sections examine the merits of these arguments.
II. LEGAL STANDARD
Pursuant to Rule 56 of the Federal Rules of Civil Procedure, a court should grant summary judgment "if the movant shows 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). A genuine dispute of material fact exists only if 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, Inc., 477 U.S. 242, 250, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986).
In a motion for summary judgment, "[t]he moving party bears the initial burden of showing that there is no genuine issue for trial; it may do so by `point[ing] out the absence of evidence supporting the nonmoving party's case.'" Nat'l Ass'n of Gov't Employees v. City Pub. Serv. Bd., 40 F.3d 698, 712 (5th Cir.1994) (quoting Latimer v. Smithkline & French Labs., 919 F.2d 301, 303 (5th Cir.1990)). If the moving party has satisfied its initial burden, the nonmovant must then come forward with "specific facts showing that there is a genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986). When a party requests that a court grant its motion for summary judgment, a court "will review the facts drawing all inferences most favorable to the party opposing the motion." Reid v. State Farm Mut. Auto. Ins. Co., 784 F.2d 577, 578 (5th Cir.1986). While a court will resolve factual controversies or disputes in the non-movant's favor, it must do so "only when there is an actual controversy, that is, when both parties have submitted evidence of contradictory facts." Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994) (en banc) (emphasis added). A court should not, "in the absence of any proof, assume that the nonmoving party could or would prove the necessary facts." Id. (citing Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 888, 110 S. Ct. 3177, 111 L. Ed. 2d 695 (1990)).
When the moving party seeks summary judgment on a claim or defense where he does not bear the burden of proof, the moving party "should be able to obtain summary judgment simply by disproving the existence of any essential element of the opposing party's claim or affirmative defense." Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir.1986). On claims where the nonmoving party will bear the burden of proof at trial, it may be unnecessary for the movant to introduce any evidence *885 in order to prevail; rather "the movant can seek summary judgment by establishing that the opposing party has insufficient evidence to prevail as a matter of law, thereby forcing the opposing party to come forward with some evidence or risk having judgment entered against him." 10A CHARLES ALAN WRIGHT, ARTHUR R. MILLER & MARY KAY KANE, FEDERAL PRACTICE AND PROCEDURE § 2727 at 474 (3d ed.2008); see also Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986) (stating that a motion for summary judgment may be granted in some cases "regardless of whether the moving party accompanies its summary judgment motion with affidavits").
III. ANALYSIS
A. Judicial Estoppel
Judicial estoppel is a common law doctrine that prevents a party who has successfully established one position from adopting an inconsistent position in the same or subsequent proceedings. See In re Coastal Plains, Inc., 179 F.3d 197, 205 (5th Cir.1999). The purpose of the doctrine is "to protect the integrity of the judicial process," rather than the litigants themselves. Id. (internal quotation marks omitted). "The doctrine is generally applied where `intentional self-contradiction is being used as a means of obtaining unfair advantage in a forum provided for suitors seeking justice.'" Id. at 206 (quoting Scarano v. Central R. Co., 203 F.2d 510, 513 (3rd Cir.1953)); see also Ergo Science, Inc. v. Martin, 73 F.3d 595, 598 (5th Cir.1996) (noting that judicial estoppel prevents litigants "from `playing fast and loose' with the courts") (citation omitted).
For example, in Jethroe v. Omnova Solutions, the plaintiff filed a grievance with her union and then filed a complaint with the EEOC. 412 F.3d 598 (5th Cir.2005) While pursuing the claim with the EEOC, the plaintiff filed a bankruptcy petition.
On one of the forms, under penalty of perjury, she marked "X" in a column indicating that she had no "other contingent and unliquidated claims of [any] nature." Id. at 599. On another form, again under penalty of perjury, she indicated that she had no pending "suits and administrative proceedings." Id. Plaintiff then filed a Title VII lawsuit based on the same causes of action as the EEOC claim. Id. The district court held that the Title VII lawsuit was judicially estopped because the plaintiff failed to disclose her pending EEOC claim and potential lawsuit during the bankruptcy proceeding. Id. The Fifth Circuit affirmed the decision. Id. at 601.
In applying judicial estoppel, the Fifth Circuit has identified three key elements that must be present in order for the doctrine to apply: (1) the position of the party to be estopped is clearly inconsistent with its previous position; (2) that party must have convinced the court to accept the previous position; and (3) the party did not act inadvertently. Jethroe, 412 F.3d at 600 (citing Coastal, 179 F.3d at 206).
The first two elements are clearly established in the present case. Plaintiff (1) expressly represented that he did not have any pending administrative claims and (2) the bankruptcy court accepted Plaintiff's position, evidenced by the fact that on September 30, 2008, Plaintiff was relieved of any obligation to repay the discharged debts. Mot. Exs. C, D.
Plaintiff claims, though, that his failure to disclose the EEOC complaint was inadvertent. Resp. 1-2. This argument, however, is unavailing.
1. Inadvertence
Along with claiming inadvertence, Plaintiff blames the length of time between the filing of the EEOC claim and the bankruptcy petition (even though it was less *886 than a year), his lack of sophistication with bankruptcy proceedings, ineffective counsel, and the breadth of the EEOC claim (calling it "a minute claim") for his omission. Resp. 2-3. All of these excuses, however, are irrelevant.
The Fifth Circuit uses a two-prong analysis for determining "inadvertence." In bankruptcy cases, the failure to comply with a statutory disclosure duty is "`inadvertent' only when, in general, the [party] either lacks knowledge of the undisclosed claim or has no motive for their concealment." Coastal, 179 F.3d at 210.
In Coastal, the debtor argued, inter alia, inexperience with bankruptcy statements, reliance on counsel, and that the omission in bankruptcy court was an oversight, but the Fifth Circuit found that these did not amount to "lack of knowledge" of the undisclosed claim. Id. at 212. Even if all of the excuses were true, the debtor still knew about the claim and the facts underlying the claim. Notably, the Fifth Circuit has also expressly denied the inclusion of "intent" in the determination of whether a claim may be estopped. See Hall v. GE Plastic Pac. PTE Ltd., 327 F.3d 391, 399 (5th Cir.2003) (discussing "detrimental reliance," "privity," and "intent," and concluding that "[n]one of these `elements' are required [in] Fifth Circuit [judicial estoppel determinations]"); see also Coastal, 179 F.3d at 212 ("[A litigant's] lack of awareness of [a] statutory disclosure duty for its [legal claims] is not relevant.").
At the time Plaintiff filed his bankruptcy petition, he had already filed his EEOC claim. Even though Plaintiff may not have remembered the claim (and his vigilant pursuit of the claim through the administrative process suggests otherwise), the key is whether Plaintiff had "knowledge" of the claim. See Jethroe, 412 F.3d at 601 ("[T]o claim that [a] failure to disclose was inadvertent [a litigant] must show not that she was unaware that she had a duty to disclose her claims but that, at the time she filed her bankruptcy petition, she was unaware of the facts giving rise to them.") (emphasis added). The record is clear that, at the time Plaintiff filled out the bankruptcy petition, he had knowledge of the EEOC claim.
Finally, Plaintiff can only claim his omission was inadvertent if there was "no motive" for concealment. Coastal, 179 F.3d at 210. The Fifth Circuit has found that a motive exists when a litigant has an incentive to conceal claims from creditors. See Jethroe, 412 F.3d at 601 ("Jethroe had an incentive to conceal her claims from creditors. Although her bankruptcy confirmation plan required her to pay approximately $9,000 of her $9,300 in secured debt, it did not require her to pay any of her unsecured debt of $8,373."); Coastal, 179 F.3d at 213 (finding motive because the omitted claim's potential value may have affected the bankruptcy court's decision had it been disclosed). In this case, Plaintiff admits to being "financially distressed" and filing bankruptcy "in order to obtain relief from creditors." Resp. 1. He omitted a claim that he now claims entitles him to $300,000.00 in damages. This omission may well have affected his position with the bankruptcy court, and the Court is of the opinion that, based on the circuit case law, there was an incentive to conceal the claim.
IV. CONCLUSION
Plaintiff omitted a claim in bankruptcy court, likely benefitted from the omission, and now seeks to bring the same claims in the present case. After due consideration, the Court is of the opinion that Plaintiffs claims are judicially estopped and dismisses the Complaint with prejudice.
Accordingly, IT IS ORDERED that Defendant Eric H. Holder, Jr.'s "Motion for *887 Summary Judgment Based on Judicial Estoppel" (Docket No. 35) is GRANTED.
IT IS FURTHER ORDERED that above-captioned cause is DISMISSED WITH PREJUDICE.
IT IS FURTHER ORDERED that all pending motions, if any, are denied as moot.
NOTES
[1] Plaintiff represents that this evaluated area was "his ability to communicate." Id.
[2] Plaintiff's EEOC complaint states "I [a]m being discriminated and retaliated against for reporting and assisting an employee with an EEO[C] [c]omplaint," and "I would like [a] correction on my [quarterly performance] evaluation and AWOL [status] with a written apology. I would like to be compensated monetarily for the harassment and retaliation and for the hardship of having 32 hours deducted from my pay without due process."
Id. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2576718/ | 8 F. Supp. 2d 1177 (1998)
MASON MOTORS CO., Plaintiff,
v.
UNITED STATES of America, Defendant.
No. Civ. 97-218 (DSD/JMM).
United States District Court, D. Minnesota.
June 30, 1998.
Steven Z. Kaplan, Ryan D. Simafranca, Fredrikson & Byron, Minneapolis, MN, for Plaintiff.
Nanci S. Bramson, U.S. Department of Justice, Tax Division, Washington, DC, for Defendant.
ORDER
DOTY, District Judge.
This matter is before the court upon the motion of defendant for summary judgment. Based upon a review of the file, record and proceedings herein, the court grants defendant's motion.
BACKGROUND
Plaintiff Mason Motors Company ("Mason Motors") is a Minnesota corporation in the business of selling automobiles. In 1981, Raymond William Mason ("Mason"), the president of Mason Motors hired Jo Nalls-Vanvleet ("Nalls") to work in Mason Motors' office as a bookkeeper. Nalls was promoted to office manager and was responsible for maintaining Mason Motors' books and records, preparing checks for the payment of creditors and employees, preparing payroll and complying with employment tax filing obligations, and signing checks and the payroll tax returns when Mason or his father were not available to sign them.
In 1988, Mason first became aware that Nalls was suffering from severe depression stemming from an abusive relationship and that Nalls had failed to timely file employment *1178 tax returns, make deposits, or pay employment taxes owed for the last two quarters in 1987. Nalls concealed the non-filing and non-payment of taxes from Mason by adjusting the payroll taxes payable item to reflect only the amounts currently due and by intercepting all mail and notices from the Internal Revenue Service ("IRS"). Upon learning of Nails I conduct, Mason retained the accounting firm of Froehling, Anderson, Plowman & Wasmuth, Ltd., ("Froehling accounting firm") to prepare the necessary quarterly returns. Mason Motors promptly paid all employment tax liabilities that were then outstanding. The IRS abated all penalties relating to Nalls' conduct.
Nalls left her employment at Mason Motors and sought medical treatment. Nalls started her own bookkeeping business which was not successful. From 1989 until 1991, Mason hired bookkeepers who were not familiar with the specialized accounting system required in Mason Motors' business. In 1991, Mason retained the services of the Froehling accounting firm to correct the accounting records. Also in 1991, Mason rehired Nalls to work on a part-time basis as a bookkeeper. In September 1991, Mason returned Nalls to her position as office manager, which included the same responsibilities which Nalls had prior to 1989.
Mason retained the Froehling accounting firm to review Nalls' monthly financial statements and supporting documentation on an ongoing basis. In addition, Mason held meetings with Nalls to review the current financial statements. Mason also held quarterly meetings with the accounting firm. After a year of such supervision, Mason determined that it was unnecessary to continue with the accounting firm's supervision. Mason continued to meet with Nalls, but Mason did not require Nalls to provide supporting documentation to prove the accuracy of the statements. Mason believed that the crisis had passed in Nalls' life.
From July 1994 through September 1995, Nalls again failed to file Mason Motors' employment tax returns and to deposit and pay the employment taxes. From October 1995 through December 1995, Nalls failed to deposit Mason Motors' employment taxes. Nalls concealed her failures by altering the company books and records and by intercepting mail from the IRS. By letter dated December 14, 1995, Susan Kurowski ("Kurowski"), an IRS revenue officer, informed Mason that the IRS had no record of receiving tax returns for tax periods ending September 30, 1994, December 31, 1994, March 31, 1995, June 30, 1995, and September 30, 1995, and directed Mason to appear for a meeting on December 29, 1995 to discuss the delinquencies. After Nalls contacted Kurowski to inform her that Mason would not be attending the meeting, Kurowski contacted Mason at his home to discuss the situation. On the same day that Mason received the telephone call from Kurowski, he immediately caused Mason Motors to file all necessary returns and to pay all of the tax and interest that was owing for the delinquent periods. A check in the amount of $168,000 was mailed to the IRS Service Center. The IRS assessed delinquency penalties against Mason Motors for the third quarter of 1994 through the end of the first quarter of 1996. The assessments included penalties for the late deposit of taxes for a portion of December 1995 and for the first quarter of 1996 that resulted from Mason's mailing the taxes to the IRS instead of depositing them at a bank, pursuant to statutory requirements. After paying all of the penalties which totaled $85,022, Mason Motors sought to have the IRS abate the penalties. The IRS denied the request.
In January 1997, Mason Motors commenced this action asserting that the IRS erroneously assessed penalties, and seeking a refund of the penalties assessed for late filing, late deposit, late payment, and interest. Discovery is now closed and the defendant moves for summary judgment.
DISCUSSION
The court should 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 the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). There is no genuine issue for trial unless there is sufficient evidence favoring the non-moving party for a jury to return a verdict *1179 for that party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). "Where the record as a whole could not lead a rational trier of fact to find for the nonmoving party," there is no 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).
On a motion for summary judgment, the court views the evidence in favor of the nonmoving party and gives that party the benefit of all justifiable inferences that can be drawn in its favor. Anderson, 477 U.S. at 250, 106 S. Ct. 2505. The nonmoving party, however, cannot rest upon mere denials or allegations made in the pleadings. Nor may the nonmoving party simply argue that facts supporting its claim may be developed later at trial. Rather, the nonmoving party must set forth specific facts, by affidavit or otherwise, sufficient to raise a genuine issue of material fact for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). A fact is material if it might affect the outcome of the action under governing law. Anderson, 477 U.S. at 248, 106 S. Ct. 2505. If reasonable minds could differ as to the import of the evidence, summary judgment should not be granted. See id. at 250-51, 106 S. Ct. 2505.
Pursuant to the Internal Revenue Code ("the Code"), employers are required to deduct and withhold social security and income taxes from the wages paid to their employees. See 26 U.S.C. §§ 3102(a) and 3401. The withheld taxes are then held by the employer in trust for the benefit of the United States. See 26 U.S.C. § 7501(a). An employer is required to deposit the withheld amounts in an approval bank at various intervals during a calendar quarter depending upon how much is withheld. 26 U.S.C. § 6302; 26 C.F.R. § 31.6302(c)-1(a)(1). In addition, the employer is required to file with the IRS each quarter payroll tax returns, Form 941, detailing the amounts withheld from the employees and the taxes to be paid. The returns and payments are due each calendar quarter. See 26 U.S.C. § 6011(a); 26 C.F.R. §§ 31.6011(a)-4(a)(1); 26 C.F.R. 31.6071(a)-(1)(a)(1). A failure to comply with the statutory and regulatory schemes subjects an employer to an assessment of penalties and interest. See 26 U.S.C. § 6651(a)(1) (imposing penalty for failure to file tax return); 26 U.S.C. § 6651(a)(2) (imposing penalty for failure to deposit taxes); 26 U.S.C. § 6656(a) (imposing penalty for failure to timely pay a tax). "To escape the penalty, the taxpayer bears the heavy burden of proving both (1) that the failure did not result from `willful neglect,' and (2) that the failure was `due to reasonable cause.'" See United States v. Boyle, 469 U.S. 241, 245, 105 S. Ct. 687, 83 L. Ed. 2d 622 (1985) (quoting 26 U.S.C. § 6651(a)(1)).
Neither "willful neglect" nor "reasonable cause" are defined in the Code. The Supreme Court has recognized the term "willful neglect" as meaning a "conscious, intentional failure or reckless indifference." See id. The relevant regulations recognize that "reasonable cause" is established if the taxpayer makes a satisfactory showing that he exercised "ordinary business care and prudence in providing for payment of his tax liability" and, notwithstanding the exercise of ordinary business care and prudence, the taxpayer was either "unable to pay the tax or would suffer an undue hardship" if he did. See 26 C.F.R. § 301.6651-1(c)(1); see also Boyle, 469 U.S. at 246, 105 S. Ct. 687; In re Carlson, 126 F.3d 915, 921 (7th Cir.1997).
Defendant moves for summary judgment arguing that the material facts are not in dispute and that Mason Motors cannot demonstrate reasonable cause and lack of willful neglect on this record as a matter of law. Mason Motors asserts that its failure to comply with the statutes was due to the unauthorized conduct of Nalls which it should have the opportunity to argue at trial establishes reasonable cause and the absence of willful neglect.
In Boyle, the Supreme Court determined that the failure to make a timely filing of a tax return "is not excused by the taxpayer's reliance on an agent, and such reliance is not `reasonable cause' for a late filing...." Boyle, 469 U.S. at 252, 105 S. Ct. 687. Although the Boyle decision did not involve a corporation, courts apply the same principle to the corporate taxpayer. See Valen Mfg. Co. v. United States, 90 F.3d 1190, 1193 (6th Cir.1996) (stating the non-delegable nature of *1180 the duty imposed upon taxpayers to comply with filing and payment requirements); Conklin Bros. of Santa Rosa, Inc. v. United States, 986 F.2d 315, 317 (9th Cir.1993) (recognizing that Congress has charged the corporate taxpayer "with an unambiguous duty to file, pay, and deposit employment taxes, and [the corporation] cannot avoid responsibility by simply relying on its agent to comply with the statutes"); In re Frederick Savage, Inc., 179 B.R. 342, 346 (Bankr. S.D.Fla.1995) (stating that the corporate taxpayer "cannot be excused from complying with the statutory requirements on the ground that it relied on one of its employees to fulfill those obligations"). Each of these decisions recognizes that a corporation can only act through its officers or employees as its agents, but as the court stated in Savage:
Since a corporation can only act through its employees or officers, the failure of a corporation to timely file tax returns or to timely make required tax payments or deposits almost invariably will be the result of the failure of one or more of the corporations's employees or officers to carry out his or her assigned duties. If an employee or officer's non-performance of duties was deemed to be reasonable cause, the IRS would rarely be able to impose tax penalties on a corporation.
Savage, 179 B.R. at 347. Thus, Mason Motors' misplaced reliance on Nalls as a subordinate employee and agent to comply with its statutory tax obligations does not provide reasonable cause. However, the Court in Boyle "expressly distinguished the question of the taxpayer's misplaced reliance on an agent to perform a known duty from the question of the taxpayer's disability." In re American Biomaterials Corp., 954 F.2d 919, 923 (3d Cir.1992).
Assuming that Mason Motors establishes a lack of willful neglect and the exercise of ordinary business care and prudence, the record does not support a finding that Mason Motors was disabled. The government relies on Conklin Bros. of Santa Rosa, Inc. v. United States, 986 F.2d 315 (9th Cir.1993) and Valen Mfg. Co. v. United States, 90 F.3d 1190 (6th Cir.1996) in support of its position that Mason Motors was not disabled from complying with its tax obligations. In Conklin, the Ninth Circuit Court of Appeals considered the misfeasance of a corporate employee and whether the misfeasance rendered the corporation disabled. See 986 F.2d at 318. In that case, the corporation hired and promoted an employee to the position of office manager. The office manager was in charge of the corporation's employment tax obligations. Although the office manager had been closely supervised for a period of time, she failed to timely make payroll deposits and payments and failed to timely file returns. The office manager then concealed her delinquencies before resigning. The corporation was assessed penalties by the IRS, but argued that it had reasonable cause and that the penalties should be refunded. The Conklin court recognized that the corporation could not simply rely on its agent to comply with the statutes. In addition, the Conklin court determined that the office manager's intentional misconduct did not disable the corporation from timely adhering to its tax obligations since the corporation's president and sole shareholder, as well as outside accountants, retained control over the office manager. Under the circumstances, the corporation was not disabled from timely complying with its tax obligations.
Similarly, in Valen, the Sixth Circuit Court of Appeals addressed a corporate employee's failure to comply with the statutory filing requirements. See 90 F.3d at 1193-94. In considering whether the corporation was disabled, the Valen court recognized that upon discovery of the employee's failures, the company was able to immediately forward to the IRS the necessary payments, including penalties. In addition, the Valen court interpreted Boyle as hinting that "such disability must result from circumstances beyond the taxpayer's control ..., not simply the `taxpayer's reliance on an agent employed by the taxpayer.'" Valen, 90 F.3d at 1193 (quoting Boyle, 469 U.S. at 248 n. 6, 105 S. Ct. 687). The Sixth Circuit determined that the corporation was not disabled, emphasizing that the executive officers' retention of control and oversight of the employee's work and ultimate tax obligations precluded a determination that the circumstances were beyond the corporate taxpayer's control. As in Conklin and Valen, the government argues that the *1181 deficiencies of Nalls were not beyond Mason Motors' control.
Mason Motors attempts to distinguish Boyle by asserting that the facts of that case involved an agent that negligently failed to perform his duties in the scope of his employment. In contrast, Mason Motors argues, this case involves a disloyal, deceitful employee who was not acting within the scope of her employment. Thus, Mason Motors asserts, the government's reliance on Conklin and Valen is misplaced. Rather, Mason Motors claims that the Third Circuit Court of Appeals' decision in In re American Biomaterials Corp., 954 F.2d 919 (3d Cir.1992) is applicable. In Biomaterials, the Third Circuit affirmed a district court's determination that a corporate taxpayer had been rendered "disabled" when the corporate officers who were in ultimate control over the corporation's tax obligations committed embezzlement and made the corporation unable to fulfill its duties under the tax code.
Although Mason Motors compares Nalls' conduct to that of the officers in Biomaterials, the record in this case does not include an embezzlement or a criminal conviction and the record does not support a finding of criminal conduct. The Biomaterials court specifically limited its holding to circumstances in which the officers committed intentional criminal conduct rather negligent or reckless management. See 954 F.2d at 927 n. 8. In addition, Mason Motors immediately paid the amount due upon learning of the deficiency.
As in Conklin and Valen, the corporation's officer retained ultimate control over the corporation's tax obligations. The court concludes that the record in this case does not support a finding that Mason Motors was disabled.
Mason Motors also seeks a refund of the penalty assessed for Mason Motors' mailing of its payments to the IRS as opposed to depositing the payments at a bank as required by statute. The only evidence in support of this claim is found in Mason's deposition:
Q: Why do you feel that you were reasonable in failing to timely pay the payroll taxes for the first quarter of 1996?
A: As I recall, in 1996, we took such good care to make sure that we had got [ten] things in place that I think that's the quarter that we mailed in the 941 payroll taxes and got slapped for mailing them in as opposed to depositing them in the bank....
Q: And then a penalty was imposed?
A: Yes.
Q: Did you discuss that with Ms. Kurowski or anyone?
A: Yes.
Q: And what were you told?
A: She just felt that to the best of my knowledge, she just felt that that would have to be dealt with the whole arena. That didn't come out until after I had hired ADP, until we were underway, that the penalty was imposed. We got that for that one quarter, and, in my investigation as to why, that's how it happened, trying to be the good guys.
Deposition of Raymond William Mason at 31-32. Although plaintiff implies in its memorandum in opposition to summary judgment that Mason on Kurowski's advice to mail the payments, the record does not support such an inference. In short, Mason's testimony is insufficient to sustain Mason Motors' heavy burden of establishing reasonable cause.
CONCLUSION
Based upon a review of the file, record, and proceedings herein, IT IS HEREBY ORDERED that defendant's motion for summary judgment is granted (Doc. Nos. 17 and 23). Plaintiff's action is dismissed with prejudice.
LET JUDGMENT BE ENTERED ACCORDINGLY. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/4160994/ | ATTORNEY FOR APPELLANT ATTORNEY FOR APPELLEE
Mark D. Johnson Robert R. Thomas
Allen & Johnson, LLC Thomas Law Group. LLC FILED
Salem, Indiana Zionsville, Indiana Apr 18 2017, 10:23 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
IN THE
COURT OF APPEALS OF INDIANA
Luther T. Collins, April 18, 2017
Appellant-Plaintiff, Court of Appeals Case No.
88A05-1510-PL-1797
v. Appeal from the Washington
Circuit Court
Metro Real Estate Services LLC, The Honorable Larry Medlock,
Appellee-Defendant. Judge
Trial Court Cause No.
88C01-1401-PL-50
Barnes, Judge.
Case Summary
[1] Luther Collins challenges the trial court’s order finding an easement exists
across Collins’s property for the benefit of adjacent property owned by Metro
Real Estate Services, LLC (“Metro”). We affirm.
Issues
[2] Collins raises five issues for our review, which we consolidate and restate as:
I. whether there is an easement by grant over Collins’s property; and
Court of Appeals of Indiana | Opinion 88A05-1510-PL-1797| April 18, 2017 Page 1 of 20
II. whether there is an easement by implication over Collins’s
property.
Facts1
[3] This appeal concerns two parcels of land in Washington County. On October
24, 2003, Joseph Howell acquired the real estate identified on the tax map as
parcel 7.05 (“the servient estate”) from George Sivak, Regina Sivak, and Fred
Cambron. See Appellant’s App. p. 54. On November 3, 2003, Howell acquired
the adjacent real estate identified on the tax map as parcel 2.02 (“the dominant
estate”) from Patrick Alexander and Connie Alexander. Id.
Appellant’s App. p. 54.
[4] At the time Howell purchased the [dominant estate], Howell’s
only access from a public right of way to the [dominant estate]
was over the [servient estate] already owned by Howell. The
1
We note that there is no transcript available in this matter. Instead, pursuant to Indiana Rule of Appellate
Procedure 31, the parties filed a Joint Stipulated Verified Statement of Evidence.
Court of Appeals of Indiana | Opinion 88A05-1510-PL-1797| April 18, 2017 Page 2 of 20
[dominant estate] had no other access to a public right of way but
for over the [servient estate] to Mount Carmel Road.
Joint Stipulated Statement of Evidence p. 3. Howell lived on the servient estate
and allowed a neighbor to cut hay on the dominant estate; the neighbor owned
property adjacent to the dominant estate and accessed the dominant estate from
his own land, not by way of the servient estate.
[5] Some time later, the servient estate was the subject of a foreclosure action, and
Collins purchased it at a sheriff’s sale; Collins closed on the property on March
27, 2009.2 Prior to the sheriff’s sale of the servient estate, Howell mortgaged the
dominant estate to Old Capitol Mortgage. In order to “facilitate” the Old
Capitol mortgage, Howell “granted an Easement to himself over the [servient
estate] to allow access to the [dominant estate].” Id. Howell recorded the
easement on June 23, 2008. The Old Capitol mortgage was recorded on July
23, 2008. “Collins testified that neither Howell nor anyone else used the
Easement area to access the [dominant estate] and both ends of the Easement
area were fenced with no gate.”3 Id. Collins also testified that, “Howell
accessed the [dominant estate] on and across the [servient estate] after Collins
2
The joint stipulated statement of evidence does not indicate who held the mortgage on the servient estate or
when it was executed. But the special warranty deed transferring ownership of that property to Collins lists
Wells Fargo Bank, National Association, as the grantor. Appellee’s App. p. 3.
3
We note that the joint stipulated statement of evidence does not provide a time frame for this non-use of the
easement.
Court of Appeals of Indiana | Opinion 88A05-1510-PL-1797| April 18, 2017 Page 3 of 20
purchased the [servient estate] and at no time did Collins object to Howell
doing so.” Id. at 4.
[6] The dominant estate was also the subject of a foreclosure action, and, on May
11, 2012, Metro purchased it. Collins objected to Metro’s use of the easement
over the servient estate and, in January 2014, filed a complaint to quiet title.
The matter was tried, and the trial court entered its judgment for Metro on July
31, 2015. Collins then filed a motion to correct error, which the trial court
denied on September 24, 2015. Collins now appeals. 4
Analysis
I. Standard of Review
[7] We review the denial of a motion to correct error for an abuse of discretion.
Otter Creek Trading Co., Inc. v. PCM Enviro PTY, LTD, 60 N.E.3d 217, 226 (Ind.
Ct. App. 2016), trans. denied.
A trial court has abused its discretion only if its decision is clearly
against the logic and effect of the facts and circumstances before
the court or the reasonable inferences therefrom. The trial
court’s decision comes to us cloaked in a presumption of
correctness, and the appellant has the burden of proving that the
trial court abused its discretion. In making our determination,
we may neither reweigh the evidence nor judge the credibility of
4
We note that, on March 21, 2016, Metro sold the dominant estate to individuals who also own land
adjacent to the dominant estate. As a result of that purchase, Collins notified this court of the change of
interested parties and moved for a substitution of party. Metro objected, and this court denied Collins’s
motion. Because the sale of the dominant estate took place after the trial court heard evidence in this matter,
the fact of that transaction is not part of the record on appeal. Both parties refer to that transaction in their
briefs. Because that information is outside the record, we do not consider it in reaching our decision.
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witnesses. Instead, we look at the record to determine if: (a) the
trial court abused its judicial discretion; (b) a flagrant injustice
has been done to the appellant; or (c) a very strong case for relief
from the trial court’s order has been made by the appellant.
Id. (citation omitted) (quotations omitted).
[8] Where, as here, the trial court issues findings of fact and conclusions thereon
sua sponte, “the findings control our review and the judgment only as to the
issues those specific findings cover. Where there are no specific findings, a
general judgment standard applies and we may affirm on any legal theory
supported by the evidence adduced at trial.” 5 Samples v. Wilson, 12 N.E.3d 946,
949-50 (Ind. Ct. App. 2014). We apply a two-tier standard of review to the sua
sponte findings and conclusions thereon. Id. at 950. We first determine
whether the evidence supports the findings and then whether the findings
support the judgment. Id. We will set aside findings and conclusions:
only if they are clearly erroneous, that is, when the record
contains no facts or inferences supporting them. A judgment is
clearly erroneous when a review of the record leaves us with a
firm conviction that a mistake has been made. In conducting our
review, we consider only the evidence favorable to the judgment
5
We note that the parties seem to disagree regarding whether the trial court issued findings of fact and
conclusions thereon. Collins directs us to authority regarding the standard of review for cases in which the
trial court issued findings of fact and conclusions thereon. See Appellant’s Br. p. 6. Metro, however,
contends that “neither party requested special findings, nor did the trial court make findings sua sponte. Thus,
Appellant appeals from a general judgment.” Appellee’s Br. p. 7. We agree with Collins that the trial court
entered sua sponte findings and review the case accordingly.
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and all reasonable inferences flowing therefrom. We will neither
reweigh the evidence nor assess witness credibility.
Id.
[9] The trial court’s July 31, 2015, order states:
In this case, Joseph Howell attempted to create an easement by
grant through [the servient estate] for the benefit of [the dominant
estate]. At the time of this grant in June 2008, Howell owned
both pieces of property . . . . Howell filed a properly notarized
document that described the easement and declared that it “shall
run with the land and shall extend to the grantee’s heirs and
assigns.”
*****
The language used in the official grant is interpreted to mean his
intent was that the easement be appurtenant. First, the grant
includes the language “run with the land” which almost certainly
implies that Howell meant for the easement to be appurtenant . .
..
The easement in this case was properly created by express deed
and properly filed, making it a valid easement. Further, the
language used in the grant was meant to establish an easement
appurtenant, meaning it runs with the land and is available for
use by subsequent landowners, including Metro Real Estate.
Appellant’s App. pp. 6-7 (no citations in original).
[10] The trial court’s September 24, 2015, order denying Collins’s motion to correct
error states:
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1. At the time that Joseph Howell granted the easement
appurtenant he did own both the [dominant] and [servient]
parcels of land.
2. It is true that the law precludes the same owner of a
unified parcel of land to grant a lesser right to himself for his own
property. John Hancock Mut. Life Ins. Co. v. Patterson, 2 N.E. 188,
190 (1885).
3. However, the owner of the unified lands may arrange that,
upon severance of the parcels, an easement be created for the
benefit of one “[w]here during the unity of title an apparently
permanent and obvious servitude is imposed on one part of an
estate in favor of another, which, at the time of the severance, is
in use, and is reasonably necessary for the fair enjoyment of the
other.” Id. at 191.
4. Howell’s attempt to grant the easement when he owned
both parcels of land represents such an arrangement for the
implication of an easement.
5. Further, when a parcel is landlocked and an easement of
necessity is appropriate, the law requires that the easement must
be created across the grantor’s remaining land. William C. Haak
Trust v. Wilusz, 949 N.E.2d 833, 836 (Ind. Ct. App. 2001).
6. The fact that the parcels of land were in foreclosure at the
time of this arrangement “makes no difference.” Id. at 838.
Appellant’s App. pp. 8-9 (third alteration in original).
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II. Easements Generally
[11] Collins argues that the trial court abused its discretion by determining that an
easement exists over his property. In Indiana, an easement can be created in
three ways: by grant, prescription, or implication. William C. Haak Trust v.
Wilusz, 949 N.E.2d 833, 835 (Ind. Ct. App. 2011). There are two types of
easements. “[A]n easement is appurtenant if it passes (by conveyance or
inheritance) with the dominant tenement[.]” Id. “[A]n easement is in gross if it
is personal to the owner of the dominant tenement.” Id. “An easement is never
presumed to be in gross when it can be fairly construed to be appurtenant to the
land.” Id. (quotations omitted) (citation omitted). In this case, the parties
dispute whether Metro has an easement either by grant or by implication over
Collins’s property.6
6
Metro argues that Collins “waived any right he had to claim the Easement was not a valid grant of an
easement when he closed on the purchase of the [servient estate].” Appellee’s Br. p. 13. To support that
argument, Metro directs us to the purchase agreement Collins executed when he purchased the servient
estate. Therein, according to Metro, Collins agreed to “‘waive any and all title objections’” if he proceeded
to closing on the servient estate. Appellee’s Br. p. 13. Metro did not provide a citation to the record to
support this quote as required by Indiana Rule of Appellate Procedure 46. We believe it came from page
eight of the addendum to the purchase agreement, which is located at Appellee’s App. p. 26, but we are
unable to locate the precise language Metro purports to quote. Our Rules of Appellate Procedure require
citations to the Appendix or Record; but, as a practical matter, when a party directs us to language from a
contract that the party believes is vital to its argument, it is important that we be able to locate that language
in the record.
Within its waiver argument, Metro cites to one case that generally defines waiver. We note that the purchase
agreement was executed by Collins and the lender from whom he purchased the servient estate. This
litigation, however, arose between Collins and Metro, the foreclosure purchaser of the dominant estate.
Metro was not a party to the purchase agreement. With the exception of the authority mentioned above,
Metro does not cite to any authority supporting his unique argument that Collins waived his right to litigate
issues related to the servient estate arising against one who was not a party to the purchase agreement. We
conclude Metro waived this argument.
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III. Easement by Grant
[12] Collins first contends no easement over his property exists for the benefit of
Metro because Howell’s attempt to grant himself an easement was
unsuccessful. Collins argues that the doctrine of merger extinguished the
easement and directs us to cases that cite the general proposition that one
cannot grant himself or herself an easement in land to which he or she has title.
See William C. Haak Trust, 949 N.E.2d at 837 n.1 (quoting John Hancock Mut.
Life Ins. Co. v. Patterson, 2 N.E. 188, 190, 103 Ind. 582, 586 (1885)); Borovilos
Restaurant Corp. II v. Lutheran Univ. Ass’n, Inc., 920 N.E.2d 759, 765 (Ind. Ct.
App. 2010) (noting “a person may not have an interest in his or her own land
because an easement merges with the title,” and, “while both are under the
same ownership the easement does not constitute a separate estate there can be
no easement so long as there is unity of ownership of the properties involved”)
(citation omitted), trans. denied; Patterson, 2 N.E. at 190, 103 Ind. at 586 (“[T]he
owner can not have an easement in land of which he has the title. The inferior
right is merged in the higher title. By the common law it is said to be
extinguished by the unity of title.”).
[13] In its order denying Collins’s motion to correct error, the trial court cited
Patterson, 2 N.E. at 191, 103 Ind. at 586, for the proposition that a valid
easement is created “[w]here during the unity of title an apparently permanent
and obvious servitude is imposed on one part of an estate in favor of another,
which, at the time of the severance, is in use, and is reasonably necessary for the
fair enjoyment of the other.” Appellant’s App. p. 8. The trial court then found,
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“Howell’s attempt to grant the easement when he owned both parcels of land
represents such an arrangement for the implication of an easement.” Id. We
note that isolating that statement in Patterson from the context of the paragraph
in which it is contained may cause confusion. We provide a larger excerpt of
the opinion for clarification:
During the unity of title the owner may subject one of several
tenements, or adjoining parcels of land, to such arrangements,
incidents, or uses with respect to the other as may suit his taste or
convenience, without creating an easement in favor of the one as
against the other. This is so because the owner cannot have an
easement in land of which he has the title. The inferior right is
merged in the higher title. By the common law it is said to be
extinguished by the unity of title. In the civil law it is lost by
“confusion.” By both, if an easement existed before the unity of
seizin it may revive upon a severance; or if none existed, such
arrangements may be adopted while the seizin is united, as that
upon a severance an easement will be created by implication of
law. Where during the unity of title an apparently permanent and
obvious servitude is imposed on one part of an estate in favor of
another, which, at the time of the severance, is in use, and is
reasonably necessary for the fair enjoyment of the other, then
upon a severance of such ownership, whether by voluntary
alienation or by judicial proceedings, there arises by implication
of law a grant or reservation of the right to continue such use.
Patterson, 2 N.E. at 190-91, 103 Ind. at 586.
[14] We read this quote to stand for the proposition that one may not
simultaneously hold title to and an easement in the same piece of property. If,
however, under very specific circumstances, an easement existed before
ownership of and an easement over that property were united in one owner, the
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easement may be revived after that union is severed. That is not the situation
presented by this case, and we conclude the trial court abused its discretion by
relying on an isolated quote from Patterson to support its order denying Collins’s
motion to correct error.
[15] It appears, however, that none of the facts of the cases to which Collins cites for
the general merger-of-title principle are analogous to the facts of this case,
either. The facts of this case are rather unique, and neither party directs us to a
comparable Indiana case.
[16] Woodling v. Polk, 473 S.W.3d 233 (Mo. Ct. App. 2015), however, is on point. In
Woodling, a real estate developer owned two adjacent residential lots—1017
Forest Avenue and 1019 Forest Avenue. The properties shared one driveway,
which was situated on 1019 Forest’s lot. The developer executed and recorded
an “Easement Deed” to facilitate the use of the driveway on 1019 Forest by the
“present and future owners of 1017 Forest.” Id. at 234. The deed listed the
developer as both the grantor and grantee of the easement.
[17] In 2005, the Healys purchased 1017 Forest. Because they were concerned
about the easement, they asked the developer to adjust the boundary line
between the two properties “so that the driveway of 1017 Forest would be
completely situated on 1017 Forest’s property.” Id. The developer obliged, and
“the new boundary line was still within the original wide driveway, but
provided at least one car width fully on 1017 Forest’s property.” Id. In 2006,
the Polks purchased 1019 Forest from the developer. While the Polks and
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Healys were neighbors, the Healys exclusively used the portion of the driveway
situated on their property.
[18] In 2011, Woodling purchased 1017 Forest from the Healys. Woodling used a
portion of the driveway located on the Polks’ property to pull vehicles in and
out of his own property. Woodling also parked cars on the 1019 Forest
driveway. The Polks removed a strip of pavement from their portion of the
driveway adjoining the boundary line and replaced it with large rocks, thereby
separating the two driveways and preventing crossover traffic.
[19] On appeal, the Missouri Court of Appeals cited the “universal rule that a man
cannot have an easement over his own land.” Id. at 236 (quotations omitted)
(citation omitted). The court explained:
This principle most often comes into play when the two
properties affected by an easement, the dominant and servient
estates, are merged under common ownership and possession. In
such a case, the easement is generally extinguished.
However, few cases discuss the reverse situation, in which a
common landowner attempts to record an easement burdening
one portion of his property for the benefit of another portion,
usually in order to sell one of the portions. Courts have likewise
found that no easement is created because an owner cannot grant
himself property rights he already possesses.
Id. The Court held that the developer’s attempt “to create an easement by deed
when it owned both the purported dominant and servient estates” was
“ineffective as a matter of law.” Id.
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[20] We reach the same conclusion in this case. Howell owned both the dominant
and servient estates at the time he recorded the easement. Because one cannot
have an easement over land he already owns, Howell’s recording had no legal
effect.
[21] Metro concedes that the merger doctrine “generally provides that a lesser estate
merges into a greater estate.” Appellee’s Br. p. 9. Nonetheless, Metro urges us
to adopt “the mortgage exception to the merger doctrine,” because “the
[e]asement was necessary to facilitate financing of the [dominant estate] and
therefore served an additional function defeating the merger doctrine.” Id. at
11. “Under this exception, the mortgage of the dominant estate is protected
from losing its interest in an easement otherwise extinguished when fee title to
the dominant estate and fee title to the servient estate are united.” Id. at 11
(citing, generally, Pergament v. Loring Prop., LTD, 599 N.W.2d 146 (Minn.
1999). Metro states,
it was clearly the intent of Howell that the [e]asement not merge
into the fee. Howell obtained a mortgage on the [dominant
estate] (separate from the mortgage on the [servient estate]) after
granting the [e]asement to allow access to the [dominant estate].
The [e]asement provided substantial value to the Metro Parcel as
the lender would not have loaned the money on a soon to be
landlocked parcel.
Id. at 12.
[22] Metro concedes, however, that it found “no Indiana case applying the mortgage
exception to the merger doctrine relating to an easement . . . .” Absent
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controlling authority permitting us to apply the mortgage exception in this case,
and in light of the long-standing, widely-accepted tenet that an estate owner
cannot grant himself property rights he already possesses, our conclusion
remains unchanged. Howell did not record a valid easement over his own
property to benefit himself.7
IV. Implied Easement
[23] Collins next argues that no implied easement by necessity or prior use exists
across the servient estate.
Indiana law further subdivides implied easements into easements
of necessity and easements by prior use . . . .
An easement of necessity will be implied only when there has
been a severance of the unity of ownership of a tract of land in
such a way as to leave one part without any access to a public
road. On the other hand, an easement of prior use will be
implied where, during the unity of title, an owner imposes an
apparently permanent and obvious servitude on one part of the
land in favor of another part and the servitude is in use when the
parts are severed . . . if the servitude is reasonably necessary for
the fair enjoyment of the part benefited. Unlike a landowner
requesting an easement by necessity, a landowner requesting an
easement by prior use does not need to show absolute necessity.
The focus of a claim for an easement by prior use is the intention
7
Collins also contends the decree of foreclosure related to the servient estate erased the recorded easement
because “[t]he title of a purchaser at a foreclosure sale relates back to the date of the foreclosed mortgage . . .
[and] [a]ny easement granted . . . by Howell after the date of the mortgage, and certainly after the decree of
foreclosure, would have been ‘wiped’ by the foreclosure and Sheriffs [sic] sale.” Appellant’s Br. pp. 8-9 (no
citation in original). Because we conclude Howell did not record a valid easement, we need not address this
issue.
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for continuous use, while the focus of a claim for an easement by
necessity is the fact of absolute necessity.
William C. Haak Trust, 949 N.E.2d at 835-36 (quotations omitted) (citations
omitted) (second ellipses in original).
[24] Collins contends no easement by prior use can be implied in this case. We
conclude that the record before us is not sufficient to support a finding of an
easement by prior use. The Joint Stipulated Statement of Evidence contains
contradictory statements in this regard. The parties aver that Collins testified,
“neither Howell nor anyone else used the Easement area to access the
[dominant estate] and both ends of the Easement area were fenced with no
gate,” and that “Howell accessed the [dominant estate] on and across the
[servient estate] after Collins purchased the [servient estate] and at no time did
Collins object to Howell doing so . . . .” Joint Stipulated Statement of Evidence
pp. 3-4. Without more specific evidence regarding the use or non-use of the
easement and the timing of such use, we cannot conclude an easement by prior
use exists over the servient estate.
[25] Collins next contends that no easement of necessity runs over the servient
estate.8 We note that the trial court’s July 31, 2015, order did not conclude
8
Collins challenges what he characterizes as the trial court’s distinct conclusions that an easement by prior
use and an easement by necessity run over the servient estate. He argues that the trial court may not “rule in
the alternative and issue two mutually exclusive rulings in the same case.” Appellant’s Br. p. 10. In light of
what he claims is an “alternative ruling,” Collins requests that we regard paragraph five of the trial court’s
September 24, 2015, order, in which the trial court concludes there is an easement of necessity, “as dicta,
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there exists an easement by necessity over the servient estate.9 It did, however,
conclude in its order denying Collins’s motion to correct error: “5. Further,
when a parcel is landlocked and an easement of necessity is appropriate, the
law requires that the easement must be created across the grantor’s remaining
land.” Appellant’s App. p. 9.
[26] An easement of necessity will be implied when there has been a
severance of the unity of ownership of a tract of land in such a
way as to leave one part without access to a public road. An
easement of necessity may arise, if ever, only at the time that the
parcel is divided and only because of inaccessibility then existing.
To demonstrate that an easement of necessity should be implied,
a plaintiff must establish both unity of title at the time that tracts
of land were severed from one another and the necessity of the
easement.
*****
To demonstrate that the easement is of necessity, a plaintiff must
demonstrate more than that the easement would be beneficial or
convenient. If the plaintiff has another means of accessing his
rather than part of the conclusion of the court.” Id. Collins does not cite to any authority to support his
contentions, and has thus waived those arguments. Waiver notwithstanding, we conclude under the general
judgment standard that there exists an implied easement of necessity. We therefore need not determine
whether the trial court “issue[d] two mutually exclusive rulings” or whether doing so would be reversible
error. Id.
9
Collins argues that the trial court erred by “amend[ing] its judgment” in its September 24, 2015, order on
Collins’s motion to correct error. Appellant’s Br. p. 11. Citing to Indiana Rule of Trial Procedure 52(B),
Collins contends “the trial court can, on its own motion, amend its judgment, [but] it may do so only before a
motion to correct errors is filed.” Id. We reject this argument because the trial court’s September 24, 2015,
order was a ruling on Collins’s motion to correct error and was governed by Indiana Rule of Trial Procedure
59. The order did not purport to amend the July 31, 2015, order, and, in any event, Collins directs us to no
authority prohibiting the trial court from restating, amending, or expanding its original order in a subsequent
order on a motion to correct error. Collins has thus waived this argument.
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land, he may not claim a right to pass over the land of another.
This rule controls even if the alternate means of access would be
more difficult or expensive for the plaintiff.
Cockrell v. Hawkins, 764 N.E.2d 289, 292-93 (Ind. Ct. App. 2002) (quotations
omitted) (citations omitted). More simply put, demonstrating that a parcel is
landlocked is sufficient to prove necessity. See Kopetsky v. Crews, 838 N.E.2d
1118, 1126 n.4 (Ind. Ct. App. 2005), and Hysell v. Kimmel, 834 N.E.2d 1111,
1115 n.2 (Ind. Ct. App. 2005), trans. denied.
[27] The classic, and most straightforward, example of an easement of necessity is
this:
if a landowner conveys a piece of real estate that is completely
surrounded by the landowner’s remaining property, then we
imply that the conveyance includes an easement across the
landowner’s remaining property. In addition, if a conveyed piece
of property has no outlet to a public road except by going across
the grantor’s remaining land or across the land of a stranger, the
law implies a way of necessity over the grantor’s remaining
land because an easement of necessity cannot arise against the
lands of a stranger.
Id. at 293 (quotation omitted) (citation omitted).
[28] This case, of course, differs substantially from the above example. The parties
dispute whether the purported easement in this case meets the requirements for
an easement by necessity discussed above. Collins first argues that, “[t]he trial
court at no time found that the parcel was landlocked or that an easement of
necessity was appropriate.” Appellant’s Br. p. 13 (emphases omitted)
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(quotation omitted) (no citation in original). Citing the transfer history of the
dominant and servient estates, Collins further argues, “[w]hile it is true Howell
at one point owned both [the dominant and servient estates], there was no unity
of title because the two parcels were mortgaged to separate lenders, retained
separate property tax numbers, and were never combined in the county records
or otherwise.” Appellant’s Br. pp. 13-14. Metro, on the other hand, asserts that
the dominant estate was landlocked. To the extent that the trial court’s order
does not make specific findings of fact or conclusions thereon with regard to
this issue, we reiterate that a general judgment standard applies. Samples, 12
N.E.3d at 949-50.
[29] The Joint Stipulated Verified Statement of Evidence provides sufficient
evidence to affirm the trial court’s order. Therein, the parties stated:
3. Unity of title for both the [dominant and servient estates]
was previously vested in Joseph Howell . . . .
4. At the time Howell purchased the [dominant estate],
Howell’s only access from a public right of way to the [servient
estate] was over the [dominant estate] already owned by Howell.
The [dominant estate] had no other access to a public right of
way but for over the [servient estate] to Mount Carmel Road.
Joint Stipulated Statement of Evidence pp. 3-4. Metro’s subsequent purchase of
the dominant estate does not change the fact that the easement at issue is, by
definition, one of necessity. That the dominant and servient estates each
changed ownership after their titles were unified in Howell does not change the
fact that, as the parties stipulated, there existed unity of title. Nor does it
Court of Appeals of Indiana | Opinion 88A05-1510-PL-1797| April 18, 2017 Page 18 of 20
change the fact, to which the parties also stipulated, that the dominant estate
was landlocked.10 In light of this evidence, we conclude the trial court did not
abuse its discretion by concluding an easement of necessity exists over the
servient estate for the benefit of the dominant estate.
[30] Finally, Collins requests, “should this Court find that an easement of necessity
exists across the [servient estate], then the case should be remanded with
instructions to allow Mr. Collins to specify the route of the easement.”
Appellant’s Br. p. 17. Collins contends that, even if an easement by necessity
does exist, “it is not the 150 foot wide easement purported to be granted by
Howell.” Id. at 14. We agree that “[e]asements are limited to the purpose for
which they are created.” Whitt v. Ferris, 596 N.E.2d 230, 233 (Ind. Ct. App.
1992). In Whitt, this court concluded the trial court erred by finding an
easement of necessity that was sixty feet wide because the easement was
“necessary only as a way to access [the dominant estate].” Id. In light of that
purpose, “access over the twenty foot wide graded roadway through the middle
of the Disputed Parcel, coupled with sufficient footage over the grassy area on
the south side of the road” was all that was necessary.” Id. at 233-34. This
court stated, “There is no need to burden the servient estate further by allowing
use of the grassy areas on the sides of the road for parking.” Id. at 234.
10
We again note that, while this appeal was pending, Metro sold the dominant estate. The parties tell us that
the new owners of the dominant estate also own property adjacent thereto. To be clear, we decide this case
based on the evidence presented to the trial court and make no prediction regarding if or how the subsequent
conveyance of the dominant estate affected the easement at issue.
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[31] In this case, there is no evidence regarding the burden that is necessary on the
servient estate. The parties’ Joint Stipulated Statement of Evidence offers little
information other than that Howell granted himself an easement “to allow
access to the [dominant estate].” Joint Stipulated Statement of Evidence p. 3.
The text of the easement Howell attempted to create, to the extent it can viewed
as evidence, is similarly unhelpful. That document contains nothing more than
a catchall statement describing the (attempted) easement as, “[t]he right of
ingress and egress at any time over and upon the above described easement for
any use and purpose deemed necessary by the grantee including a driveway,
and the construction and maintenance of water and electric utilities.”
Appellant’s App. p. 52.
[32] Based on the record before us, the most we can discern is that the dominant
estate is landlocked, and an easement over the servient estate is necessary to
guarantee access to a public roadway. We know nothing, for instance, about
the layout or terrain of the parcels and reach no conclusion regarding whether a
150-foot-wide easement is necessary.
Conclusion
[33] The trial court did not abuse its discretion by concluding an easement exists for
Metro’s benefit over Collins’s property. We affirm.
[34] Affirmed.
Kirsch, J., and Robb, J., concur.
Court of Appeals of Indiana | Opinion 88A05-1510-PL-1797| April 18, 2017 Page 20 of 20 | 01-03-2023 | 04-18-2017 |
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JENZACK PARTNERS, LLC v. STONERIDGE
ASSOCIATES, LLC, ET AL.
(AC 39880)
DiPentima, C. J., and Lavine and Eveleigh, Js.
Syllabus
The plaintiff brought this action seeking to foreclose on a certain mortgage
of the defendant J. The named defendant had obtained a construction
loan from the original lender, S Co., which assigned the mortgage and
note to the plaintiff. The note was secured by various personal guaran-
tees that were executed in favor of S Co., including a nonrecourse
guarantee executed by J that was limited solely to her interest in certain
real property in Cromwell. J executed two subsequent reaffirmations
of her guarantee in connection with certain modifications of the note,
and she executed a mortgage in favor of S Co. on the Cromwell property.
After the named defendant defaulted on the underlying note, the plaintiff
commenced this action, seeking, inter alia, to foreclose on J’s mortgage.
At trial, the plaintiff argued that the assignment of the note necessarily
carried with it an assignment of all the underlying guarantees, including
J’s limited guarantee. The plaintiff introduced into evidence, inter alia,
an exhibit purporting to demonstrate the current amount due on the
note. The trial court rendered a judgment of strict foreclosure in favor
of the plaintiff and, subsequently, awarded the plaintiff attorney’s fees,
and J appealed to this court. Held:
1. J could not prevail on her claim that because her limited guarantee was
not specifically assigned from S Co. to the plaintiff, the plaintiff lacked
standing to foreclose on the mortgage; although the allonge that assigned
the note to the plaintiff did not explicitly incorporate or mention J’s
limited guarantee, an examination of the surrounding circumstances
demonstrated that S Co. intended to equitably assign the underlying
guarantees as part of its assignment of the underlying note, as J’s intent
in executing her limited guarantee was to collateralize the named defen-
dant’s note with her interest in the Cromwell property, the underlying
guarantees, which had no independent value other than to secure the
note, were the only documents that gave the note any value, and, thus,
it could be reasonably assumed that the intention of S Co. in assigning
the note to the plaintiff was to assign its rights under the note and the
secondary obligations that gave the note its value.
2. The trial court erred in holding that the plaintiff had established the
amount of debt due on the note: at trial, the plaintiff had introduced a
certain exhibit, which was admitted under the business record exception
to the hearsay rule, that computed the amount due on the note through
the testimony of a witness, B, who admitted that his knowledge of the
starting balance due on the note, as reflected on the computation in
the exhibit, came from data submitted by S Co. when the plaintiff pur-
chased the loan, and although B testified that S Co. had attested to how
much was due on the note as of the date of the plaintiff’s purchase, B
had no personal knowledge concerning the starting balance because he
was not involved in the negotiation or acquisition of the note from S
Co., and, thus, the starting balance used in the computation of debt in
the exhibit was inadmissible hearsay; moreover, although B testified
that the computation of debt was made and kept by the plaintiff in the
ordinary course of its business, there was no evidence in the record
regarding S Co.’s business records or its duty to report an accurate
starting balance to the plaintiff, the starting balance was not calculated
by the plaintiff and was received, rather than made, in the ordinary
course of its business, which failed to satisfy the first requirement for
admissibility under the applicable statute (§ 52-180), and the erroneous
evidentiary ruling was necessarily harmful to J because it directly impli-
cated the amount she owed under the note.
3. J could not prevail on her claim that the trial court improperly admitted
into evidence, in support of the plaintiff’s claim for attorney’s fees,
certain unauthenticated documents that listed R Co., a nonparty, as the
party entitled to fees; on the basis of the language of the guarantee, the
trial court properly determined that the plaintiff was entitled to recover
attorney’s fees and expenses pending an appropriate evidentiary show-
ing, as the bills appended to the plaintiff’s exhibit in support of the
amount of its attorney’s fees identified the plaintiff as the client by its
unique client number and each entry listed the bill as pertaining to the
present matter, and although those bills also included a reference to R
Co., the plaintiff’s attorney testified that the reference was included for
mailing purposes only because there had been a prior issue with the
plaintiff receiving its bills at its listed business address, and the trial
judge, as the sole arbiter of the credibility of the witnesses and the
weight to be given specific testimony, was free to accept that testimony
and did not abuse its discretion by admitting the challenged exhibit
into evidence.
Argued February 14—officially released July 3, 2018
Procedural History
Action seeking, inter alia, to foreclose a mortgage on
certain real property owned by the defendant Jennifer
Tine et al., and for other relief, brought to the Superior
Court in the judicial district of Middlesex, where the
named defendant et al. were defaulted for failure to
appear; thereafter, the action was withdrawn as to the
defendant Joseph Tine; subsequently, the matter was
tried to the court, Domnarski, J.; judgment for the
plaintiff and of strict foreclosure, from which the defen-
dant Jennifer Tine appealed to this court; thereafter,
the court, Domnarski, J., granted the plaintiff’s motion
for attorney’s fees, and the defendant Jennifer Tine filed
an amended appeal. Reversed in part; new trial.
Richard P. Weinstein, with whom, on the brief, was
Sarah Black Lingenheld, for the appellant (defendant
Jennifer Tine).
Houston P. Lowry, with whom, on the brief, was
Dale M. Clayton, for the appellee (plaintiff).
Opinion
EVELEIGH, J. The defendant Jennifer Tine1 appeals
from the judgment of strict foreclosure rendered by the
trial court in favor of the plaintiff, Jenzack Partners,
LLC. On appeal, the defendant claims that the trial court
improperly: (1) held that Sovereign Bank had assigned
the defendant’s guarantee to the plaintiff and the plain-
tiff had standing to foreclose on the mortgage; (2) deter-
mined that the plaintiff had established the amount of
debt due on the subject note; and (3) granted attorney’s
fees and costs to the plaintiff. We agree with the defen-
dant’s second claim and, accordingly, we reverse the
judgment of the trial court only as to Jennifer Tine.
The following facts and procedural history are rele-
vant to our resolution of the issues on appeal. On July
13, 2006, the named defendant, Stoneridge Associates,
LLC (Stoneridge), obtained a construction loan in the
amount of $1,650,000 from a nonparty, Sovereign Bank
(Sovereign). At that time, Stoneridge executed a promis-
sory note (Stoneridge note) evidencing its promise to
repay the loan. The note was secured by various per-
sonal guarantees; Premier, Gattinella, Snow and Joseph
Tine each executed guarantees in favor of Sovereign
guaranteeing repayment of the sums due under the note.
See footnote 1 of this opinion. On December 23, 2008,
the Stoneridge note was modified via a modification
agreement. On the same date, the defendant executed
a limited guarantee in favor of Sovereign guaranteeing
repayment of the sum due under the Stoneridge note as
modified. In order to secure their respective guarantees,
the defendant and Joseph Tine executed a mortgage
(Tine mortgage) in favor of Sovereign on their residen-
tial property located at 8 Black Birch Drive in Crom-
well.2 The defendant’s nonrecourse guarantee limited
her liability solely to her interest in the Cromwell prop-
erty. On August 27, 2009, and May 6, 2010, the defendant
executed reaffirmations of her guarantee in connection
with subsequent modifications of the Stoneridge note.
On March 22, 2012, Sovereign assigned its mortgage
and interests in the Stoneridge note to the plaintiff.3
In August, 2012, the plaintiff commenced this action,
seeking, inter alia, to foreclose on the Tine mortgage.
In the operative revised complaint dated April 2, 2013,
the plaintiff alleged that, because Stoneridge had
defaulted on the underlying Stoneridge note, the plain-
tiff was entitled to declare the entire balance of the
note due and payable. The plaintiff alleged that Sover-
eign had assigned all of its interests in the Stoneridge
note, including continuing guarantees executed by Pre-
mier, Gattinella, Snow and Joseph Tine, the limited
guarantee executed by the defendant, and the Tine
mortgage.4 Because the plaintiff was the current holder
of the Stoneridge note, the plaintiff claimed it was enti-
tled collect on all underlying guarantees and foreclose
on the mortgage.
On April 26, 2013, the defendant filed an answer that
denied the substance of the complaint and asserted as
special defenses lack of consideration, unclean hands,
and equitable estoppel. A bench trial was held on August
16, 2016. At trial, the plaintiff claimed that the assign-
ment of the Stoneridge note necessarily carried with it
an assignment of all underlying guarantees, including
the defendant’s limited guarantee secured by the Tine
mortgage. The plaintiff also introduced into evidence
exhibit 22, a computation of the current amount due
on the note. In response, the defendant claimed that
the court lacked subject matter jurisdiction to render
a judgment of foreclosure against her because her guar-
antee was not specifically assigned to the plaintiff in
the allonge. The defendant also claimed that the plaintiff
failed to establish the amount of debt due on the note
because evidence of the computation of debt, which
included a starting balance provided to the plaintiff
by Sovereign, was inadmissible hearsay. Following the
trial, both parties filed posttrial briefs. On December
1, 2016, the trial court issued a memorandum of decision
entering an order of strict foreclosure on the Tine mort-
gage. The court held that the plaintiff had standing to
foreclose the mortgage that secured the defendant’s
guarantee and that the plaintiff had established the
amount of debt due on the note through the testimony
of William Buland, the plaintiff’s authorized representa-
tive, and the computation of debt in exhibit 22. This
appeal followed. Additional facts will be set forth as
necessary.
On appeal, the defendant argues that the trial court
improperly (1) held that the plaintiff had standing to
foreclose on the Tine mortgage; (2) determined that
the plaintiff’s exhibit 22 was sufficient to establish the
amount due on the subject note; and (3) awarded the
plaintiff attorney’s fees and expenses. Although we
agree with the defendant’s second claim and, accord-
ingly, reverse the trial court’s judgment and remand the
case for a new trial, we address both the defendant’s
first claim, which pertains to subject matter jurisdiction,
and her third claim as an issue likely to arise on remand.
I
The defendant’s first claim is that the court improp-
erly found that the plaintiff had standing to bring an
action to foreclose on the Tine mortgage. She argues
that the plaintiff lacked standing because her limited
guarantee was not specifically assigned from Sovereign
to the plaintiff in the allonge. In response, the plaintiff
argues that the court properly found that it had standing
to foreclose the Tine mortgage because the assignment
of the Stoneridge note operated as an assignment of
the underlying guarantees securing it. We agree that
the plaintiff has standing.
We set forth our standard of review and applicable
legal principles. ‘‘The issue of standing implicates the
trial court’s subject matter jurisdiction and therefore
presents a threshold issue for our determination.’’
(Internal quotation marks omitted.) D’Amato Invest-
ments, LLC v. Sutton, 117 Conn. App. 418, 421, 978
A.2d 1135 (2009). ‘‘Standing is the legal right to set
judicial machinery in motion. One cannot rightfully
invoke the jurisdiction of the court unless he [or she]
has, in an individual or representative capacity, some
real interest in the cause of action, or a legal or equitable
right, title or interest in the subject matter of the contro-
versy. . . . When standing is put in issue, the question
is whether the person whose standing is challenged is
a proper party to request an adjudication of the issue
. . . . Because standing implicates the court’s subject
matter jurisdiction, the plaintiff ultimately bears the
burden of establishing standing. . . . Because a deter-
mination regarding the trial court’s subject matter juris-
diction raises a question of law, [the standard of] review
is plenary.’’ (Internal quotation marks omitted.) Valley
National Bank v. Marcano, 174 Conn. App. 206, 210–11,
166 A.3d 80 (2017).
‘‘A guarantee, similar to a suretyship, is a contract,
in which a party, sometimes referred to as a secondary
obligor, contracts to fulfill an obligation upon the
default of the principal obligor.’’ (Internal quotation
marks omitted.) One Country, LLC v. Johnson, 137
Conn. App. 810, 816, 49 A.3d 1030 (2012), aff’d, 314
Conn. 288, 101 A.3d 933 (2014). Our Supreme Court
has recognized the general principle that ‘‘a guarantee
agreement is a separate and distinct obligation from
that of the note or other obligation.’’ JP Morgan Chase
Bank, N.A. v. Winthrop Properties, LLC, 312 Conn. 662,
675, 94 A.3d 622 (2014). As our Supreme Court stated,
‘‘a guarantor’s liability does not arise from the debt or
other obligation secured by the mortgage; rather, it
flows from the separate and distinct obligation incurred
under the guarantee contract. . . . [The] guarantor [is
not] liable for the debt secured by the mortgage; rather,
the guarantor is liable for what he or she agreed to in
the [guarantee].’’ (Citations omitted; internal quotation
marks omitted.) Id., 676.
The defendant argues that the plaintiff lacks standing
to enforce her limited guarantee because, although the
Stoneridge note was assigned from Sovereign to the
plaintiff, her limited guarantee itself never was assigned
to the plaintiff. The defendant correctly points out that
the allonge did not explicitly incorporate or mention
the limited guarantee signed by the defendant. The lan-
guage of the allonge, however, does not by itself control
our resolution of the issue; we also may examine the
language of the guarantee. See D’Amato Investments,
LLC v. Sutton, supra, 117 Conn. App. 422. The defen-
dant’s guarantee states the following in relevant part:
‘‘Guarantor does hereby fully guarantee that Borrower
shall duly and punctually perform all of its other obliga-
tions, covenants and conditions contained in the Note
and Loan Documents.’’ Because the language of the
guarantee itself does not shed light on the effect of a
subsequent assignment, our resolution of the issue of
standing depends on whether the assignment of the
Stoneridge note from Sovereign to the plaintiff also
operated as an assignment of the defendant’s underlying
limited guarantee such that the plaintiff can foreclose
on the Tine mortgage securing the guarantee.
Neither party has identified a Connecticut case that
is factually on point with the present one, and our courts
have considered this issue infrequently. See JP Morgan
Chase Bank, N.A. v. Winthrop Properties, supra, 312
Conn. 675. We therefore turn to the Restatement (Third)
of Suretyship and Guaranty § 13 (1996), which is persua-
sive authority and in accord with related Connecticut
case law.5
The Restatement (Third) of Suretyship and Guaranty
§ 13 sets forth the rule that when an obligee assigns its
rights under an obligation, that assignment operates as
an assignment of any secondary obligations attached
to the primary obligation. In discussing the assignment
of an obligee’s rights, subsection (5) provides: ‘‘Except
as otherwise agreed or as provided in subsection (1),6
an assignment by the obligee of its rights against the
principal obligor arising out of the underlying obligation
operates as an assignment of the obligee’s rights against
the secondary obligor arising out of the secondary obli-
gation.’’ (Footnote added.) Restatement (Third), supra,
§ 13 (5). Additionally, comment (f), explains: ‘‘A second-
ary obligation, like a security interest, has value only
as an adjunct to an underlying obligation. It can usually
be assumed that a person assigning an underlying obli-
gation intends to assign along with it any secondary
obligation supporting it. Thus, unless there is an
agreement to the contrary or assignment is prohibited
pursuant to subsection (1), assignment of the underly-
ing obligation also assigns the secondary obligation.’’
Restatement (Third), supra, § 13, comment (f). Under
the rule expressed in § 13 (5) of the Restatement, there-
fore, the assignment of the Stoneridge note operates
as an assignment of the secondary obligations underly-
ing it, namely, the defendant’s limited guarantee.
The defendant claims, however, that because there
was no specific mention of her limited guarantee in the
allonge assigning the Stoneridge note to the plaintiff,
her guarantee was not assigned to the plaintiff. Our
Supreme Court addressed an analogous issue in Lem-
mon v. Strong, 59 Conn. 448, 22 A. 293 (1890), namely,
whether an assignment of a note to a subsequent holder
carried with it a related guarantee where the guarantee
was not formally assigned. In concluding that no spe-
cific assignment was necessary to enforce the related
guarantee, the court focused on the surrounding cir-
cumstances and intentions of the parties executing the
assignment. ‘‘The contract and acts of [the assignor]
. . . should be construed with reference to all the sur-
rounding circumstances, the controlling consideration
being to discover and give effect to the mutual intention
of the parties.’’ Id., 454. In holding that the guarantee
had been equitably assigned, the court reasoned, ‘‘[s]ep-
arated from the guaranty, the note had little pecuniary
value; and apart from the ownership of the note the
guaranty had but little meaning or value. They belonged
together, on the same paper, and were treated by all
concerned as forming one instrument for the recovery
of the amount due on the note.’’ Id., 452. Accordingly,
we examine the surrounding circumstances and inten-
tions of the plaintiff and Sovereign in assigning the
Stoneridge note to determine if Sovereign intended to
equitably assign the underlying guarantees as part of
its assignment of the Stoneridge note.
The present case presents an unusual set of circum-
stances. The Stoneridge note was not secured by a
mortgage on a piece of property; instead, the various
personal guarantees executed by Premier, Gattinella,
Snow, Joseph Tine and the defendant provided the col-
lateral for the loan. The defendant executed a limited
guarantee in which she personally guaranteed Stoner-
idge’s obligations under the note. That guarantee lim-
ited her liability to her interest in the Cromwell property
and was secured by the Tine mortgage. The defendant
also executed two reaffirmations of her guarantee in
2009 and 2010. It is clear, therefore, that the defendant’s
intent in executing her limited guarantee was to collat-
eralize the Stoneridge note with her interest in the
Cromwell property.
At the time of the execution of the Stoneridge note,
the underlying guarantees were the only documents that
gave the note any value. Conversely, the defendant’s
limited guarantee had no independent value other than
to secure the Stoneridge note. It can be reasonably
assumed, therefore, that the intention of Sovereign in
assigning the Stoneridge note to the plaintiff was to
assign its rights under the note and the secondary obli-
gations that gave the note its value. An assignment of
the Stoneridge note without the guarantees would be
valueless to the plaintiff, and the plaintiff certainly
assumed that it was getting all of the rights Sovereign
had under the Stoneridge note. If Sovereign intended
to limit the operation of the transaction to the assign-
ment of the note only and not the underlying guarantees,
it easily could have done so by reserving such rights
in the allonge. Read in light of all of the surrounding
circumstances and the rule expressed in § 13 of the
Restatement (Third) of Suretyship and Guaranty, we
conclude that the parties intended the assignment of
the defendant’s limited guarantee as part of the assign-
ment of the Stoneridge note. Thus, the plaintiff has
standing to foreclose on the Tine mortgage.
II
The defendant next claims that the court erred in
holding that the plaintiff had established the amount
of debt due on the subject note. The defendant argues
that the total amount due, as shown on exhibit 22,
was based on a starting balance that was improperly
admitted into evidence under the business records
exception because it was provided by Sovereign at the
time the note was acquired by the plaintiff and, there-
fore, Buland’s testimony is inadmissible hearsay.7 In
response, the plaintiff argues that exhibit 22 was prop-
erly admitted into evidence under the business records
exception to establish the starting balance on the note.
We agree with the defendant.
The following additional facts are necessary for our
resolution of this claim. At trial, the plaintiff called
Buland to establish the amount of debt due on the note.
The plaintiff introduced a prepared computation of the
amount due on the Stoneridge note to establish the
current debt on the note. The record indicates that
the defendant vigorously contested the admissibility
of exhibit 22 on the grounds that it was not properly
authenticated and was inadmissible hearsay. In
response, the plaintiff argued that the document was
admissible under the business records exception to the
hearsay rule. The court overruled the defendant’s objec-
tion and allowed exhibit 22 to be admitted into evidence
as a full exhibit.
We set forth our standard of review and applicable
legal principles on this issue. ‘‘When presented with an
evidentiary issue . . . our standard of review depends
on the specific nature of the claim presented. . . .
Thus, [t]o the extent a trial court’s admission of evi-
dence is based on an interpretation of [law], our stan-
dard of review is plenary. For example, whether a
challenged statement properly may be classified as
hearsay and whether a hearsay exception properly is
identified are legal questions demanding plenary
review. . . .
‘‘A trial court’s decision to admit evidence, if prem-
ised on a correct view of the law, however, calls for
the abuse of discretion standard of review. . . . In
other words, only after a trial court has made the legal
determination that a particular statement is or is not
hearsay, or is subject to a hearsay exception, is it vested
with the discretion to admit or to bar the evidence based
upon relevancy, prejudice, or other legally appropriate
grounds related to the rule of evidence under which
admission is being sought.’’ (Citations omitted; empha-
sis in original; internal quotation marks omitted.) Mid-
land Funding, LLC v. Mitchell-James, 163 Conn. App.
648, 653, 137 A.3d 1 (2016).
In determining the amount of the defendant’s debt
on the note, the court relied on the prepared computa-
tion of the amount due on the Stoneridge note, admitted
as exhibit 22 under the business records exception to
the hearsay rule. Because this claim turns on whether
the trial court properly classified exhibit 22 as a busi-
ness record, our review is plenary. See id., 654.
‘‘[H]earsay is an out-of-court statement offered into
evidence to establish the truth of the matters contained
therein. . . . In the absence of personal knowledge
about the contents of a document, a witness’ statements
about the document are hearsay.’’ (Citation omitted;
internal quotation marks omitted.) New England Sav-
ings Bank v. Bedford Realty Corp., 238 Conn. 745, 757,
680 A.2d 301 (1996).
Buland, the plaintiff’s authorized representative,
admitted during voir dire that his knowledge of the
starting balance due on the note, as reflected on the
computation in exhibit 22, came from data submitted
by Sovereign when the plaintiff purchased the loan from
Sovereign. Buland testified that the bank attested to
how much was due on the note as of the date of pur-
chase; however, Buland had no personal knowledge
concerning the starting balance because he was not
involved in the negotiation or acquisition of the note
from Sovereign. Furthermore, at trial, the plaintiff did
not tender any explanation for why it did not produce
the original computation of the starting balance upon
which Buland subsequently relied in computing the
amount of debt. Because Buland did not have personal
knowledge of the starting balance of debt due on the
Stoneridge note, the starting balance used in the compu-
tation of debt in exhibit 22 was inadmissible hearsay.
The plaintiff argues that because Buland created the
computation on the basis of the starting balance
received by the plaintiff in the regular course of busi-
ness, the starting balance listed in exhibit 22 was admis-
sible under the business records exception to the
hearsay rule. ‘‘In order to establish that a document
falls within the business records exception to the rule
against hearsay, codified at [General Statutes] § 52-180,
three requirements must be met. . . . The proponent
need not produce as a witness the person who made
the record or show that such person is unavailable but
must establish that [1] the record was made in the
regular course of any business, and [2] that it was the
regular course of such business to make such a writing
or record [3] at the time of such act, transaction, occur-
rence or event or within a reasonable time thereafter.’’
(Citation omitted; footnote omitted; internal quotation
marks omitted.) LM Ins. Corp. v. Connecticut Disman-
teling, LLC, 172 Conn. App. 622, 628–29, 161 A.3d
562 (2017).
Our Supreme Court has noted, however, that when a
document is received, rather than made, in the ordinary
course of business, it ordinarily will not satisfy the
requirements of § 52-180. In River Dock & Pile, Inc. v.
O & G Industries, Inc., 219 Conn. 787, 801, 595 A.2d
839 (1991), the court stated, ‘‘[the authorized represen-
tative] testified that the document would have been
received in the ordinary course of business, not that it
would have been made in the ordinary course of busi-
ness. The presumption that a business record is reliable
is based in large part on the entrant having a business
duty to report. . . . The mere fact that the [party]
received this letter in the ordinary course of business
and included the document in its files tells us nothing
about the motivation of the maker of record, and there-
fore would not ordinarily satisfy the requirements of
§ 52-180.’’ (Citations omitted; emphasis in original.) Id.
Additionally, the court stated: ‘‘We emphasize . . . that
the mere receipt of documents in the ordinary course
of business, in the absence of any duty owed by the
entrant to the business to prepare the record, would
not ordinarily establish such documents as business
records.’’ Id., 801 n.14.
In the present case, Buland testified that the computa-
tion of debt was made and kept by the plaintiff in the
ordinary course of business. There is no evidence in
the record, however, regarding Sovereign’s business
records or its duty to report an accurate starting balance
to the plaintiff. The starting balance was not calculated
by the plaintiff, and therefore, it was received, rather
than made, in the ordinary course of business. Accord-
ingly, because the first requirement of § 52-180 is not
satisfied, we conclude that the starting balance as
shown on exhibit 22 was not admissible under the busi-
ness records exception.
The plaintiff does not dispute that, in the absence of
either exhibit 22 or Buland’s testimony concerning the
starting balance, there was insufficient competent evi-
dence from which the trial court properly could deter-
mine the amount of debt. The challenged evidentiary
ruling was necessarily harmful to the defendant because
it directly implicated the amount she owed under the
Stoneridge note. Where hearsay is improperly admitted
into evidence to establish the amount of debt on a
loan, the proper remedy is to reverse the trial court’s
judgment of strict foreclosure.8 See New England Sav-
ings Bank v. Bedford Realty Corp., supra, 238 Conn.
758. Because we determine that the starting balance of
the amount due on the Stoneridge note as listed on
exhibit 22 was inadmissible hearsay, we reverse the
trial court’s judgment of strict foreclosure as to the
defendant.
III
Although we are reversing the judgment of strict fore-
closure against the defendant on the second issue, we
briefly discuss, as a matter likely to arise on remand, the
defendant’s claim that the court improperly awarded
attorney’s fees to the plaintiff. Specifically, the defen-
dant claims that the court improperly admitted unau-
thenticated documents in support of the plaintiff’s claim
for attorney’s fees that listed a nonparty, ‘‘Rockstone
6 Capital, LLC,’’ as the party entitled to fees. The plaintiff
responds that the reference to ‘‘Rockstone 6 Capital,
LLC’’ was for mailing purposes only, and that the plain-
tiff’s attorney provided sufficient testimony for the
court to award reasonable attorney’s fees. We agree
with the plaintiff.
The following additional facts are relevant to our
resolution of this issue. On December 1, 2016, the court
issued its memorandum of decision entering an order
of strict foreclosure in favor of the plaintiff. Thereafter,
the plaintiff filed a motion for attorney’s fees and
expenses and, on January 11, 2017, the court held an
evidentiary hearing on the issue of attorney’s fees. In
support of its claim, the plaintiff submitted an affidavit
regarding its requests for attorney’s fees and contempo-
raneous billing records as exhibit 25. Houston Putnam
Lowry, the plaintiff’s attorney, also testified as to his
firm’s fees and expenses incurred in the course of the
litigation. Lowry testified that the billing records identi-
fied the plaintiff as the client by its unique client num-
ber, and each entry listed the matter as ‘‘Jenzack v.
Snow—Tine Foreclosure on Stoneridge.’’ Each entry
also had an additional notation, ‘‘Rockstone 6 Capital,
LLC.’’ When the defendant questioned what ‘‘Rockstone
6 Capital, LLC’’ referred to, Lowry testified that the
reference was included for mailing purposes only
because there had been a prior issue with the plaintiff
receiving its bills at its listed business address. On Janu-
ary 12, 2017, the court granted the plaintiff’s motion for
attorney’s fees totaling $121,439.41.
We set forth the standard of review and applicable
legal principles on this issue. ‘‘Attorney’s fees in foreclo-
sure actions may be awarded pursuant to General Stat-
utes § 52-249 (a) or . . . pursuant to contract.’’ N.E.
Leasing, LLC v. Paoletta, 89 Conn. App. 766, 774, 877
A.2d 840, cert. denied, 275 Conn. 921, 883 A.2d 1245
(2005). ‘‘Where a contract provides for the payment of
attorney’s fees by a defaulting party, those fees are
recoverable solely as a contract right. . . . Therefore,
the language of the note governs the award of fees,
and we need not consider General Statutes § 52-249
(allowance of reasonable attorney’s fees in a foreclo-
sure action). Such attorney’s fees incurred language has
been interpreted by our Supreme Court . . . as permit-
ting recovery upon the presentation of an attorney’s
bill, so long as that bill is not unreasonable upon its
face and has not been shown to be unreasonable by
countervailing evidence or by the exercise of the trier’s
own expert judgment.’’ (Citations omitted; internal quo-
tation marks omitted.) Id., 778.
Our standard of review on an award of attorney’s
fees is well settled. ‘‘Whether to allow [attorney’s] fees,
and if so in what amount, calls for the exercise of
judicial discretion by the trial court. . . . An abuse of
discretion in granting [attorney’s] fees will be found
only if [an appellate court] determines that the trial
court could not reasonably have concluded as it did.’’
(Citation omitted; internal quotation marks omitted.)
Hornung v. Hornung, 323 Conn. 144, 170, 146 A.3d
912 (2016). ‘‘[T]he trial judge is the sole arbiter of the
credibility of the witnesses and the weight to be given
specific testimony and, therefore, is free to accept or
reject, in whole or in part, the testimony offered by
either party.’’ (Internal quotation marks omitted.)
LaBossiere v. Jones, 117 Conn. App. 211, 224, 979 A.2d
522 (2009).
In the present case, the defendant’s limited guarantee
contains an indemnity provision applicable to the issue
of attorney’s fees, which provides in relevant part:
‘‘Indemnification. Guarantor shall . . . fully indem-
nify, save and hold harmless Lender from all cost and
damage which Lender may suffer by reason of any fail-
ure by Borrower to perform any of the obligations of
Borrower under the Note or Loan Documents and fully
reimburse and repay to Lender any and all costs and
expenses which Lender may incur arising from any such
failure, and from any and all loss, liability, expense,
including legal fees and cost of litigation, and damage
suffered or incurred by Lender in enforcing and procur-
ing the performance of this Guaranty and the obliga-
tions of Borrower guaranteed hereby.’’ (Emphasis
added.)
On the basis of the language in the guarantee, the
court properly concluded that the plaintiff was entitled
to recover attorney’s fees and expenses pending an
appropriate evidentiary showing. The defendant does
not challenge the reasonableness of the fees awarded;
instead, she challenges only the reference to ‘‘Rock-
stone 6 Capital, LLC’’ and claims that the billing records
identified someone other than the plaintiff as the client
entitled to attorney’s fees. We are not persuaded. The
court was free to weigh the exhibit containing refer-
ences to ‘‘Rockstone 6 Capital, LLC’’ as well as Lowry’s
testimony in determining whether the plaintiff had
established that it was entitled to the attorney’s fees
requested in exhibit 25. Accordingly, we conclude that
the court did not abuse its discretion regarding the
admission of exhibit 25.
The judgment is reversed only as to Jennifer Tine
and the case is remanded for a new trial; the judgment
is affirmed in all other respects.
In this opinion the other judges concurred.
1
Stoneridge Associates, LLC (Stoneridge), Premier Building & Develop-
ment, Inc. (Premier), Ronald Gattinella, Joseph Tine also known as Giuseppe
Tine (Joseph Tine), Patrick Snow, and Webster Bank are also named as
defendants in this action. With the exception of Jennifer Tine and Joseph
Tine, all defendants were defaulted for failure to appear or plead. During
the pendency of the foreclosure action, Joseph Tine, the defendant’s former
husband and a member of Stoneridge, filed a petition in bankruptcy and
the claims against him were subsequently discharged. For the purposes of
this opinion, any reference to the defendant is to Jennifer Tine only.
2
The Tine mortgage was recorded in the Cromwell land records on January
7, 2009. When the defendant executed her limited guarantee, she and Joseph
Tine were joint owners of the Cromwell property. Joseph Tine subsequently
transferred his interest in the property to the defendant in connection with
his bankruptcy proceedings. At the time of the foreclosure judgment, the
defendant was the sole owner of the Cromwell property.
3
Specifically, Sovereign and the plaintiff executed an allonge endorsing
the Stoneridge note to the plaintiff as the obligee of the note. The Tine
mortgage was assigned to the plaintiff though an ‘‘Assignment of Open-End
Mortgage Deed.’’
4
See footnote 1 of this opinion.
5
Our Supreme Court previously has relied on the Restatement (Third) of
Suretyship and Guaranty to fill gaps in and support our common law. See
Lestorti v. DeLeo, 298 Conn. 466, 475 n.8, 4 A.3d 269 (2010).
6
Subsection (1) of § 13 of the Restatement (Third) of Suretyship and
Guaranty provides the exceptions for when the assignment of a secondary
obligation is prohibited: ‘‘The rights of the obligee against the secondary
obligor arising out of the secondary obligation can be assigned unless:
‘‘(a) the substitution of a right of the assignee for the right of the obligee
would materially change the duty of the second obligor or materially increase
the burden or risk imposed on by its contract; or
‘‘(b) the assignment is forbidden by statute or is otherwise ineffective as
a matter of public policy; or
‘‘(c) the assignment is validly precluded by contract.’’ The defendant does
not claim that any of these exceptions are applicable in the present case.
7
We note that the defendant concedes that the portion of exhibit 22
reflecting interest accrual, payments, or other transactions that occurred
after the plaintiff acquired the note were properly admitted under the busi-
ness records exception.
8
The defendant contends that the proper remedy in this case would be
a directed judgment instructing the trial court to render judgment in favor
of the defendant. Specifically, the defendant argues that, even on remand,
the plaintiff would be unable to introduce exhibit 22 into evidence under
the business records exception because the plaintiff did not offer any evi-
dence from Sovereign that it could verify the starting balance. We decline
the defendant’s invitation to speculate that the plaintiff will not be able to
produce either any representative from Sovereign or testimony to establish
the validity of the starting balance on the note. | 01-03-2023 | 07-02-2018 |
https://www.courtlistener.com/api/rest/v3/opinions/2471270/ | 733 F.Supp.2d 385 (2010)
Charles YACKLON, Plaintiff,
v.
EAST IRONDEQUOIT CENTRAL SCHOOL DISTRICT, Susan Allen, John Abbott, Katherine Callon, Defendants.
No. 10-CV-6079L.
United States District Court, W.D. New York.
August 23, 2010.
Charles Yacklon, Rochester, NY, pro se.
*386 Miles G. Lawlor, Ferrara, Fiorenza, Larrison, Barrett & Reitz, P.C., East Syracuse, NY, for Defendants.
DECISION AND ORDER
DAVID G. LARIMER, District Judge.
INTRODUCTION
Plaintiff Charles Yacklon, appearing pro se, brings this action against the East Irondequoit Central School District ("District"), and three individuals, John Abbott, Susan Allen, and Kathleen Callon, all of whom are employees of the District. Yacklon alleges that defendants have discriminated against him on account of his age, in violation of the Age Discrimination in Employment Act ("ADEA"), 29 U.S.C. § 621 et seq.
Defendants have moved to dismiss the complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, or in the alternative for summary judgment under Rule 56 (Dkt. #4). Plaintiff has filed what is styled as a motion to compel (Dkt. # 11) and a motion to set a trial date (Dkt. # 15).
SUMMARY JUDGMENT NOTICE
Before turning to the parties' motions, it is necessary to address whether to treat defendants' motion as a motion to dismiss, or as a motion for summary judgment. The Second Circuit has held that "[a] district court may not convert a motion under Fed.R.Civ.P. 12(b)(6) into a Rule 56 motion for summary judgment without sufficient notice to an opposing party and an opportunity for that party to respond." Wali v. Chelsea Plastics, 351 Fed.Appx. 547, 548 (2d Cir.2009) (quoting Groden v. Random House, Inc., 61 F.3d 1045, 1052 (2d Cir.1995)). "[P]ro se litigants must have unequivocal notice of the meaning and consequences of conversion to summary judgment," because a "pro se litigant may be unaware of the consequences of his failure to offer evidence bearing on triable issues." Wali, 351 Fed.Appx. at 548-49 (internal quotation marks and citations omitted). See also Ruotolo v. Internal Revenue Serv., 28 F.3d 6, 8 (2d Cir.1994) ("The failure of a district court to apprise pro se litigants of the consequences of failing to respond to a motion for summary judgment is ordinarily grounds for reversal") (per curiam).
The adequacy of such notice is "governed by principles of substance rather than form." Sahu v. Union Carbide Corp., 548 F.3d 59, 67 (2d Cir.2008) (quoting In re G. & A. Books, Inc., 770 F.2d 288, 295 (2d Cir.1985)). Consequently, "[t]here is no requirement that the district court affirmatively advise the pro se litigant of the nature and consequences of a summary judgment motion if the pro se litigant has otherwise been adequately notified or is already aware of such consequences." M.B. v. Reish, 119 F.3d 230, 232 (2d Cir.1997). A pro se litigant's comprehension of the nature of a summary judgment motion may be demonstrated not only by his receipt of a formal notice, but by his response to the motion. See, e.g., Forsyth v. Federation Employment and Guidance Service, 409 F.3d 565, 571 (2d Cir.2005) ("Based on plaintiff's submissions to the district court, including his affidavit in opposition to the motion for summary judgment, and his affidavit . . ., we think it clear that plaintiff understood his responsibilities under Rule 56"), abrogated on other grounds by Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618, 127 S.Ct. 2162, 167 L.Ed.2d 982 (2007).
In the case at bar, defendants' notice of motion was accompanied by a "Notice to Pro Se Litigants Opposing Summary Judgment," which fully detailed the nature of a summary judgment motion, the manner *387 in which plaintiff should respond, and the possible consequences if he failed to do so. Dkt. #4. In response to the motion, Yacklon submitted three separate responses (Dkt. # 10, # 13, # 14), totaling some 56 pages, including numerous exhibits. He also filed a "motion to compel" (Dkt. #11) which despite that title is akin to a statement of material facts alleged to be in dispute.[1] I therefore conclude that plaintiff has been given more than adequate notice the significance of defendants' motion, which I treat as a motion for summary judgment.
FACTUAL BACKGROUND
Yacklon was hired as a school bus driver in 2004 by Laidlaw, Inc. Laidlaw has contracted with multiple public school districts and private schools in the Rochester, New York area to provide busing services for their students. Plaintiff was seventy years old at the time he was hired.
When he began working for Laidlaw, Yacklon filled in for other drivers, driving a number of different routes for various school districts. Pursuant to the terms of the collective bargaining agreement between Laidlaw and plaintiff's union, however, drivers are eligible to bid on specific routes when those routes become available. When that occurs (e.g. as a result of a driver's retirement), Laidlaw drivers are eligible to bid on the route, and typically the route is awarded to the bidding driver with the most seniority.
That general rule is subject to some qualifications, however. Of particular relevance to this case is ¶ 23 of the contract between the District and Laidlaw, which provides that "[Laidlaw] agrees that the District has the right to require [Laidlaw] to remove from District service any person or driver who, in the District's judgment, will detract from the safe and efficient operation of school buses under this agreement." Dkt. # 10 at 33.
Sometime in 2006, Yacklon was involved in an argument with a Laidlaw dispatcher at the Laidlaw facility. Plaintiff testified at a hearing before the New York State Division of Human Rights ("SDHR") that he was yelling loudly enough to be heard throughout the facility, including in the office of defendant Callon, who, as the transportation director for the District, maintained an office at Laidlaw's building. The argument was heated enough that plaintiff's supervisor stepped in to attempt to calm Yacklon down. Yacklon Tr. (Dkt. # 7 Ex. D) at 126.
In March 2007, Yacklon bid for Route 42, which served students of the defendant District. Yacklon was the most senior driver to bid for that route.
Yacklon was not awarded Route 42, however. He testified before the SDHR that he was shown a letter from Callon to Laidlaw stating that Yacklon "ha[d] not been accepted by the superintendent of schools as a driver for East Irondequoit School District per Educational Law Section 156.3" Yacklon Tr. at 35.[2] The route was awarded to a different driver. In plaintiff's administrative proceedings before the SDHR, the District contended that its rejection of Yacklon was based on *388 Callon's belief that he was a "`hothead' with an abrasive manner," and as such was not acceptable to the District as a driver for its students. Dkt. # 10 at 11.
Yacklon filed an administrative complaint with the SDHR on April 2, 2007, charging the District with unlawful age discrimination. Dkt. # 7 Ex. A. After an evidentiary hearing at which plaintiff testified, the SDHR dismissed the complaint on July 21, 2009, on the ground that Yacklon had failed to demonstrate that the District was his employer. Dkt. # 7 Exs. E, F. Plaintiff then filed his complaint in this Court.
DISCUSSION
The ADEA makes it unlawful for "an employer . . . to fail or refuse to hire or to discharge any individual or otherwise discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual's age. . . ." 29 U.S.C. § 623(a)(1). It is well established that individual defendants cannot be held liable under the ADEA. See, e.g., Anderson v. Derby Bd. of Educ., 718 F.Supp.2d 258, 262-64, 2010 WL 2465431, at *2 (D.Conn. 2010); Rehman v. State University of New York at Stony Brook, 596 F.Supp.2d 643, 652 (E.D.N.Y.2009). Plaintiff's claims against Abbott, Allen and Callon must therefore be dismissed.
With respect to the District, by its terms, the ADEA liability extends only to "employers." An entity that is not the plaintiff's employer therefore cannot be held liable under the ADEA. See Camacho v. Puerto Rico Ports Auth., 369 F.3d 570, 572 (1st Cir.2004) ("Section 623(a) of the ADEA imposes liability only on employers") (citing Kimel v. Florida Bd. of Regents, 528 U.S. 62, 67-68, 120 S.Ct. 631, 145 L.Ed.2d 522 (2000)); accord Rice v. Scudder Kemper Investments, Inc., No. 01 Civ. 7078, 2003 WL 1846934, at *2 (S.D.N.Y. Apr. 8, 2003); see also Gulino v. New York State Educ. Dep't, 460 F.3d 361, 370 (2d Cir.2006) ("the existence of an employer-employee relationship is a primary element of Title VII claims"), cert. denied, 554 U.S. 917, 128 S.Ct. 2986, 171 L.Ed.2d 885 (2008).[3]
As did the SDHR, I find that plaintiff's complaint must be dismissed, because there is no evidence showing that the District was his employer. There is no dispute here that plaintiff was an employee of Laidlaw, not of the District. Plaintiff himself testified as much; when asked at the SDHR hearing whether he was an employee of the District, Yacklon answered, "No, I am not and I never claimed that East Irondequoit Central School District was my employer." Dkt. # 7 Ex. D at 191. See also Plaintiff's Motion to Compel (Dkt. # 11) at 4 (stating that "[t]he company hires the drivers. The schools do not").
It is possible, then, that Yacklon is simply unaware that the ADEA only applies to "employers." Giving his pro se complaint a generous reading, however, he appears to articulate two possible theories on which the District could, theoretically, be held liable. First, he alleges that the District "interferred [sic] with senoir [sic] *389 bidding for school bus routes," and "interferred with [his] employment privilege in driving routes in East Rochester." Complaint at 4. Second, plaintiff states that he seeks to "bring all facts in front of jury to pay [him] $75,000 and show employer in common. . . ." Id.
There is a line of authority that an entity may qualify as an employer in the ADEA or Title VII context where the entity "affirmatively interfered with or affected the plaintiff's direct employment or access to employment opportunities. . . ." Gulino, 460 F.3d at 372. Although in Spirt v. Teachers Ins. and Annuity Ass'n, 691 F.2d 1054 (2d Cir.1982), vacated and remanded on other grounds, 463 U.S. 1223, 103 S.Ct. 3565, 3566, 77 L.Ed.2d 1406 (1983), the Second Circuit made a "foray into the hazy realm of the interference test," Gulino, 460 F.3d at 373, that court has since sharply limited the scope of that rule. In Gulino, the court noted that "Spirt enunciated a narrow rule based upon a unique factual posture," and that eleven years after Spirt was decided, the Supreme Court "ruled that the commonlaw should supply the definition of `employee' in the absence of a statutory definition," thus effectively rejecting one of the chief rationales behind the interference test, i.e., that a broader test for establishing the existence of an employment relationship would better serve the remedial purposes of employment discrimination litigation. Id. at 377 (citing Nationwide Mutual Insurance Co. v. Darden, 503 U.S. 318, 112 S.Ct. 1344, 117 L.Ed.2d 581 (1992)).[4]See also Lopez v. Massachusetts, 588 F.3d 69, 89 (1st Cir.2009) ("Most other circuits have also repudiated the interference theory as an impermissible deviation from the common law agency approach") (citing Gulino, 460 F.3d at 373-76); DiPilato v. 7-Eleven, Inc., 662 F.Supp.2d 333, 346 n. 3 (S.D.N.Y.2009) (noting that "the Second Circuit has not adopted the broader `interference test' which determines whether an `indirect' employer relationship exists") (citing Gulino, 460 F.3d at 374).
Plaintiff's use of the term "employer in common" also suggests a possible "joint employer" theory. Where an individual is employed by a particular entity, an employment relationship may also be found to exist between that individual and another entity "where there is sufficient evidence that [the other entity] had immediate control over the [first] company's employees." Woodman v. WWOR-TV, Inc., 411 F.3d 69, 89 (2d Cir.2005) (quoting N.L.R.B. v. Solid Waste Services, Inc., 38 F.3d 93, 94 (2d Cir.1994)).
"The `single or joint employer' test utilizes a four-factored analysis developed by the NLRB to determine whether two or more employers can be treated as one for purposes of assigning liability." Gulino, 460 F.3d at 378 (identifying four factors as "(1) interrelation of operations, (2) centralized control of labor relations, (3) common management, and (4) common ownership or financial control"). "In this Circuit, this analysis has been confined to two corporate contexts: first, where the plaintiff is an employee of a wholly-owned corporate subsidiary; and second, where the plaintiff's employment is subcontracted by one employer to another, formally distinct, entity." Id. See also Woodman, 411 F.3d at *390 89 (identifying "commonality of hiring, firing, discipline, pay, insurance, records, and supervision" as "relevant factors"); Horan v. Sears Roebuck & Co., No. 3:07cv1582, 2009 WL 3820654, at *4 (D.Conn. Sept. 28, 2009) ("An entity must exercise a direct and significant degree of control over the complaining party's direct employer or the complaining party's work environment to constitute a joint employer") (internal quotation marks omitted).
Plainly, none of those indicia of joint-employer status exist here. The District had no power to hire or fire Yacklon, it did not pay him or provide him with any employment benefits, and it had no supervision over his day-to-day activities.[5] All that the District did hereand all that it could do, under its contract with Laidlawwas to reject Yacklon as a driver on routes serving the District's schools and students. Plaintiff remained employed by Laidlaw and was still free to bid on other routes serving other districts. At the time of his SDHR hearing, plaintiff testified that he was a driver on a route in West Irondequoit. Dkt. # 7 Ex. D at 153. In short, the District was not plaintiff's employer, under any viable legal theory, and accordingly it may not be held liable to plaintiff under the ADEA, regardless of its reasons for rejecting plaintiff.[6]
CONCLUSION
Defendants' motion for summary judgment (Dkt. # 4) is granted, and the complaint is dismissed.
Plaintiff's motion to compel (Dkt. # 11) and motion to set a trial date (Dkt. # 15) are denied as moot.
IT IS SO ORDERED.
NOTES
[1] Nothing in the motion to compel suggests that plaintiff needs discovery in order to frame a response to defendants' motion. What plaintiff seeks to "compel" defendants to do is respond to his factual assertions, e.g., "Charles Yacklon is a good school bus driver," "Kathleen Callon is not a school superintendent," etc. Dkt. # 11 at 2, 3.
[2] Section 156.3 of New York's Education Department regulations sets forth the qualifications and requirements for school bus drivers, including applicable licenses, physical fitness, and character.
[3] Since the two statutes define "employer" in the same way, courts have generally applied the same principles in Title VII and ADEA cases with respect to whether a particular entity constitutes a plaintiff's "employer." See Fantini v. Salem State College, 557 F.3d 22, 29 (1st Cir.2009) ("The Title VII definition of employer must be read in the same fashion as the ADEA definition of employer") (quoting Smith v. Amedisys, Inc., 298 F.3d 434, 448 (5th Cir.2002)); Farulla v. New York Sch. Constr. Auth., 277 F.Supp.2d 140, 141 (E.D.N.Y.2003) (noting that the definition of "employer" is the same under Title VII and ADEA).
[4] As the court noted in Gulino, Title VII, like the ADEA, "provides a rather circular definition of `employee,' stating that `[t]he term "employee" means an individual employed by an employer. . . .'" 460 F.3d at 371 n. 11 (quoting 42 U.S.C. § 2000e(f)). "Employer," meanwhile, is defined in Title VII as "a person engaged in an industry affecting commerce who has fifteen or more employees. . . ." 42 U.S.C. § 2000e(b). See also 29 U.S.C. § 630(b), (f) (setting forth almost identical definitions of "employer" and "employee" for purposes of ADEA).
[5] Although plaintiff states that Laidlaw "gave control to Kathleen Callon," the "control" to which he is referring appears to be control over drivers on the District's routes. For example, he states that Callon "signed time cards" of drivers on the District's routes, and "had closed meeting[s]" with them. Dkt. #11 at 3. There is no evidence suggesting that defendants had any control over Laidlaw's drivers generally, or specifically over plaintiff, particularly since the District rejected him as a driver on its routes. See Gulino, 460 F.3d at 372 ("a prerequisite to considering whether an individual is [an employee] under common-law agency principles is that the individual have been hired in the first instance") (quoting O'Connor v. Davis, 126 F.3d 112, 115 (1997) (alteration in original)).
[6] The Court's finding in this regard renders it unnecessary for me to address defendants' arguments concerning improper service of process. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2471103/ | 768 F.Supp.2d 1244 (2011)
SECURITIES and EXCHANGE COMMISSION, Plaintiff,
v.
Joseph J. MONTEROSSO, et al., Defendants.
Case No. 07-61693-CIV.
United States District Court, S.D. Florida.
March 31, 2011.
*1247 Brent Mitchell, Cheryl J. Scarboro, Jeffery T. Infelise, Reid A. Muoio, Securities *1248 & Exchange Commission, Washington, DC, for Plaintiff.
Mark David Hunter, Tiffany Jeanette Brown, Leser Hunter Taubman & Taubman PLLC, Clark D. Mervis, Clark Mervis Law Offices, Miami, FL, Dorothy Patricia Wallace, Walter John Mathews, Walter J. Mathews PA, Fort Lauderdale, FL, Marc Rowin, Lynch Rowin LLP, New York, NY, for Defendants.
ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AGAINST DEFENDANT MONTEROSSO (D.E. 312), GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AGAINST DEFENDANT VARGAS (D.E. 335), AND DENYING DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT (D.E. 341)
JOAN A. LENARD, District Judge.
THIS CAUSE is before the Court on cross-motions for summary judgment. On April 26, 2010, Plaintiff Securities and Exchange Commission ("SEC") filed its Motion for Summary Judgment against Defendant Joseph J. Monterosso ("Monterosso").[1] (See D.E. 312.) On May 3, 2010, the SEC filed its Motion for Summary Judgment against Defendant Luis Vargas ("Vargas").[2] (See D.E. 335.) Finally, on May 4, 2010, Defendants Monterosso and Vargas filed their own Motion for Partial Summary Judgment.[3] (See D.E. 341.) Having considered the SEC's motions for summary judgment and Defendants' motion for summary judgment, as well as the responses, replies, related pleadings, and the record, the Court finds as follows.
I. Background[4]
This is a securities fraud case involving allegations of a fraudulent scheme to generate fictitious revenue for a telecommunications company between 2004 and 2006. In the summer of 2004, GlobeTel, a telecommunications company based in Florida, *1249 hired Monterosso to manage its wholesale telecommunications business.[5] Wholesale telecommunications companies generate revenue by connecting those who wish to make telephone calls with companies whose networks have access to those locations the customer wishes to call. Using "switches," either computer arrays or cable connections, wholesale telecom companies can pay by the minute for the right to connect telephone calls to other networks and sell that "termination" service to their customers. For example, a call that originates on a local telephone company's network may eventually pass through switches owned by other companies in order to access a network in a different location which possesses the physical access to the user at the other end of the phone call. Call detail records ("CDRs") record various information pertaining to the traffic at a given switch and are critical to billing and other processes. Between 2004 and 2006, GlobeTel filed various periodic reports describing its wholesale telecom business as buying and selling "large blocks of calling minutes with particular origination and termination points."
At the time of Monterosso's hiring, Timothy Huff ("Huff") was GlobeTel's chief executive officer ("CEO"), Thomas Jimenez ("Jimenez") was GlobeTel's chief financial officer ("CFO"), and beginning in August 2004, Larry Lynch ("Lynch") was GlobeTel's chief operating officer ("COO"). Monterosso ran GlobeTel's telecom business from June 2004 through September 2006, served as president of GlobeTel's subsidiary Centerline Communications until July 2006, and would later serve as GlobeTel's COO from July 2006 to May 2007. Monterosso reported directly to GlobeTel's CEO. Vargas helped Monterosso run GlobeTel's telecom business in part through his ownership of another telecom company, Carrier Services Inc. ("CSI").
A. Joint Venture Agreement
In June 2004, Huff and Monterosso negotiated a joint venture agreement between GlobeTel and Vargas's company CSI. The joint venture agreement called for CSI to generate a certain amount of revenue for GlobeTel's wholly-owned subsidiary, Centerline Communications ("Centerline"), in exchange for shares of GlobeTel stock. The parties subsequently renegotiated the joint venture agreement such that CSI would receive 5 million shares of GlobeTel stock if it was able to generate $25 million in revenue for Centerline. Under the agreement, neither CSI nor Monterosso received any payment unless Centerline generated $25 million in revenue. As a result of the joint venture agreement, Monterosso ran GlobeTel's wholesale telecom business, negotiating agreements on behalf of GlobeTel, Centerline, and two other wholly-owned subsidiaries of GlobeTel named Volta Communications ("Volta") and Lonestar Communications ("Lonestar"). Monterosso entered into these agreements with GlobeTel's knowledge and authorization.
B. "Off-Net" Revenue Program
In an effort to fulfill their end of the joint venture agreement, Monterosso and Vargas explored ways of generating revenue using CSI's switches in California. CSI entered into several Partnership Incentive Financing Agreements ("PIFAs") with third parties. As of January 2005, Monterosso agrees that only three PIFA companies were using Centerline's switch. The SEC contends Monterosso tried to *1250 create revenue for GlobeTel through these smaller deals but that these agreements were eventually terminated within a few months. As a result, in late 2004, Monterosso and Vargas participated in an "offnet" program designed to allow GlobeTel to use CSI's revenue. The term "off-net" refers to telecom traffic run on a switch not owned or operated by GlobeTel, Volta, Lonestar, or Centerline. Nor was any of the "off-net" traffic eventually reported to GlobeTel run on switches belonging to either Centerline or CSI.[6] The SEC contends Monterosso and Vargas initiated the "off-net" program after Jimenez asked them if GlobeTel could use CSI's revenue. Defendants contend the origination of the "off-net" program is more complicated. In essence, Monterosso attended a meeting in Florida in 2004 with Jimenez and Lynch where Jimenez directed Monterosso to procure revenue either through GlobeTel's switches or other companies' switches. Upon returning to California, Monterosso informed Vargas of the plan and relayed that GlobeTel had engaged in similar activity in the past and that GlobeTel's board of directors had approved it. Regardless, Monterosso had not previously been involved with any similar "off-net" traffic during his experience in the telecom industry.
The "off-net" program operated in the following manner. Each quarter, a Globe-Tel executive would tell Monterosso the amount of revenue GlobeTel wanted for that quarter. As it turned out, Lynch and other GlobeTel executives constantly demanded more revenue from Monterosso. In order to provide this revenue, Monterosso and Vargas supplied GlobeTel with invoices and CDRs ostensibly relating to the "off-net" traffic. They obtained these invoices and CDRs from other companies. These invoices and CDRs were to represent revenue supposedly generated by GlobeTel's subsidiaries Volta, Lonestar, and Centerline.
1. Volta
With regard to Volta, Monterosso obtained some of the invoices from a businessman named Ronald Hay ("Hay") and his company Mercury Telecom ("Mercury"), which sometimes also used the name World Communications Carrier Services ("WCCS").[7] During the relevant time period, Mercury was engaged in wholesale telecom business and owned its own telecom switch. (See Hay Depo., D.E. 314-4 at 23-24.) Hay testified that Mercury/WCCS never did any business with Volta, including the purchase or sale of any telecom minutes. (Id. at 26-27.) Sometime in 2004, Hay provided Monterosso *1251 and Vargas with invoices WCCS had sent to its customer Codetel. Hay testified that he never provided any invoices to Monterosso or Vargas after December 2004. (Id. at 29.) Monterosso and Vargas admit that "in the on-net context as a partner under a PIFA," Volta was "never operational" and as a subsidiary of Globe-Tel "never had its own customers." (D.E. 365 at ¶ 38; D.E. 378 at ¶ 38.) It is further undisputed that Volta never ran telecom traffic through a Centerline switch. As a matter of fact, Monterosso and Vargas admit that Volta "never bought or sold anything" because it was never operational. Rather, "[i]n connection with the Off-Net Program, it was only a name used to convey costs of goods sold and revenues of real traffic while protecting the identities of those buying and selling the traffic minutes." (Id. at ¶ 42.)
Once Vargas received the invoices and/or CDRs from Hay or his employee John Petuoglu ("Petuoglu"), he would then change the name of the customer from "Codetel" to "Volta." (D.E. 336-1 at ¶ 44; D.E. 365 at ¶ 44; D.E. 378 at ¶ 44.) Between September 2004 and December 14, 2004, Vargas changed the customer name on the actual WCCS invoices from Codetel to Volta and submitted the invoices to GlobeTel's accounting department. On December 27, 2004, Monterosso sent an e-mail to Petuoglu, with a copy sent to Vargas, stating he needed additional revenue before the end of the year. (See D.E. 314-7 at 4.) The e-mail begins by stating, "[w]e are rapidly approaching the end of the year and I need to add some additional revenue. Can you provide the following from your other customer base?" The e-mail then details that Monterosso had received a Codetel invoice of $71,775.57 for December 13-19th, but needed an additional $275,000, and he had received an estimated Codetel invoice for $75,000 for December 20-26th, but needed an additional $285,000. Monterosso and Vargas subsequently submitted invoices to GlobeTel's accounting department for December 21st and December 28th. These invoices match the real WCCS invoices except that the customer name was changed to Volta and the amounts were increased to $271,775.57 for the December 21st invoice and $363,457.38 for the December 28th invoice. At the end of 2004, Hay ceased providing Monterosso with invoices from Mercury/WCCS.
Eventually, Monterosso and Vargas started receiving CDRs from a Texas businessman named Chuck Leblo ("Leblo"). Vargas used these CDRs to create invoices for Volta, despite the fact that Leblo had no connection to Hay's company, Mercury/WCCS. In effect, Vargas used the data from the CDRs and created invoices using WCCS's letterhead, such that the invoices appeared to reflect sales of telecom minutes by WCCS to Volta. This despite the fact that Vargas did not work for WCCS and no one at WCCS authorized either Monterosso or Vargas to create or alter WCCS or Mercury invoices. Throughout 2005 and 2006, Vargas continued to create invoices that appeared to reflect Volta was buying and selling telecom minutes from Mercury and WCCS using CDRs provided from Leblo, who had no connection to these companies.[8] The SEC contends Defendants knew the invoices Vargas created *1252 did not represent actual telecom traffic run on anyone's telecom switch. Monterosso contends he understood the invoices to represent actual minutes run on a telecom switch and understood the revenues to always be constrained by the amount of actual traffic run by others. (D.E. 336-1 at ¶ 56; D.E. 313-1 at ¶ 56; D.E. 365 at ¶ 56.)
2. Lonestar
GlobeTel also reported "off-net" revenue from another subsidiary named Lonestar. Lonestar purportedly engaged in "off-net" traffic by purchasing minutes from one of Leblo's companies named XSTEL, and selling those minutes to another of Leblo's companies named Telmetriks. Although neither of these companies owned a telecom switch or were engaged in the wholesale telecom business, Monterosso testified that Leblo represented to him on several occasions that Leblo owned a telecom switch. In any event, Monterosso and Vargas contend that Lonestar "was merely a name used on invoices representing traffic run on Leblo's switch during specific quarters." (D.E. 365 at ¶ 57; D.E. 378 at ¶ 57.) It is undisputed that Lonestar never actually sold anything to Telmetriks or bought anything from XSTEL and Lonestar never ran telecom traffic through Centerline's switch.
Nevertheless, in 2004 and early 2005, Monterosso obtained additional invoices and CDRs from Leblo purporting to show Lonestar did business with Telmetriks and XSTEL. Monterosso and Vargas submitted invoices to GlobeTel's accounting department reflecting Lonestar bought minutes from XSTEL and sold minutes to Telmetriks. These invoices also reflected payments from Lonestar to XSTEL. The SEC contends these invoices were sent despite the fact that no services were ever provided and no payments were ever made. Citing only Monterosso's deposition, Monterosso and Vargas claim that as far as they knew, services and payments were being made. (D.E. 365 at ¶ 61; D.E. 378 at ¶ 61; Monterosso Depo., D.E. 365-1 at 460-61.) Monterosso and Vargas additionally submitted CDRs to GlobeTel to support this "off-net" revenue.
3. Centerline
Finally, GlobeTel reported "off-net" revenue from its subsidiary Centerline. Centerline's only purported "off-net" customer and vendor was CSI. Nevertheless, Centerline never bought anything from or sold anything to CSI as part of the "off-net" program. After September 2004, CSI did not run any telecom traffic through Centerline's switch. Between September 2004 and March 2006, Monterosso and Vargas created invoices reflecting sales to and purchases from CSI even though CSI was not running any "off-net" traffic. Defendants contend those familiar with the "offnet" program would have recognized that these invoices reflected traffic running elsewhere on someone else's switch. As with Volta and Lonestar, Vargas used CDRs procured from Leblo in order to create these "off-net" invoices between CSI and Centerline.
C. Submission of Documents to GlobeTel
At Monterosso's instruction, Vargas submitted all of the invoices he created and all the CDRs he obtained that were related to the "off-net" business of Volta, Lonestar, and Centerline, to GlobeTel's accounting department. Not later than December 2004, Monterosso and Vargas knew all the invoices they forwarded to GlobeTel were being entered in the company's general ledger. GlobeTel recorded revenue and costs of goods expenses from Centerline and its subsidiaries by making entries in *1253 its general ledger.[9] The SEC also contends that between September 2004 and February 2005, Monterosso and Vargas submitted CDRs that were actually just cloned or duplicated and did not represent any actual telecom traffic. Defendants contend they were not aware any CDRs were cloned or duplicated. Nevertheless, Monterosso and Vargas knew GlobeTel's accountants would use the invoices and CDRs provided in connection with their audits of GlobeTel's financial statements. Additionally, both Monterosso and Vargas were aware that GlobeTel's failure to meet its revenue goals would negatively impact the company's stock price. Inasmuch, on June 23, 2005, Vargas sent an e-mail to Leblo requesting additional revenue and stating, "it would really be bad if the revenue goals were not met. Would really negatively impact price." (See D.E. 314-27 at 6.)
D. $1.6 Million Additional Revenue
At some point in April 2005, Lynch asked Monterosso for an extra $1.6 million in "off-net" revenue for the first quarter of 2005, which ended on March 31, 2005. Based upon Lynch's request, on April 27, 2005, Vargas forwarded an e-mail to Leblo which includes a table identifying the amount of "additional" revenue needed for Volta, Lonestar, and CSI for the previous quarter. (See D.E. 314-28 at 74-77.) The totals for the three subsidiaries add up to approximately $1.6 million. (Id.) Monterosso claims that upon Lynch's request, he contacted Leblo to see whether he had any additional revenue from the first quarter of 2005 that GlobeTel could utilize. When Leblo responded with CDRs representing $1.6 million in traffic for that time period, Vargas prepared invoices based upon that traffic "in accordance with the Off-Net Program." (D.E. 365 at ¶ 73.) During April and May 2005, Vargas created $1.6 million in invoices reflecting traffic involving Volta, Lonestar, and Centerline that occurred in March 2005. On May 2, 2005, Vargas informed Leblo that he needed the additional $1.6 million in revenue "ASAP." (D.E. 314-28 at 79.) That same day, GlobeTel made entries in its general ledger recording revenue for Volta, Lonestar, and Centerline totaling approximately $1.6 million. Among other things, these entries violated Generally Accepted Accounting Principles ("GAAP") because they did not represent services performed by those companies during the first quarter of 2005.
E. GlobeTel's Knowledge of the "Off-Net" Program
Defendants and the SEC agree that Jimenez understood GlobeTel was recording someone else's revenue as its own at least as far back as October 2004. Others at GlobeTel were also aware of the program. On January 12, 2005, Vargas accidentally sent Lynch an invoice from WCCS to Codetel. (See Invoice # 4135, D.E. 313-22 at 32.) Lynch responded the next day with an e-mail to Vargas noting the WCCS Invoice # 4135 was addressed to Codetel, not Volta, and requesting a "new one." (D.E. 314-28 at 23.) Vargas subsequently sent a corrected invoice. Moreover, Lynch always believed the revenue Centerline and its subsidiaries were reporting was "fake." Additionally, Jimenez's understanding of the "off-net" revenue *1254 program was further crystallized through several subsequent e-mails.[10] It was Lynch and Jimenez who were responsible for the recording of the "off-net" revenue by GlobeTel.
In turn, GlobeTel's auditors believed Volta and Lonestar provided "traffic or the sale of minutes" as part of the "off-net" program and that Volta and Lonestar had their own customers and vendors. Vargas does not dispute that no one ever told GlobeTel's auditors that the "off-net" revenue involved someone else's customers, switches, and vendors. Monterosso contends GlobeTel's auditors understood and were aware of the "off-net" program. There is no dispute that no one ever told GlobeTel's auditors that Leblo created CDRs for Volta, Lonestar, and Centerline, and that information would have affected their audit such that the auditors would have advised GlobeTel to "wipe out" that revenue. Also, no one told GlobeTel's auditors that Vargas had created invoices on behalf of Volta's or Lonestar's vendors but that those invoices had never been sent to the vendors. Additionally, no one told GlobeTel's auditors about the effort to add $1.6 million in revenue after the end of the first quarter for 2005.
F. GlobeTel's False Statements
As a result of the "off-net" program, GlobeTel issued several false statements in its annual reports for the years 2004 and 2005, as well as quarterly reports dated March 31, 2005, March 31, 2006, May 12, 2006, and June 9, 2006 (two reports). For the year 2004, GlobeTel reported $28,996,213, of total revenue. Of this amount, approximately 58% or $16,825,522, was attributed to "off-net" revenue generated by Centerline ($5,862,146), Lonestar ($8,135,626), and Volta ($2,827,750). For the year 2005, GlobeTel reported $81,143,838, of total revenue. Of this amount, approximately 87.4% or $70,916,586, was attributed to "off-net" revenue generated by Centerline ($22,216,-440), Lonestar ($31,316,558), and Volta ($17,383,588). Finally, for the first quarter of 2006, GlobeTel reported $22,294,725, of total revenue. Of this amount, approximately 92% or $20,502,876, was attributed to "off-net" revenue generated by Centerline ($6,977,754), Lonestar ($8,231,255), and Volta ($5,293,867). The SEC states that 81.7% or approximately $108 million of GlobeTel's reported revenue during this period was fake "off-net" revenue.
Additionally, the following registration statements incorporated by reference at least one of the annual reports and were signed by Huff and Jimenez: Forms S-3 filed on June 23, 2005, December 5, 2005, and Forms S-8 filed on August 31, 2005, January 4, 2005, and August 4, 2006. These registration statements registered the offering or sale of approximately 13.7 million shares of GlobeTel stock.
GlobeTel also issued at least five different press releases which emphasized or discussed its revenue numbers and projections. On October 13, 2004, GlobeTel issued a press release announcing that revenue had been exceeding $900,000 per week and that the company expected traffic to average $4-5 million per month in the fourth quarter of 2004. (See D.E. 390 at ¶ 97; D.E. 314-33.) On March 31, 2005, GlobeTel issued a press release reporting $28,996,213 in revenue for 2004 and quoted Huff as stating, "[w]e cannot be more excited about the Company and its future *1255 than we are this very moment. We wanted to grow our revenue base in 2004 and we did just that." (See id. at ¶ 98; D.E. 314-33.) On May 14, 2005, GlobeTel issued a press release quoting Huff as saying he was pleased with GlobeTel's business growth and revenues were up. (See id. at ¶ 99; D.E. 314-33.) On September 23, 2005, GlobeTel issued a press release announcing that it "expects to achieve record revenue of approximately $22 million for the third quarter ending September 30, 2005." (See id. at ¶ 100; D.E. 314-33.) On May 12, 2006, GlobeTel issued a press release announcing that GlobeTel had "achieved revenue of $22,294,725, or 24% more than revenue of $18,010,643 reported for first quarter 2005 and a 5.5% sequential rise over fourth quarter 2005 revenue of $21,133,147." (See id. at ¶ 101; D.E. 314-33.)
G. Procedural History
After several years of investigation, the SEC filed its initial complaint in this matter on November 21, 2007. (See D.E. 1.) That complaint alleged violations of the securities laws against Monterosso and Vargas. On May 1, 2008, the SEC filed another complaint against Defendants GlobeTel, Huff, Jimenez, and Lynch in Case No. 08-60647-CIV. The May 2008 Complaint presents some of the same allegations as contained in the November 2007 Complaint and alleges Jimenez's and Lynch's role in the alleged fraud.[11] In May 2008, Lynch and Huff settled with the SEC and consented to judgment.[12] That complaint was subsequently consolidated with this case on November 12, 2008. (See D.E. 62.) On September 8, 2009, the Commission filed another action against Huff in Case No. 09-61419-CIV. That case was eventually transferred to the undersigned and consolidated with the instant action on September 21, 2009.[13] The Court subsequently ordered the SEC to file one operative complaint incorporating all of its allegations against all of the defendants.
On June 5, 2009, the SEC filed its Second Amended Combined Complaint ("Combined Complaint," D.E. 142-1). The Combined Complaint sets forth the following claims with regard to Monterosso and Vargas: (1) violations of Section 17(a) of the Securities Act (" § 17(a)"), which prohibits fraud in the offer or sale of securities; (2) Violations of Section 10(b) of the Securities Exchange Act (" § 10(b)") and Rule 10b-5, which prohibit fraudulent acts and material misstatements or omissions in connection with the purchase or sale of any security; (3) Aiding or Abetting Violations of Section 10(b) and Rule 10b-5; (4) Aiding or Abetting Violations of Section 13(a) of the Securities Exchange Act and Rules 12b-20, 13a-1, and 13a-13, which in part prohibit filing reports with the SEC that contain false statements of material fact, and failing to correct misleading or omitted information; (5) Aiding or Abetting *1256 Violations of Section 13(b)(2)(A) of the Securities Exchange Act, which in part requires every issuer to make and keep records which in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer; and (6) Violation of Securities Exchange Act Rule 13b2-1, which prohibits any person from falsifying or causing to be falsified, any book, record or account subject to section 13(b)(2)(A) of the Securities Exchange Act, and violation of Rule 13b2-2, which in part prohibits a director or officer from making or causing to be made a materially false or misleading statement or omission to an accountant in connection with documents or reports required to be filed with the SEC. (Combined Complaint at ¶¶ 97-125.) The SEC seeks various types of injunctive and equitable relief, as well as disgorgement and civil monetary penalties. The Parties have now filed cross-motions for summary judgment.
II. Motions for Summary Judgment
A. Monterosso
The SEC seeks summary judgment on all of its claims against Monterosso. First, the SEC claims Monterosso is liable for primary violations of the anti-fraud provisions based on his conduct in making false statements and participation in a fraudulent scheme. The SEC contends Monterosso's submission of false invoices and CDRs that he knew would be recorded in GlobeTel's books constitute false statements. The SEC also contends that Monterosso played a central and essential role in the scheme to create fake revenue for GlobeTel under the guise of the "offnet" program. According to the SEC, the "off-net" program was a fraudulent scheme prohibited by Rule 10b-5(a) and (c). Next, the SEC argues the evidence in the record demonstrates Monterosso acted with knowledge or at least acted recklessly in manufacturing and submitting invoices for business that never occurred. The SEC argues Monterosso could not have believed it was proper to report revenue that involved: (1) manufacturing invoices using other companies' letterhead but changing the names of customers or vendors and altering the amounts; (2) never sending invoices, receiving payment from, or making payment to the purported "off-net" customers or vendors of Volta and Lonestar; (3) reverse-engineering "off-net" revenue from the revenue figures that Globe-Tel executives demanded; (4) using fake CDRs unrelated to purported "off-net" traffic; (5) adding $1.6 million in additional "off-net" revenue to a previous fiscal quarter after the quarter had ended; and (6) reporting revenue for Volta, Lonestar, or Centerline when they did not provide any telecom service or sell or buy anything. (D.E. 313 at 23.) Thus, the SEC believes the undisputed facts demonstrate knowledge or at least severe recklessness. Additionally, the SEC argues GlobeTel's overstatements of revenue of approximately $108 million, constituting 58 percent of GlobeTel's total revenue in 2004, 87.4 percent of GlobeTel's total revenue in 2005, and 92 percent of GlobeTel's total revenue for the first quarter of 2006, were clearly material. The SEC submits the materiality of GlobeTel's revenue assessments is evidenced by its emphasis in press releases and GlobeTel's later restatement of its annual financial statements for 2004 and 2005. These statements were also "in connection with" the purchase or sale of a security given the misstatements were contained in numerous 10-Ks and 10-Qs filed with the SEC which were also incorporated in five registration statements registering approximately 13.6 million shares of stock. (See D.E. 313 at 27.) Second, the SEC contends Monterosso is liable for aiding and abetting GlobeTel's violations of the anti-fraud provisions given *1257 his role in the "off-net" revenue scheme. Third, the SEC argues Monterosso aided GlobeTel's reporting and books and records violations. Finally, the SEC contends Monterosso falsified records and misled GlobeTel's auditors in violation of Rules 13b2-1 and 13b2-2. As a result, the SEC seeks a permanent injunction against Monterosso, disgorgement in the amount of $665,000, and the imposition of civil penalties.
In response, Monterosso asserts that any revenue misstatements were immaterial given that any "so-called `fictitious' revenue was accompanied by equal amounts of `fictitious' expenses," and Monterosso's participation was procured by GlobeTel officers who created the program, approved the program, and advised Monterosso it was authorized. Monterosso initially incorporates by reference the arguments raised in Defendants' motion for summary judgment on the issue of materiality. Monterosso argues any statements regarding revenue were immaterial because they corresponded with either a decrease or no change to GlobeTel's stock price. With regard to scienter, Monterosso contends he had no intent to deceive, manipulate, or defraud. Instead, he claims Jimenez advised him at the outset of the "off-net" program that GlobeTel wanted to obtain revenue through purchase from other wholesale carriers, that GlobeTel had done this in the past, and that the practice was approved by Globe-Tel's accountants and auditors. Upon learning the program "may have had some problems," Monterosso and Vargas refused to provide additional invoices or CDRs to GlobeTel. (See D.E. 367 at 11.) Monterosso generally asserts that both materiality and scienter are fact-specific inquiries requiring adjudication by the jury. Furthermore, Monterosso argues the SEC cannot demonstrate causation sufficient for Monterosso to be held primarily liable for violations of the anti-fraud provisions. Nor can the SEC demonstrate Monterosso aided or abetted any fraud, reporting, or books and records violations by GlobeTel. Finally, Monterosso argues none of the proposed remedies are appropriate in this case.
In reply, the SEC contends Monterosso fails to cite to admissible evidence in accordance with Rule 56 or Local Rule 7.5(c). The SEC also contends GlobeTel's misstatements were material regardless of any movement in the price of its stock. This is due to the fact that the SEC need not prove reliance or causation as would be necessary in a private securities action. Moreover, the SEC argues the Court need not accept implausible interpretations of the facts such as those offered with regard to Monterosso's knowledge of the purpose of the "off-net" program. Citing to admissions contained in Monterosso's Answer, the SEC states Monterosso has admitted that: (1) neither Telmetriks nor XSTEL owned a telecom switch or engaged in telecom business; (2) Vargas created false invoices at Monterosso's direction; (3) Monterosso and Vargas obtained false CDRs in order to substantiate fictitious revenue; (4) Monterosso and Vargas submitted false invoices and CDRs to Globe-Tel knowing they did not represent business conducted by GlobeTel's subsidiaries; (5) all of the invoices related to Lonestar were false in that Lonestar neither purchased minutes from XSTEL nor sold minutes to Telmetriks; (6) Monterosso provided, or directed Vargas to provide, CDRs to GlobeTel's accountants to substantiate the "off-net" revenue; and (7) GlobeTel's accountants made and reviewed entries in the general ledger based upon the invoices and CDRs provided. (D.E. 389 at 12-13; D.E. 474.) Monterosso also admitted he knew the "off-net" revenue he provided was being used in GlobeTel's public filings. *1258 (D.E. 313-1 at ¶ 68; D.E. 365 at ¶ 68.) Therefore, the SEC argues there are no genuine issues of material fact regarding the issue of scienter. Moreover, the SEC contends Monterosso is primarily liable based upon his role in providing false documents supporting the fraudulent "off-net" scheme despite the fact that he did not personally make general ledger entries or prepare the financial statements for Globe-Tel. In any event, the SEC argues there is sufficient evidence in the record to support liability under an aiding and abetting theory due to Monterosso's substantial assistance in the fraudulent scheme.
B. Vargas
The SEC also seeks summary judgment on all of its claims against Vargas. In sum, the SEC repeats many of the same arguments as advanced with respect to Monterosso. The SEC contends Vargas is liable for primary violations of the antifraud provisions based on his submission of fake invoices and CDRs to GlobeTel's accountants. According to the SEC, each fake document was a false statement about Centerline's operations and no later than December 2004, Vargas knew GlobeTel was entering the fictitious revenue into its general ledger and GlobeTel's accountants were using the CDRs in connection with their audits. The SEC also alleges Vargas is primarily liable because Vargas and his company CSI played a central role in the fraudulent scheme. As with Monterosso, the SEC states that Vargas could not have believed it was proper to report revenue that involved: (1) manufacturing invoices using other companies' letterhead but changing the names of customers or vendors and altering the amounts; (2) never sending invoices, receiving payment from, or making payment to the purported "offnet" customers or vendors of Volta and Lonestar; (3) reverse-engineering "offnet" revenue from the revenue figures that GlobeTel executives demanded; (4) using fake CDRs unrelated to purported "offnet" traffic; (5) adding $1.6 million in additional "off-net" revenue to a previous fiscal quarter after the quarter had ended; and (6) reporting revenue for Volta, Lonestar, or Centerline when they did not provide any telecom service or sell or buy anything. (See D.E. 336 at 23.) The SEC suggests that the reporting of "off-net" revenue based on the activities of an unrelated telecom company would be analogous to a company such as Verizon recording revenue "as the result of telecom traffic AT & T ran through its own telecom switch from AT & T's customers to AT & T's vendors." (Id. at 23 n. 5.) The SEC further reiterates that the revenue overstatements were material and in connection with the purchase or sale of a security. According to the SEC, Vargas's role in creating fake invoices and CDRs and submitting them to GlobeTel constitutes providing substantial assistance to Globe-Tel's violations and is sufficient for liability for aiding and abetting. As a result, the SEC seeks a permanent injunction against Vargas, disgorgement in the amount of $587,000, and the imposition of civil penalties.
In response, Vargas raises many of the same arguments presented by Monterosso. In essence, Vargas asserts that any revenue misstatements were immaterial given that any statements of revenue were reported "just one line above the statement of the costs of the revenues, which either exceeded the revenues or were close in value." (See D.E. 377 at 3.) Vargas also notes any that any revenue statements correspond with either a decrease or no change to GlobeTel's stock price. Like Monterosso, Vargas also incorporates by reference the arguments raised in Defendants' motion for summary judgment on the issue of materiality. Vargas further asserts that the Court may not rely upon *1259 GlobeTel's press releases on the issue of materiality as they constitute inadmissible hearsay. Additionally, Vargas contends GlobeTel's restatements of its prior annual reports was due to lack of documentation and accounting errors, and thus is not relevant to the issue of materiality. With regard to scienter, Vargas argues he had nothing to do with GlobeTel's revenue reporting or press releases, and thus did not possess knowledge of any misstatements. Vargas concludes that he lacked the sophistication or knowledge of GAAP to be held accountable and scienter is an issue of fact for the jury to decide in any event. Vargas incorporates many of the arguments raised by Monterosso throughout his response, including those raised as to the aiding and abetting claims. Finally, Vargas argues none of the proposed remedies are appropriate in this case.
In reply, the SEC contends Vargas also fails to cite to admissible evidence in accordance with Rule 56 or Local Rule 7.5(c). The SEC believes that Vargas cannot rely upon his own investigative testimony after he asserted his Fifth Amendment privilege against self-incrimination at his deposition. The SEC argues his investigative testimony would be inadmissible at trial. The SEC also argues that Vargas's response is deficient to the extent that it attempts to incorporate arguments raised by Monterosso and those raised in other pleadings. Such incorporation would also violate the pagination limits provided by the Court. The SEC also reiterates many of its prior arguments with regard to materiality and scienter addressed as part of Monterosso's motion. Thus, the SEC argues the undisputed evidence in the record demonstrates Vargas is liable for both primary and secondary violations of the securities laws.
C. Defendants' Motion for Partial Summary Judgment
Defendants move for partial summary judgment on the SEC's fraud claims on the basis that any misstatements of revenue were immaterial. Defendants contend this is a revenue recognition case and one that is quite unique because it involves offsetting statements of revenue and costs of good sold that resulted typically in small losses being reported for GlobeTel. Defendants further argue that any overstatements of revenue could not have been material when considered with the company's other disclosures of huge operating losses and problems with the wholesale telecom aspect of the business. Finally, Defendants believe the market's reaction, or lack thereof, to GlobeTel's alleged misstatements demonstrates their lack of materiality.
In response, the SEC argues Defendants' arguments are supported with mostly inadmissible evidence including an affidavit submitted by GlobeTel's counsel.[14] The SEC contends that much of Defendants' argument is based upon the false premise that the SEC must prove investor reliance, causation, or damages in order to prove a violation of § 10(b) or § 17(a). The SEC contends it need not prove any movement of GlobeTel's stock price in order to prove materiality. It also argues the relevant date for determining the impact of the statements would be the date GlobeTel disclosed the fraudulent nature of the "off-net" revenue, which it has yet to do. The SEC further argues the opinions offered by Defendants' expert, Andrew Leone ("Leone"), regarding materiality are *1260 irrelevant and unreliable.[15] Furthermore, the SEC contends the sheer size of Globe-Tel's revenue overstatements indicate their materiality. The SEC also argues that GlobeTel conceded the materiality of its revenue statements when it restated its revenue for the years 2004 and 2005 as part of its amended annual reports. These reports removed the "off-net" transactions and reduced GlobeTel's reported revenue from $28,996,213 to $11,309,376 for the year 2004, and from $81,143,838 to $10,144,789 for the year 2005. (See D.E. 376 at 24.) Finally, the SEC argues that its own expert, Stanley Murphy ("Murphy"), opines that GlobeTel's annual statements were materially misstated.
In reply, Defendants reiterate many of their prior arguments and state the SEC cannot establish materiality. Defendants also attempt to distinguish the cases cited by the SEC as involving alleged misstatements of net income and earnings, not offsetting revenue. Moreover, Defendants contend that data[16] showing GlobeTel's stock price confirms the alleged misstatements were immaterial and notes that they have sought to exclude Murphy's opinions based on the reliability of his methodology.[17] Finally, Defendants assert that GlobeTel's restatements contained in the amended filings for 2004 and 2005 do not demonstrate materiality. Thus, Defendants argue they are entitled to summary judgment on the SEC's fraud claims, or Counts I, II, and III of the Combined Complaint.
III. Standard of Review
On a motion for summary judgment, the Court is to construe the evidence and factual inferences arising therefrom in the light most favorable to the nonmoving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). Summary judgment can be entered on a claim only if it is shown "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). The Supreme Court has explained the summary judgment standard as follows:
[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 that 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 a complete failure of proof concerning an essential element of the non-moving party's case necessarily renders all other facts immaterial.
Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The trial court's function at this juncture is *1261 not "to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A dispute about a material fact is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson, 477 U.S. at 248, 106 S.Ct. 2505; see also Barfield v. Brierton, 883 F.2d 923, 933 (11th Cir.1989).
The party moving for summary judgment "always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the `pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact." Celotex, 477 U.S. at 323, 106 S.Ct. 2548. Once this initial demonstration under Rule 56(c) is made, the burden of production, not persuasion, shifts to the nonmoving party. The nonmoving party must "go beyond the pleadings and by [his] own affidavits, or by the `depositions, answers to interrogatories, and admissions on file,' designate `specific facts showing that there is a genuine issue for trial.'" Id. at 324, 106 S.Ct. 2548; see also FED.R.CIV.P. 56(e). In meeting this burden the nonmoving party "must do more than simply show that there is a metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). That party must demonstrate that there is a "genuine issue for trial." Id. at 587, 106 S.Ct. 1348. An action is void of a material issue for trial "[w]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party." Id.
IV. Discussion
A. Anti-Fraud Provisions
Section 10(b) of the Exchange Act makes it unlawful:
. . . for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange . . . (b) To use or employ, in connection with the purchase or sale of any security. . . , any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.
15 U.S.C. § 78j(b). The SEC's Rule 10b-5, promulgated thereunder, states that,
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the 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 as a fraud or deceit upon any person, in connection with the purchase or sale of any security.
17 C.F.R. § 240.10b-5. "Section 10(b) was designed to protect investors involved in the purchase and sale of securities by requiring full disclosure." SEC v. DCI Telecommunications, Inc., 122 F.Supp.2d 495, 498 (S.D.N.Y.2000) (citing Santa Fe Indus., Inc. v. Green, 430 U.S. 462, 477-78, 97 S.Ct. 1292, 51 L.Ed.2d 480 (1977)). The scope of liability is the same under section 10(b) and Rule 10b-5. See SEC v. Merchant *1262 Capital, LLC, 483 F.3d 747, 766 n. 17 (11th Cir.2007); SEC v. Zandford, 535 U.S. 813, 816 n. 1, 122 S.Ct. 1899, 153 L.Ed.2d 1 (2002).
In order to prove a violation under § 10(b), the SEC must show the defendants: (1) employed a device, scheme or artifice to defraud or made materially false statements; (2) in connection with the purchase or sale of securities; (3) using an instrumentality of interstate commerce; and (4) with scienter. Merchant Capital, 483 F.3d at 766 (citing Aaron v. SEC, 446 U.S. 680, 695, 100 S.Ct. 1945, 64 L.Ed.2d 611 (1980)). Section 17(a) "requires substantially similar proof." SEC v. Wolfson, 539 F.3d 1249, 1256 (10th Cir.2008) (quoting SEC v. First Jersey Sec., Inc., 101 F.3d 1450, 1467 (2d Cir.1996)).
Section 17(a) of the Securities Act provides that it is unlawful for any person, directly or indirectly, in the offer or sale of securities:
(1) to employ any device, scheme, or artifice to defraud, or
(2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or
(3) to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.
15 U.S.C. § 77q(a). "To show a violation of section 17(a)(1), the SEC must prove (1) material misrepresentations or materially misleading omissions, (2) in the offer or sale of securities, (3) made with scienter." Merchant Capital, 483 F.3d at 766 (citing Aaron, 446 U.S. at 697, 100 S.Ct. 1945). However, to prove a violation of section 17(a)(2) or (3), "the SEC need only show (1) material misrepresentations or materially misleading omissions, (2) in the offer or sale of securities, (3) made with negligence." Id. (citing Aaron, 446 U.S. at 702, 100 S.Ct. 1945). "The principal difference between § 17(a) and § 10(b) lies in the element of scienter, which the SEC must establish under § 17(a)(1), but not under § 17(a)(2) or § 17(a)(3)." Wolfson, 539 F.3d at 1257. Unlike private securities enforcement actions, the SEC need not prove reliance or injury under § 17 or § 10(b). Id. at 1258 n. 14, 1260 n. 17.
There is no dispute that GlobeTel made numerous misstatements concerning its revenue as part of its SEC filings between 2004 and 2006. Neither Monterosso nor Vargas dispute that the entries in GlobeTel's general ledger based upon the "off-net" transactions caused GlobeTel to misstate the revenue it reported in its 2004 and 2005 10-K filings, as well as numerous quarterly reports. (See D.E. 390 at ¶ 91.) Nor is it in dispute that GlobeTel filed at least five registration statements incorporating by reference the 2004 or 2005 annual reports and that these statements registered the offering or sale of approximately 13.6 million shares of GlobeTel stock. (See id. at ¶ 94.) It is also undisputed that GlobeTel issued several press releases in which it announced its reported revenue and/or projected revenue figures. It is further undisputed that GlobeTel filed amended annual reports for 2004 and 2005 that removed the "off-net" transactions from its reported revenue and that Globe-Tel's "correct" revenue was $11,309,376, for 2004, and $10,144,780, for 2005. (See id. at ¶ 102.) Monterosso does not dispute that GlobeTel raised over $10 million from the sale of stock during 2005 and 2006. (See id. at ¶ 103.) Because documents such as press releases and annual reports "are designed to reach investors and to influence their decisions to transact in a publicly-traded security," any misrepresentation *1263 contained within these documents is generally made "in connection with" the purchase or sale of that security where the statement is material. See Wolfson, 539 F.3d at 1262; see e.g., SEC v. Rana Research, Inc., 8 F.3d 1358, 1362 (9th Cir.1993); SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 861-62 (2d Cir.1968). As a result, the Court finds there is no genuine issue of material fact as to whether GlobeTel issued misrepresentations or false statements concerning its revenue figures and whether such statements were issued in connection with the offer, purchase, or sale of securities. Rather, solely at issue is whether or not the revenue misstatements were material and whether Defendants acted with the requisite scienter.
1. Materiality
"The test for materiality in the securities fraud context is `whether a reasonable man would attach importance to the fact misrepresented or omitted in determining his course of action.'" Merchant Capital, 483 F.3d at 766 (quoting SEC v. Carriba Air, 681 F.2d 1318, 1323 (11th Cir.1982)). In other words, a statement or omission is material where "there is a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable shareholder as having significantly altered the `total mix of information available.'" DCI Telecommunications, 122 F.Supp.2d at 498 (quoting Basic, Inc. v. Levinson, 485 U.S. 224, 232, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988)). Summary judgment is appropriate where the misstatement is "so obviously important to an investor that reasonable minds cannot differ on the question of materiality." TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 450, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976). Finally, "whether an alleged misrepresentation or omission is material necessarily depends on all relevant circumstances of the particular case." Ganino v. Citizens Utils. Co., 228 F.3d 154, 162 (2d Cir.2000).
The Court finds that the overstatements of revenue in this case would be so obviously important to an investor that there are no genuine issues of fact concerning the issue of materiality. First, the scope of the overstatement of revenue is staggering. GlobeTel reported $16,825,522 in "off-net" revenue from Centerline, Lonestar, and Volta in 2004 and total revenue of $28,996,213. In other words, GlobeTel's reported "off-net" revenue consisted of 58% of its total revenue reported. For the year 2005, GlobeTel reported $70,916,586 in "off-net" revenue from Centerline, Lonestar, and Volta, or 87.4% of its total reported revenue of $81,143,838. For the first quarter of 2006, GlobeTel reported $20,502,876 in "off-net" revenue from Centerline, Lonestar, and Volta, or 92% of its total reported revenue of $22,294,725. In total, GlobeTel reported approximately $108,244,984 in "off-net" revenue for this period, which accounted for 81.7% of its total reported revenue of $132,434,776. A reasonable investor would certainly attach importance to the fact that the vast majority of the revenue reported for GlobeTel was non-existent.
Second, GlobeTel itself obviously attached importance to its revenue figures and routinely emphasized these numbers and its success in growing its revenue base in press releases.[18] Whether a company advertises record breaking revenues or *1264 otherwise aggressively promotes its revenue numbers in its press releases may be considered a factor in determining whether a given misstatement is material. See Ganino, 228 F.3d at 165-66 (finding a company's own press releases "implicitly acknowledge[d] the significance" of statements made); DCI Telecommunications, 122 F.Supp.2d at 499 (finding statements were material where company advertised record breaking revenues and "hyped" statements in annual reports, press releases, and its website). GlobeTel issued no fewer than five press releases concerning its revenue. For example, on October 13, 2004, GlobeTel issued a press release entitled, "GlobeTel Reports Fourth Quarter Revenue Projections and Other Updates," in which it emphasized its revenue projections and "increased activities in carrier traffic." (See D.E. 314-33 at 28.) The press release further states that, "[biased on a continued revenue rate of $900,000 per week, GTEL management is confident that 2005 revenues can exceed $48,000,000." (Id.) The March 31, 2005, press release states "the Company was able to obtain its goal of growing its revenue base in 2004." (See D.E. 314-33 at 30.) That press release further quotes Huff as saying "[w]e wanted to grow our revenue base in 2004 and we did just that." (Id.) The press release also states Globe-Tel's total revenue for the year was $28,996,213. (Id.) The remaining press releases contain similar statements. The fact of the matter is that GlobeTel repeatedly emphasized its revenue numbers to the public through numerous press releases during the relevant time period. Such a concerted emphasis on revenue is evidence that a reasonable investor would have attached importance to GlobeTel's revenue statements.
Third, the fact that GlobeTel subsequently issued amended annual reports for 2004 and 2005 that removed the "off-net" revenue and drastically reduced GlobeTel's reported revenue for those years further demonstrates that GlobeTel's statements were material. See SEC v. Kelly, 663 F.Supp.2d 276, 285 (S.D.N.Y.2009) (finding that under GAAP, "a restatement issues only when errors are material. Thus, the fact that AOL restated its revenues to correct for the improper recognition of certain advertising revenues in connection with the transactions detailed in the complaint belies any suggestion that any misstatement or omission was not material") (citing In re BISYS Sec. Litig., 397 F.Supp.2d 430, 437 (S.D.N.Y.2005)).
Fourth, the Court notes that revenue is generally considered an important indicator of a company's financial health. See SEC v. Reyes, 491 F.Supp.2d 906, 910 (N.D.Cal.2007) (noting statements focusing on revenue and cash flow "are widely, if not universally, regarded as the best indicators of a company's financial health"); SEC v. Intelliquis Intn'l, Inc., 2003 WL 23356426 at *10 (D.Utah 2003) (finding overstated revenue material especially where the overstated sales made up such a large percentage of total sales). The Court can think of few indicators a reasonable investor would consider more important than whether or not a company is generating business and the extent of that business. Defendants focus on the fact that each revenue overstatement was accompanied by an offsetting fictitious expense. In essence, they assert that because the false transactions resulted in no net income to GlobeTel or even resulted in negative income, any overstatements of revenue had to be immaterial. They also encourage the Court to consider that GlobeTel was simultaneously reporting large operating losses and overall poor financial condition. Defendants believe GlobeTel's disclosed losses, which ranged up to $30 million, and consistently negative reports *1265 regarding income, would have been far more significant to an investor. Nevertheless, the materiality inquiry is not concerned with what disclosures may be most important to a reasonable investor. A financial statement that reports largely negative results does not automatically render complete fabrications immaterial. Certainly, a reasonable investor would have considered the revenue overstatements more significant had there been no reported offsetting expenses. Nevertheless, there is no requirement that a misstatement improve a company's balance sheet in order to be material to an investor.
Finally, the Court notes that the movement of a company's stock price, or lack thereof, is not dispositive of whether a given statement is material. Rather, whether a public company's stock price moves up or down is simply a factor that may be relevant to materiality. See United States v. Bilzerian, 926 F.2d 1285, 1298 (2d Cir.1991); SEC v. Stanard, 2009 WL 196023 at *23 (S.D.N.Y.2009); Manavazian v. Atec Group, Inc., 160 F.Supp.2d 468, 483-84 (E.D.N.Y.2001); DCI Telecommunications, 122 F.Supp.2d at 499 ("There is no requirement that stock prices fluctuate as a result of a defendant's misstatements or omissions in order for them to be material").[19] Typically, stock price movement is evaluated more in the context of determining the issue of reliance in private securities actions. Assuming any movement in GlobeTel's stock price following any of the alleged false statements was negligible, the Court nonetheless finds GlobeTel's overwhelmingly inflated revenue statements were materially misstated as a matter of law. Any lack of movement in GlobeTel's stock price may reflect GlobeTel's offsetting overstated costs tempered investors overall enthusiasm for the company. Nevertheless, the magnitude and scope of the overstatements, the company's repeated emphasis on its revenue in numerous press releases, and its subsequent restatement all support the conclusion that GlobeTel's overstatements were material. The fact of the matter is that more than 80% of GlobeTel's reported revenue was non-existent. The Court finds that the overstated revenue would be so obviously important to an investor that reasonable minds cannot differ on the question of materiality.
2. Scienter
Scienter is "a mental state embracing intent to deceive, manipulate or defraud." Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 n. 12, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976). Scienter can be shown through a defendant's acts of knowing misconduct or through acts demonstrating recklessness. Carriba Air, 681 F.2d at 1324. The Eleventh Circuit has stated that, "severe recklessness satisfies the scienter requirement." McDonald v. Alan Bush Brokerage Co., 863 F.2d 809, 814 (11th Cir.1989) (citing Woods v. Barnett Bank of Fort Lauderdale, 765 F.2d *1266 1004, 1010 (11th Cir.1985)). "Severe recklessness is limited to those highly unreasonable omissions or misrepresentations that involve not merely simple or even inexcusable negligence, but an extreme departure from the standards of ordinary care, and that present a danger of misleading buyers or sellers which is either known to the defendant or is so obvious that the defendant must have been aware of it." Id. (quoting Broad v. Rockwell Intn'l Corp., 642 F.2d 929, 961-62 (5th Cir.1981) (en banc)).[20] A defendant's scienter can be proven through direct or circumstantial evidence. SEC v. Ginsburg, 362 F.3d 1292, 1298 (11th Cir.2004). Although both materiality and scienter are fact-specific issues ordinarily left to the trier of fact, summary judgment may be appropriate in certain cases. In re Apple Computer Sec. Litig., 886 F.2d 1109, 1113 (9th Cir.1989); Ross v. Bank South, N.A., 837 F.2d 980, 1003 (11th Cir.1988).
The undisputed facts demonstrate such an extreme departure from the standards of ordinary care that summary judgment is warranted as to the issue of scienter. As an initial matter, the "off-net" revenue scheme began each quarter with GlobeTel executives advising Monterosso and Vargas how much "off-net" revenue was desired. Each quarter brought demands for more revenue. This arrangement wherein Defendants were being asked to reverse-engineer ever increasing amounts of revenue in itself should have raised at least some suspicion.
It is also worth noting that the premise of the "off-net" revenue program is inherently problematic despite Defendants' attempts to complicate it. At every turn, Defendants contend they believed they could purchase other company's revenue based upon assurances Monterosso received from Jimenez and other GlobeTel executives that GlobeTel had operated similar programs in the past with authorization from its accountants. The concept, as implemented by GlobeTel, involved claiming revenue from traffic that did not run on any switches owned or leased by it or any of its subsidiaries. As the SEC notes, the concept is akin to Verizon recording revenue from telecom traffic run by AT & T on its own switches or switches and telecom equipment leased or paid for by AT & T but actually owned by third parties.
More importantly, the "off-net" revenue program revolved around creating fictitious invoices and supplying them along with unrelated CDRs to GlobeTel. Defendants admit that the "off-net" revenue scheme involved altering invoices obtained from Hay and Leblo. They admit that Vargas, at Monterosso's direction, altered invoices pertaining to business conducted between WCCS and Verizon's subsidiary Codetel. Defendants admit that Vargas would take WCCS invoices and change the names such that they reflected non-existent sales of telecom minutes from WCCS to Volta. Vargas would then create fake invoices depicting sales from Volta back to Mercury (which was the same company as WCCS). Yet, Volta never provided Mercury with these invoices nor provided payment to WCCS for these fictitious telecom services. More egregious than simply changing the names of the parties involved in the transactions is the fact that Defendants would occasionally add an additional $275,000 to $285,000, to a weekly invoice. Additionally, Hay testified that Mercury and WCCS never did any actual business with Volta and there is no dispute that *1267 Volta itself was never operational. Monterosso and Vargas could not have believed it was proper to report revenue that involved manufacturing invoices using other companies' letterhead but changing the names of customers or vendors and altering the amounts. The fact that Monterosso and Vargas never sent invoices from Volta, Lonestar, or Centerline, to their supposed vendors or customers underscores the fictitious nature of the entire scheme and demonstrates their knowledge.
Because no telecom services were actually provided by GlobeTel's subsidiaries but CDRs were needed to corroborate the telecom traffic reflected on the invoices, Defendants also had to obtain or create corresponding CDRs. Monterosso admits that in order to substantiate the fictitious revenue reported in the fake Volta invoices, Monterosso or Vargas (at Monterosso's direction) would then obtain CDRs purporting to document calls related to those fake invoices. (See Combined Complaint at ¶ 42; Amended Answer, D.E. 474 at ¶ 42.) Some of these CDRs were obtained from Leblo, who had nothing to do with WCCS, Mercury, or Volta. (Id.) Defendants engaged in similar conduct for each of the subsidiaries Volta, Lonestar, and Centerline. Furthermore, Defendants acknowledge submitting these falsified invoices and corresponding CDRs to Globe-Tel knowing they would be entered into the company's general ledger and relied upon by the company's accountants and outside auditors.
Further evidence of Defendants' scienter is demonstrated by the scheme to generate an additional $1.6 million in revenue for the first quarter of 2005. According to Monterosso, after the first fiscal quarter for 2005 ended, Lynch spoke with Monterosso over the phone and requested an additional $1.6 million in revenue. (See Monterosso Depo., D.E. 365-1 at 36.) This occurred sometime in April 2005. Monterosso testified that he then called Leblo to see whether he could provide any additional revenue for that quarter. (Id.; D.E. 365 at ¶ 73.) Leblo "looked into it" and called Monterosso back saying that he could provide the additional $1.6 million. (Id.) According to Monterosso, Leblo then provided the CDRs representing the $1.6 million of traffic from the first quarter, Vargas prepared the invoices based upon the CDRs, and the revenue was recorded. (Id. at 37; D.E. 365 at ¶ 73.) Nevertheless, correspondence between Vargas, Monterosso, and Leblo indicates Defendants defined how they wanted the additional CDRs to create the additional revenue. After Lynch requested Defendants provide the revenue for the prior fiscal quarter, Vargas sends an e-mail on April 27, 2005, to Leblo (with a copy to Monterosso) "per your discussion with Joe regarding the additional $1.6 million." (See D.E. 314-28 at 74.) That e-mail attaches a spreadsheet. (Id.) The spreadsheet very clearly delineates the sources and amounts of the additional $1.6 million requested. (Id. at 75-77.) For example, the spreadsheet distributes the $1.6 million between the three companies: Lonestar to receive an additional $1,010,500, CSI to receive an additional $109,500, and Volta to receive an additional $466,500. (See D.E. 314-28 at 77.) The spreadsheet also delineates the amounts of additional revenue to be attributed to various weeks of traffic during the first quarter of 2005. For example, the spreadsheet provides that Lonestar should receive $135,000 for the week of February 7-13th, $140,000 for the week of February 14-20th, $142,500 for the week of February 21-27, and so on until the end of the first quarter. (See id. at 75.) The April 27, 2005, e-mail and spreadsheet appear to contradict Monterosso's testimony to the extent that it appears Monterosso and Vargas dictated the form and amounts of *1268 the CDRs they wanted in order to conform to their invoices and the additional revenue demanded from GlobeTel. To the extent that Monterosso and Vargas were dictating where the additional traffic or revenue should come from in order to make up the additional $1.6 million, this also tends to show Defendants knew the CDRs and invoices never really corresponded with any real telecom traffic, the traffic represented by the CDRs was not really run through Leblo's switch, and Defendants' knew they were engaged in a fraudulent scheme. To the extent that Defendants were also requesting CDRs for telecom traffic as it related to Volta, which supposedly only did business with Hay's companies Mercury and WCCS, the e-mail and spreadsheet tend to suggest knowledge or at least recklessness.
Several other factors also demonstrate no factual issues exist as to Defendants' scienter. Pursuant to the 2004 joint venture agreement entered into between CSI and GlobeTel, neither CSI nor Monterosso received any payment if Centerline did not generate at least $25 million in revenue. Thus, the joint venture agreement provided a huge incentive for Defendants to engage in a scheme to overstate revenue. Additionally, Defendants acknowledged their awareness that GlobeTel's failure to meet revenue goals would likely negatively impact its stock prices.
Finally, the Court is permitted to draw adverse inferences against Vargas based upon his invocation of his Fifth Amendment privilege and refusal to answer questions at his deposition. See United States v. Two Parcels of Real Property Located in Russell County, Alabama, 92 F.3d 1123, 1129 (11th Cir.1996); Arango v. United States Dept. of the Treasury, 115 F.3d 922, 926 (11th Cir.1997). On September 28, 2010, the Court granted in part the SEC's motion in limine to permit adverse inferences to be drawn against Vargas. (See D.E. 464.) Specifically, the Court noted "[w]ith regard to Vargas, his deposition testimony as to his knowledge of the alleged schemes would have proven useful in the Commission's attempt to prove scienter." (Id. at 17.) Nevertheless, the Court cautioned that any adverse inferences drawn would not result in automatic summary judgment but rather would be evaluated in light of all of the other evidence. (Id. at 16-18.) At his deposition, Vargas invoked his Fifth Amendment privilege against self-incrimination with regard to questions about the $1.6 million revenue addition, the invoices and CDRs he created and supplied to GlobeTel, payments he made to Leblo and others in exchange for documents, and his knowledge and understanding of the "offnet" program. The adverse inferences drawn from Vargas's refusal to answer these questions additionally support summary judgment on the issue of scienter against Vargas.
3. Causation
The SEC alleges Defendants are liable for primary violations of the anti-fraud provisions on the theory that they caused GlobeTel's misstatements and participated in a scheme to defraud. In Count III of the Combined Complaint, the SEC also alleges Defendants are liable for secondary violations of the anti-fraud provisions pursuant to an aiding and abetting theory of liability.
In order to be held primarily liable for a false statement, the SEC need not show that the defendant actually made a misrepresentation or omissiononly that he or she caused the misstatements or omissions to be made and knew the statements were calculated to reach investors. SEC v. May, 648 F.Supp.2d 70, 77 (D.D.C. 2009) (citing Wolfson, 539 F.3d at 1261). *1269 In order to demonstrate that a defendant caused a false statement to be made, the SEC must show he or she played "an integral role in preparing those filings that contained the misstatements and omissions at issue." Id. at 78 (quoting Wolfson, 539 F.3d at 1261).
In order to be primarily liable for Rule 10b-5(a)'s prohibition of employment of a device, scheme, or artifice to defraud, one "need only have made an intentionally deceptive contribution to an overall fraudulent scheme." SEC v. Berry, 580 F.Supp.2d 911, 923 (N.D.Cal.2008); SEC v. Collins & Aikman Corp., 524 F.Supp.2d 477, 486 (S.D.N.Y.2007) ("a person who, in concert with others, participates in a securities fraud scheme by making false statements does incur liability under section 10(b)").
"A defendant who is not himself a primary violator, but has knowledge of a primary violation and provides substantial assistance in it, is liable as an aider and abettor." May, 648 F.Supp.2d at 79 (citing Ponce v. SEC, 345 F.3d 722, 737 (9th Cir.2003)). Nevertheless, any person guilty of aiding and abetting a violation of the securities laws may be subject to the same penalties. See 15 U.S.C. § 78t ("[A]ny person that knowingly or recklessly provides substantial assistance to another person in violation of a provision of this title, or of any rule or regulation issued under this title, shall be deemed to be in violation of such provision to the same extent as the person to whom such assistance is provided.").
The Court finds Defendants are primarily liable for violations of § 10(b), Rule 10b-5(a) promulgated thereunder, and § 17(a)(1), as there is abundant evidence that Defendants made intentionally deceptive contributions to an overall fraudulent scheme. While neither Monterosso nor Vargas actually prepared GlobeTel's financial statements or helped prepare its SEC filings, they made numerous and extensive contributions to the overall fraudulent "off-net" revenue scheme. Alternatively, Defendants would be liable under an aiding and abetting theory of liability given their substantial assistance to the scheme. Defendants role in providing fictitious invoices and CDRs in support of overstated revenue as part of the "off-net" program enabled the entire fraudulent scheme and resulted in GlobeTel materially misstating its revenue in numerous public filings.
B. Books and Records Claims
Count IV of the Combined Complaint alleges Defendants aided and abetted violations of § 13(a) and Rules 12b-20, 13a-1, and 13a-13, which in part prohibit filing reports with the SEC that contain false statements of material fact, and failing to correct misleading or omitted information. Section 13(a) requires issuers to file with the SEC periodic reports that comply "with such rules and regulations as the Commission may prescribe as necessary or appropriate for the proper protection of investors and to insure fair dealing in the security." 15 U.S.C. § 78m(a). Rule 12b-20 provides that "[i]n addition to the information expressly required to be included in a statement or report, there shall be added such further material information, if any, as may be necessary to make the required statements, in the light of the circumstances under which they are made not misleading." 17 C.F.R. § 240.12b-20. Rule 13a-1 requires "[e]very issuer having securities registered pursuant to section 12 of the Act (15 U.S.C. 78l) shall file an annual report on the appropriate form authorized or prescribed therefor for each fiscal year after the last full fiscal year for which financial statements were filed in its registration statement. Annual reports shall be filed within the period *1270 specified in the appropriate form." 17 C.F.R. § 240.13a-1. Rule 13a-13 deals with the requirements for filing quarterly reports with the SEC. See 17 C.F.R. § 240.13a-13. As discussed above, Globe-Tel filed several reports with the SEC containing materially misstated revenue. Monterosso and Vargas substantially assisted these violations by providing Globe-Tel with fake invoices and CDRs, knowing those documents would be used to record revenue.
Count V of the Combined Complaint alleges Defendants aided and abetted violations of § 13(b)(2)(A) which in part requires every issuer to make and keep records which in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer. Specifically, Section 13(b)(2)(A) requires issuers to "make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer." 15 U.S.C. § 78m(b)(2)(A). Globe-Tel violated § 13(b)(2)(A) by keeping books and records that reflected fictitious revenue from the "off-net" program, including invoices, ledger, and financial statements. Monterosso and Vargas substantially assisted GlobeTel by creating false documents and providing them to GlobeTel.
Finally, Count VI of the Combined Complaint alleges Defendants violated Rule 13b2-1 which prohibits any person from falsifying or causing to be falsified, any book, record or account subject to section 13(b)(2)(A) of the Securities Exchange Act, and Rule 13b2-2, which in part prohibits a director or officer from making or causing to be made a materially false or misleading statement or omission to an accountant in connection with documents or reports required to be filed with the SEC. Specifically, Rule 13b2-1 provides that "no person shall directly or indirectly, falsify or cause to be falsified, any book, record or account." May, 648 F.Supp.2d at 78 (citing 17 C.F.R. § 240.13b2-1; McConville v. SEC, 465 F.3d 780, 789 (7th Cir.2006)). "Rule 13b2-2 provides: `No director or officer of an issuer shall, directly or indirectly: (1) make or cause to be made a materially false or misleading statement to an accountant in connection with . . . (i) any audit, review or examination of the financial statements of the issuer. . . .'" May, 648 F.Supp.2d at 79 (citing McConville, 465 F.3d at 789). Monterosso and Vargas both were responsible for creating fake invoices and CDRs and transmitting those documents to GlobeTel. These records pertained to revenue that was not generated by GlobeTel's subsidiaries. They also knew these records would be entered in GlobeTel's general ledger and would be relied upon by GlobeTel's accountants and auditors. As a result, both Monterosso and Vargas are responsible for directly or indirectly falsifying or causing to be falsified GlobeTel's books, records, or accounts. Thus, the SEC is entitled to summary judgment on its books and records claims against Defendants as well. Accordingly, consistent with this Order, it is hereby ORDERED AND ADJUDGED that:
1. Plaintiff Securities and Exchange Commission's Motion for Summary Judgment against Defendant Joseph J. Monterosso (D.E. 312), filed on April 26, 2010, is GRANTED;
2. Plaintiff Securities and Exchange Commission's Motion for Summary Judgment against Defendant Luis Vargas (D.E. 335), filed on May 3, 2010, is GRANTED;
3. Defendants Monterosso and Vargas's Motion for Partial Summary Judgment (D.E. 341), filed on May 3, 2010, is DENIED;
4. The Court finds a permanent injunction is appropriate in this case pursuant *1271 to 15 U.S.C. § 77t(b) as the SEC has shown a violation of the securities laws has occurred and there is a reasonable likelihood that Monterosso and Vargas, if not enjoined, will engage in further violations. See Carriba Air, 681 F.2d at 1322. Based upon the egregiousness of Defendants' actions in falsifying documents in support of fake revenue, the degree of scienter exhibited, Defendants' continued shifting of blame, and the increased likelihood that Defendants, who have continued to work in some fashion in the telecommunications industry, will commit future violations, the Court finds a permanent injunction is warranted. The Court also finds disgorgement and civil penalties appropriate in an amount to be determined upon referral to Magistrate Judge John O'Sullivan;
5. All other pending motions, including the SEC's Motion in Limine to Exclude Andrew Leone (D.E. 305), Defendants' Motion in Limine to Exclude Blaine Gilles (D.E. 317), Defendants' Motion in Limine to Exclude Stanley Murphy (D.E. 337), Defendants' Motion to Strike Declaration of Stanley Murphy (D.E. 382), the SEC's Motion in Limine to Exclude Evidence of Contraband (D.E. 414), the SEC's Motion in Limine to Preclude Monterosso from Contradicting Admissions (D.E. 416), and the SEC's Motion in Limine to Preclude Calling SEC Employee (D.E. 418), are DENIED AS MOOT;
6. This case is now CLOSED.
NOTES
[1] Monterosso filed his response in opposition on May 24, 2010, to which the SEC filed its reply on June 10, 2010. (See D.E. 367, 389.) The SEC filed its Statement of Material Facts on April 26, 2010, and a corrected statement of facts on June 10, 2010. (D.E. 313-1, 390-1.) The SEC's corrected statement of facts merely corrects some of the citations to record evidence. Monterosso filed his Statement of Material Facts on May 24, 2010. (See D.E. 365.)
[2] Vargas filed his response in opposition on May 27, 2010, to which the SEC filed its reply on June 14, 2010. (See D.E. 377, 395.) The SEC filed its Statement of Material Facts on May 3, 2010, and a corrected statement of facts on June 14, 2010. (See D.E. 336-1, 396-1.) The SEC's corrected statement of facts merely corrects some of the citations to record evidence. Vargas filed his Statement of Material Facts on May 27, 2010. (See D.E. 378.)
[3] Defendant GlobeTel Communications Corp. ("GlobeTel") initially joined in this motion. However, on December 22, 2010, pursuant to the agreement of the Parties, the Court entered final judgment against GlobeTel and thus the motion is moot as to this Defendant. The SEC filed its response in opposition on May 27, 2010, to which Defendants filed their reply on June 11, 2010. (See D.E. 376, 394.) Defendants filed their Statement of Material Facts on May 4, 2010. (See D.E. 344.) The SEC filed its Statement of Material Facts on May 27, 2010. (See D.E. 376-1.)
The SEC additionally filed a Notice of Supplemental Authority on September 21, 2010, attaching the decision issued in SEC v. Mozilo, Case No. 09-3994-JFW, 2010 WL 3656068 (C.D.Cal. Sept. 16, 2010), with regard to the issue of whether movement of a company's stock price is relevant to the element of materiality. (See D.E. 463.)
[4] The following facts are undisputed unless otherwise noted.
[5] GlobeTel's common stock traded over the Over-The-Counter Bulletin Board from 2002 until May 2005 and traded on the American Stock Exchange from May 2005 until October 11, 2006. GlobeTel's common stock was registered pursuant to Section 12 of the Exchange Act.
[6] According to Monterosso, he allowed CSI to use the switches that he owned. (See Monterosso Depo., D.E. 365-1 at 10.) These switches consisted of model TDM Nortel 250 switches and related Cisco VOIP equipment located in California. (Id.) Monterosso testified that he received compensation from CSI in return for use of the switches. (Id.) In approximately February 2005, Centerline purchased the switches pursuant to two asset purchase agreements. (Id. at 15-16.) Although Monterosso's testimony is somewhat contradictory, it appears that for a period in late 2004 and early 2005, which corresponded with GlobeTel's purchase of the switch equipment, the switch may have been inoperable for a period of six months, and the VOIP equipment for at least 30 to 45 days, as the equipment was moved from the 1 Wilshire building to a location at 111 Wilshire in Los Angeles, California. (Id. at 24.) The majority of international carriers operating in the United States possess facilities connected to the 1 Wilshire building in Los Angeles (where most Pacific Rim carriers are interconnected) and/or the 60 Hudson building in New York (where most of the Atlantic Basin carriers are interconnected). (See D.E. 314-12 at 24.)
[7] The name WCCS was apparently used by Mercury to do business with a Verizon subsidiary named Codetel. (See D.E. 365 at ¶ 40; Hay Depo., D.E. 17-23.)
[8] Monterosso and Vargas dispute this fact only to the extent they throw in the caveat, "[t]o anyone not familiar with the Off-Net Program, the Volta invoices may have appeared to represent sales by WCCS to Volta." (D.E. 365 at ¶ 55.) Many of the Defendants' "disputed" facts do not contest the underlying facts but rather add caveats or language suggesting that knowledge or familiarity with the "Off-Net Program" somehow explains the conduct.
[9] GlobeTel used accrual accounting. As such, its accounting policy was to record revenue after it provided a service and sent an invoice to a customer and record cost of goods sold after it had used the vendor's services and received the vendor's invoice. GAAP requires that a company deliver products or render services prior to recording revenue. Globe-Tel's periodic reports, filed electronically with the SEC, were created from its financial books and records, including the revenue and cost of goods sold entries in its general ledger. (See D.E. 313-1 at ¶¶ 15-21.)
[10] On July 13, 2005, Monterosso sent an email to Jimenez stating, "I am paying for the use of the customers and CDRs," and Jimenez understood this to mean he was paying vendors for the use of their customers and CDRs and "that it wasn't real." (D.E. 314-33 at 6-7.)
[11] On March 19, 2010, the Court entered judgment against Jimenez upon his consent. (See D.E. 269, 274.) On December 18, 2010, the Court entered judgment against GlobeTel upon its consent. (See D.E. 466, 467.) The Court modified the judgment against Globe-Tel on February 22, 2011. (See D.E. 468, 469.)
[12] Judge Martinez entered judgment against Huff on May 15, 2008, and judgment against Lynch on March 16, 2008, in Case No. 08-60647-CIV. (See D.E. 6,7.)
[13] The Court originally stayed this action against Huff pending the outcome of Huff's parallel criminal proceedings in United States v. Huff, Case No. 09-60295-CRMiddlebrooks. (See D.E. 244.) Huff ultimately pled guilty and was sentenced in that case, thus resulting in the stay being lifted. On September 7, 2010, the Court entered judgment against Huff upon his consent. (See D.E. 435, 437.)
[14] On March 8, 2011, the Court granted the SEC's motion to strike the declaration submitted from Maranda E. Fritz. (See D.E. 473.) Fritz's declaration was stricken as it was not based on personal knowledge, was unsworn and proffered by counsel of record in this case, and mainly offered argument and citation to other record evidence.
[15] The SEC filed a motion in limine to exclude Leone's testimony pursuant to Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993), and Rule 702 of the Federal Rules of Evidence. (See D.E. 405, 406.) This motion is still pending. Because the Court would reach the same result with or without Leone's opinions, this motion is DENIED AS MOOT.
[16] On March 8, 2011, the Court granted Defendants' motion to take judicial notice of certain information including GlobeTel's daily closing stock price from January 2002 through December 2007, as provided by Defendants. (See D.E. 472.)
[17] Defendants filed a motion in limine to exclude Murphy's opinions pursuant to Daubert and Rule 702. (See D.E. 337, 338.) This motion is still pending. Because the Court would reach the same result with or without Murphy's opinions, this motion is DENIED AS MOOT.
[18] Rule 801 of the Federal Rules of Evidence defines hearsay as "a statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted." The press releases are not hearsay as they are not considered for the truth of the matter asserted.
[19] Defendants cite to Oran v. Stafford, 226 F.3d 275, 282 (3d Cir.2000), as support for the proposition that when a stock is traded in an efficient market, the materiality of disclosed information may be measured by its effect on the price of the firm's stock. The rule discussed in Oran was actually first articulated in a prior Third Circuit case, In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1425 (3d Cir.1997). The Court is not aware of any Eleventh Circuit decisions approving or adopting the Third Circuit's approach. Additionally, the Court notes that the imposition of such a bright-line rule to the determination of materiality would seem to conflict with the "fact-specific" inquiry mandated by Basic. See 485 U.S. at 239-40, 108 S.Ct. 978. It would seem the best approach would be that adopted by the cases cited previously, in which the movement of a company's stock price is but one factor in evaluating materiality.
[20] In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir.1981), the Eleventh Circuit adopted as binding precedent all decisions handed down by the former Fifth Circuit before October 1, 1981. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2468999/ | 736 F.Supp.2d 240 (2010)
Melodia PHILLIPS o/b/o T.P., a minor, Plaintiff,
v.
DISTRICT OF COLUMBIA, Defendant.
Civil Action No. 09-987 (RBW).
United States District Court, District of Columbia.
September 13, 2010.
*242 Roxanne Denise Neloms, Brown & Associates, PLLC, Washington, DC, for Plaintiff.
Richard Allan Latterell, Office of the Attorney General, Washington, DC, for Defendant.
MEMORANDUM OPINION
REGGIE B. WALTON, District Judge.
Melodia Phillips, the plaintiff in this civil case, brings this action on behalf of her son, T.P., seeking the reversal of a decision issued on May 23, 2008 by the District of Columbia Public Schools (the "DCPS"), in which T.P. was denied an award of compensatory education under the Individuals with Disabilities Education Act (the "IDEA"), 20 U.S.C. §§ 1400-1491 (2006). Currently before the Court are the plaintiff's motion for summary judgment and defendant District of Columbia's cross-motion for summary judgment.[1] After carefully considering the plaintiff's Amended Complaint, the plaintiff's Motion for Summary Judgment, the Defendants' Opposition to Plaintiffs' Motion for Summary Judgment, and Defendants' Cross-Motion for Summary Judgment, and all memoranda *243 of law and exhibits submitted by the parties,[2] the Court concludes for the reasons that follow that it must deny without prejudice the plaintiff's motion for summary judgment, deny without prejudice the defendant's cross-motion for summary, and remand the case to the administrative Hearing Officer for additional fact finding and a determination of what, if any, relief the plaintiff is entitled to receive on behalf of her son.
I. BACKGROUND
The stated purpose of the IDEA is "to ensure that all children with disabilities have available to them a free appropriate public education that emphasizes special education and related services designed to meet their unique needs and prepare them for further education, employment, and independent living." 20 U.S.C. § 1400(d)(1)(A). "School districts must ensure that `all children with disabilities residing in the State ... who are in need of special education and related services,' are identified." Gellert v. Dist. of Columbia Pub. Sch., 435 F.Supp.2d 18, 21 (D.D.C.2006) (Kessler, J.) (quoting Branham v. Gov't of the Dist. of Columbia, 427 F.3d 7, 8 (D.C.Cir.2005)). Once students "are identified, a `team' [consisting of] the child's parents and select teachers, as well as a representative of the local educational agency with knowledge about the school's resources and curriculum, develops an `individualized education program ... for the child.'" Id. (quoting Branham, 427 F.3d at 8.) An individualized education program (the "Program") must, "at a minimum, `provid[e] personalized instruction with sufficient support services to permit the child to benefit educationally from that instruction.'" Id. (quoting Bd. of Educ. Hendrick Hudson Cent. Sch. Dist. v. Rowley, 458 U.S. 176, 203, 102 S.Ct. 3034, 73 L.Ed.2d 690 (1982)).
T.P. is an eight-year old child attending the Katherine Thomas School (the "School"), a special education institution located in Rockville, Maryland. A.R. at 4. In April of 2004, when T.P. was approximately four-years old, he "developed a viral rhomboencephalitis ... and was hospitalized at Children's Hospital" as a result of this illness. Id. at 6. On August 19, 2004, Dr. Crystal Taylor-Davis, an employee of the DCPS, reported in her Medical Review of Records that because of his illness, it would be "appropriate" for T.P. to receive "the educational classification of Other Health Impairment." Id. at 6. An Other Health Impairment ("Impaired") classification is given to a student who has "limited strength, vitality, or alertness, including a heightened alertness with respect to environmental stimuli ... that ... [is] due to chronic or acute health problems," which in turn, "results in a limited alertness with respect to the educational environment[] that ... adversely affects a child's educational performance." 34 C.F.R. § 300.8(c)(9)-(9)(ii) (2007).
In August of 2004, the plaintiff "provided the [District] with copies of T.P.'s [hospital records] and completed the necessary paperwork to begin the special education process." Pl.'s Facts ¶ 4. In September of 2004, "Ms. Phillips forwarded copies of evaluations, reports, and Dr. Taylor-Davis' *244 recommendations to [the] DCPS and also requested [the] DCPS to complete several additional evaluations." Id. ¶ 12. In February of 2005, as a result of the District's failure to respond to the plaintiff's request for additional evaluations, the plaintiff filed an administrative due process complaint. Id. ¶ 13. Subsequently, the parties entered into a settlement agreement in which the District agreed to evaluate and determine T.P.'s eligibility for special education services and, if eligible, to develop an appropriate Program within thirty days. Id. The plaintiff then filed a second administrative due process complaint "on March 18, 2005 because [the District] failed to comply with the February 2005 settlement agreement," id. ¶ 15, resulting in a second agreement to convene a meeting regarding T.P.'s eligibility for special education services on April 25, 2005, id. ¶ 18. At that meeting, a representative for the District, Gloria Everett, "informed [the plaintiff] that [T.P.'s hospital records] were not appropriate and stated [that] additional assessments needed to be completed" before eligibility could be determined. Id. ¶ 19.
In a meeting with the plaintiff on September 22, 2005, Ms. Everett reasoned that because Dr. Taylor-Davis's review was more than a year old and conducted "prior to [T.P.'s] enrollment in school, and in light of [his] teacher's report that [T.P.] was performing at grade level[, the District] determined that Dr. Taylor-Davis should conduct another review of [T.P.'s] records." A.R. at 8. Dr. Taylor-Davis completed the second review of T.P.'s records and maintained that he was still eligible for special education services as an Impaired student because he
[suffered] a severe brain insult, [and the d]ata supports the educational classification of [Impaired]. He continues to require Occupational Therapy and Speech/Language Therapy ... [and a]s academic challenges increase, the emergence of problematic behaviors is quite possible. [T.P.] could benefit from a highly structured, enclosed classroom with a low[-]student[-]to teacher ratio.
Id.
On December 2, 2005, the plaintiff filed a motion for a preliminary injunction with this Court, seeking a final determination of T.P.'s eligibility for special education services. Id. at 9. On December 21, 2005, the District determined that T.P. did not meet the criteria for classification as Impaired and was therefore ineligible for special education services. Id. Before the Court could rule on the preliminary injunction request, a special master appointed to T.P.'s case placed him at the School in early 2006, which effectively resolved the issue of T.P.'s entitlement to special education services. Id. at 9.
On November 19, 2007, Dr. Denise White-Jennings, a school psychologist, conducted a Psychological Reevaluation of T.P. and concluded that "[T.P.'s] verbal comprehension and perceptual reasoning abilities were ... both in the [l]ow [a]verage range," and that his overall "academic skills were [also] in the low average range[,] with the exception of reading comprehension[,] which was in the extremely low range." Id. at 9-10. Dr. White-Jennings further recommended that T.P. "should be considered for special education services as a[n Impaired] student ... due to the ongoing impact of his diagnosed systematic rheumatoid arthritis." Id. at 10. On November 15, 2007, District employee Tawana Hinton completed a Speech and Language Classroom Observation and Supplemental Testing evaluation and concluded that T.P. met "the criteria for speech and language intervention to address his auditory processing and reasoning skills deficits as well as his receptive and expressive language deficits." Id. She *245 further found that "[T.P.] should receive one hour of intervention weekly." Id. On February 11, 2008, the plaintiff filed her third administrative due process complaint, "alleging that [the District had] `denied [T.P.] access to a free appropriate public education by failing to timely evaluate [him] and determine his eligibility for special education and related services ... and [by] failing to provide compensatory education for this failure.'" Id. at 4.
On March 10, 2008, the District convened a meeting and determined that T.P. "was eligible for special education services with a[n Impaired] classification ... [but] that [he] did not require compensatory [education] services because he was progressing at [School]." Id. at 11. On April 25, 2008, a due process hearing regarding T.P.'s entitlement to compensatory education was convened, and Hearing Officer Terry Banks determined that there was "sufficient documentary evidence to show a violation of the IDEIA [and] that no testimonial evidence would be necessary."[3]Id. After the hearing was continued to May 14, 2008, Hearing Officer Banks reaffirmed in his decision that an IDEA violation had occurred with respect to T.P. Id. at 4, 11, 13. Hearing Officer Banks further stated that although T.P. had shown marked improvement in his communication and academic skills, he still "has difficulty acquiring and retaining information and continues to require one-on-one attention in a small classroom environment," and that he "has difficulty processing information and requires constant repetition." Id. at 11.
However, Hearing Officer Banks concluded that T.P. was not entitled to a compensatory education award because T.P.'s "proof as to the inability of [his current Program] to meet his needs is insufficient to meet his burden in several respects." Id. at 12. Specifically, Hearing Officer Banks disagreed with the plaintiff's witness at the hearing, Dr. Ida Jean Holman, concerning the proposed award of two-hundred and fifty five hours of additional tutoring because "her justification for increased services was unsupported by any objective criteria." Id. Additionally, Hearing Officer Banks asserted that because there was no request for compensatory services in 2006 or 2007, and that other specialists in contact with T.P. did not testify that additional services were necessary, the plaintiff did not meet her burden of proving entitlement to compensatory education in the amount proposed. Id. at 13.
The plaintiff subsequently filed her Complaint in this Court on May 27, 2009, which was later amended on June 12, 2009, alleging that Hearing Officer Banks erred when he determined that there was an IDEA violation, but refused to "award [T.P.] compensatory education services for the [District's] failure to provide T.P. with access to a free and appropriate public education." Plaintiff's Complaint at 51, Plaintiff's Amended Complaint at 51. The plaintiff essentially reiterates in her motion for summary judgment that because Hearing Officer Banks and the defendant conceded there was a violation of the IDEA that resulted in a denial of a free and appropriate public education, T.P. is entitled to two-hundred and fifty-five hours of compensatory education. Pl.'s Mot. at 13-19. The defendant counters in its cross-motion for summary judgment that the plaintiff has failed to prove that *246 T.P. is entitled to an award of compensatory education. Def.'s Mem. at 10. More specifically, the defendant argues that Hearing Officer Banks' decision should be upheld because the testimony of the plaintiff's witnesses' at the hearing failed to demonstrate any educational deficit that requires a compensatory education award of two-hundred and fifty-five hours of additional tutoring services. Id. at 12-14.
II. STANDARD OF REVIEW
Summary judgment is proper where the pleadings, discovery, and affidavits demonstrate "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)(1)(C)(2). The moving party has the initial burden of "informing the district court of the basis for its motion, and identifying those portions of [the pleadings or other parts of the record] ... which it believes demonstrate 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). In assessing the motion for summary judgment, "the Court must draw `all justifiable inferences' in the non-moving party's favor and accept the non-moving party's evidence as true." Banks ex rel. D.B. v. District of Columbia, No. 09-990, 720 F.Supp.2d 83, 87, 2010 WL 2657238 at *3 (D.D.C. July 6, 2010) (Walton, J.) (quoting Anderson v. Liberty Lobby, 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)) (internal citation omitted). Nevertheless, the non-moving party cannot rely on "mere allegations or denials," but "must set forth specific facts showing that there is a genuine issue for trial." Burke v. Gould, 286 F.3d 513, 517 (D.C.Cir.2002) (quoting Anderson, 477 U.S. at 248, 106 S.Ct. 2505) (internal quotation marks omitted). Furthermore, "in ruling on cross-motions for summary judgment, the court shall grant summary judgment only if one of the moving parties is entitled to judgment as a matter of law upon material facts that are not genuinely disputed." Shays v. FEC, 424 F.Supp.2d 100, 109 (D.D.C.2006) (citation omitted).
In reviewing a Hearing Officer's decision in an IDEA case, the Court "(i) shall receive the records of the administrative proceedings; (ii) shall hear additional evidence at the request of a party; and (iii) basing its decision on the preponderance of the evidence, shall grant such relief as [it] determines is appropriate." 20 U.S.C. § 1415(i)(2)(C). The Court's increased authority to hear additional evidence and base its decision using a preponderance of the evidence standard indicates that "IDEA plainly suggests less deference [to the Hearing Officer's determination] than is conventional in administrative proceedings." Reid ex rel. Reid v. Dist. Of Columbia, 401 F.3d 516, 521 (D.C.Cir.2005) (quoting Kerkam v. McKenzie, 862 F.2d 884, 887 (D.C.Cir.1988)) (internal quotation marks omitted). However, the "party challenging the administrative determination must at least take on the burden of persuading the court that the Hearing Officer was wrong." Id. (quoting Kerkam, 862 F.2d at 887) (internal quotation marks omitted). If "no additional evidence is introduced [by the parties] in a civil suit seeking review of [an administrative decision], a motion for summary judgment operates as a motion for judgment based on the evidence comprising the record." Thomas v. Dist. of Columbia, 407 F.Supp.2d 102, 109 (D.D.C.2005) (Kollar-Kotelly, J.) (citing 20 U.S.C. § 1415(i)(2)(B); Dist. of Columbia v. Ramirez, 377 F.Supp.2d 63, 66-67 (D.D.C. 2005)).
III. LEGAL ANALYSIS
The issue before the Court is whether the plaintiff is entitled to a compensatory *247 education award of two-hundred and fifty-five hours of additional tutoring services. This Court recently reiterated the principle in Reid, 401 F.3d at 524, stating that "if a hearing officer finds ... that [a student] was denied a free appropriate public education[,] ... then [the student] would be entitled to a compensatory education award," and once entitlement to an award is found, the hearing officer applies the Reid standard to create the compensatory award. Banks, 720 F.Supp.2d at 89-91, 2010 WL 2657238 at *5-6 (internal citation omitted). In Reid, the District of Columbia Circuit held that "[i]n every case ... the inquiry must be fact-specific and, to accomplish IDEA's purposes, the ultimate award must be reasonably calculated to provide the educational benefits that likely would have accrued from special education services the school district should have supplied in the first place." 401 F.3d at 524 (emphasis added). However, even if entitlement to an award is shown through a denial of a free and appropriate public education, "[i]t may be conceivable that no compensatory education is required for the denial of [a free and appropriate public education] ... either because it would not help or because [the student] has flourished in his current placement...." Thomas, 407 F.Supp.2d at 115. With this legal framework as its guide, the Court turns to the parties' respective motions for summary judgment.
The fact that both Hearing Officer Banks and the defendant conceded that there was a violation of the IDEA and a subsequent denial of a free and appropriate public education satisfies the plaintiff's burden of proving entitlement to a properly crafted compensatory award under Reid. A.R. at 11, Def.'s Mem. at 9. The District of Columbia Circuit established in Reid that the crafting of "compensatory education awards fit comfortably within the `broad discretion' of courts fashioning and enforcing IDEA remedies." 401 F.3d at 523 (citing Florence County Sch. Dist. Four v. Carter By & Through Carter, 510 U.S. 7, 15-16, 114 S.Ct. 361, 126 L.Ed.2d 284 (1993)). Moreover, this Court has consistently held that when the IDEA is violated through a denial of a free and appropriate public education, the injured party is entitled to compensatory education. See The Mary McLeod Bethune Day Acad. Pub. Charter Sch. v. Bland, 534 F.Supp.2d 109, 115 (D.D.C.2008) (Kay, Mag. J.) ("Compensatory education is the remedy for a denial of [a free appropriate public education]," and therefore "if a parent presents evidence that her child has been denied a free and appropriate public education, she has met her burden of proving that [the child] is entitled to compensatory education."); see also Friendship Edison Pub. Charter Sch. Collegiate Campus v. Nesbitt ("Nesbitt I"), 532 F.Supp.2d 121, 123 (D.D.C.2008) (Facciola, Mag. J.) (stating that "[w]here a school system fails to provide special education or related services, a student is entitled to compensatory education" (citation omitted)); Banks, 720 F.Supp.2d at 90, 2010 WL 2657238 at *5 (holding that if a plaintiff is denied a free and appropriate public education, her child "would be entitled to a reasonably calculated compensatory education award that meets the standards set forth in Reid." (internal quotation marks and citation omitted)). Consequently, "the Reid standard only applies once a Hearing Officer has determined that compensatory education is warranted and [then it] must craft a compensatory education award ... reasonably calculated to meet the student's needs." Mary McLeod, 534 F.Supp.2d at 115. Stated differently, "[i]n IDEA litigation, the Hearing Officer first determines whether there is sufficient evidence of an IDEA violation that entitles the student to a compensatory education. If the Hearing *248 Officer determines there was such a violation, then the hearing officer applies the Reid standard to craft [the requisite] award." Banks, 720 F.Supp.2d at 90, 2010 WL 2657238 at *5 (internal citation omitted).
Here, there was an unequivocal determination by Hearing Officer Banks, supported by sufficient evidence, that there had been an IDEA violation and a subsequent denial of a free and appropriate public education for the period between Dr. Taylor-Davis' August 19, 2004 recommendation for special education services and T.P.'s placement at the School in March of 2006, thereby entitling him to an award of compensatory education in accordance with Reid. A.R. at 11, Def.'s Mem. at 9. Thus, the question that remains is how to craft an award that would adequately compensate T.P. for the denial of the free and appropriate public education he was entitled to from August of 2004 to March of 2006.
As noted above, a compensatory award fashioned by the Hearing Officer must be the result of a "fact-specific" inquiry that is "reasonably calculated to provide the educational benefits that likely would have accrued from special education services the school district should have supplied in the first place." Reid, 401 F.3d at 524. This means that the plaintiff has the burden of "propos[ing] a well-articulated plan that reflects [the student's] current education abilities and needs and is supported by the record." Friendship Edison Pub. Charter Sch. Collegiate Campus v. Nesbitt ("Nesbitt II"), 583 F.Supp.2d 169, 172 (D.D.C.2008) (Facciola, Mag. J.). Furthermore, the Court must be wary of "mechanical" calculations because a "reasonable calculation" of a compensatory award "must be qualitative, fact-intensive, and above all tailored to the unique needs of the disabled student." Branham, 427 F.3d at 9 (citing Reid, 401 F.3d. at 524) (internal quotation marks omitted); but see Stanton ex rel. K.T. v. Dist. of Columbia, 680 F.Supp.2d 201, 206-207 (D.D.C.2010) (Huvelle, J.) (holding that formulaic calculations are not per se invalid, so long as the evidence provides a sufficient basis for an "individually-tailored assessment") (citing Brown ex rel. E.M. v. Dist. of Columbia, 568 F.Supp.2d 44, 53-54 (D.D.C.2008) (Bates, J.) (internal quotation marks omitted)). However, "Reid certainly does not require [a] plaintiff to have a perfect case to be entitled to a compensatory education award"; on the contrary, "[o]nce a plaintiff has established that she is entitled to an award, simply refusing to grant one clashes with Reid." Stanton, 680 F.Supp.2d at 207. Additionally, "a Hearing Officer may `provide the parties additional time to supplement the record' if she believes there is insufficient evidence to support a specific award," id. (quoting Nesbitt I, 532 F.Supp.2d at 125), but simply "[c]hoosing instead to award plaintiff nothing does not represent the `qualitative focus' on [the child's] `individual needs' that Reid requires," id.
The plaintiff relies primarily on the testimony of Dr. Holman as the basis for concluding that compensatory education is necessary to remedy T.P.'s denial of a free and appropriate public education and the resulting educational deficit. Pl.'s Mot. at 17. Dr. Holman testified that T.P.'s 2008 educational program should have included an additional two-hundred and fifty-five hours of individual tutoring services, or five hours of tutoring per week for fifty-one weeks of missed services, based upon "research studies" and the proposed benefits of early intervention. A.R. at 12. When asked about the basis for her recommendation, Dr. Holman testified that fifty-one weeks of tutoring was appropriate because "that was the time that he received *249 no servicesor basically received no services... [a]nd it's just basically a year, which is 51 weeks." Hr'g Tr. at 120-21. Dr. Holman further explained, "Yes, I would think [five] hours [per week] should be verywould be adequate. Probably, you know, the problem is he probably missed more tha[n] that, but five hours [per week] if it were one-on-one would becould probably be appropriate." Id. at 121.
Dr. Holman did not provide any testimony, however, as to how these additional hours of tutoring would "provide the educational benefits that likely would have accrued" had these services been "supplied in the first place." Reid, 401 F.3d at 524. Indeed, Dr. Holman testified at the administrative hearing that T.P., at the time he was denied a free and appropriate public education, "might have missed developmental milestones that would have been very difficult to recoup, particularly language ones." Hr'g Tr. at 119 (emphasis added). Thus, by Dr. Holman's own words, there is no evidence that the additional two-hundred and fifty-five hours of individual tutoring services would provide T.P. with the free appropriate and public education benefits that he was entitled to between August 19, 2004 and his placement at the School in March of 2006; rather, she testified only that these services would be "appropriate" because it was the amount of "time that he received no servicesor basically received no services." A.R. at 120-21. Dr. Holman's testimony, therefore, does nothing more than advocate "a presumption that each hour without [a free and appropriate public education] entitles [T.P.] to one hour of compensatory instruction," and the Court must reject this calculation because this "cookie-cutter" approach "runs counter to both the `broad' discretion afforded by [the] IDEA's remedial provision and the substantive [free and appropriate public education] standard that provision is meant to enforce." Reid, 401 F.3d at 523.
However, in light of the fact that the plaintiff has demonstrated her son's entitlement to a compensatory award, this Court is not prepared to prematurely shut the door on her claim for relief. To be sure, it is entirely conceivable that "no compensatory education is required for the denial of" a free and appropriate public education because the alleged deficiencies suffered by T.P. may have already been mitigated (or even totally alleviated) by his placement at the School. See Thomas, 407 F.Supp.2d at 115. But as another member of this Court noted in Stanton, "Reid certainly does not require [the] plaintiff to have a perfect case to be entitled to a compensatory education award[,]" and that "a Hearing Officer may `provide the parties additional time to supplement the record' if she believes there is insufficient evidence to support a specific award." Stanton, 680 F.Supp.2d at 207. Given the Hearing Officer's finding that T.P. was denied a free and appropriate public education between August of 2004 and March of 2006, and that there is evidence in the record supporting a finding that T.P. may have suffered a setback in his educational development as a result of this denial, the Court concludes that the Hearing Officer should provide the plaintiff with an additional opportunity to supplement the record with evidence necessary to support a compensatory award consistent with Reid.[4]*250 The Court finds it necessary, therefore, to remand this case to the Hearing Officer for further proceedings consistent with the observations set forth in this Memorandum Opinion. To ensure the prompt resolution of this matter, the Court expects that these supplemental proceedings will be completed no later than sixty days from the issuance of this decision.
IV. CONCLUSION
The Court concludes that it must deny without prejudice the plaintiff's motion for summary judgment, as well as the defendant's cross-motion for summary judgment. Although the plaintiff has established that T.P. was denied a free and appropriate public education, she has failed to present evidence that would allow the Hearing Officer or the Court to properly craft a compensatory award that comports with the IDEA and the standard created by Reid and its progeny. Therefore, the Court remands this case to the administrative Hearing Officer to allow the plaintiff to supplement the record in order to establish a reasonably calculated and individually-tailored compensatory education award that demonstrates a causal relationship between T.P.'s current educational deficits and his earlier denial of a free and appropriate public education. If the plaintiff fails to meet this obligation, or if the Hearing Officer finds that T.P.'s placement at the School mitigated the detrimental effects resulting from the denial of a free and appropriate public education, then the Hearing Officer is free to determine that no compensatory services can be awarded or that the award proposed by the plaintiff should be modified.
SO ORDERED this 13th day of September, 2010.[5]
NOTES
[1] For ease of reference, and unless otherwise noted, the Court refers to the District of Columbia and the District of Columbia Public Schools collectively as the "District" for purposes of this memorandum opinion.
[2] In addition to the aforementioned documents, the Court considered the following in rendering its decision: (1) the Plaintiff's Memorandum of Points and Authorities in Support of its Motion for Summary Judgment (the "Pl.'s Mem."); (2) the Defendant's Memorandum in Support of its Cross-Motion for Summary Judgment (the "Def.'s Mem."); (3) the Plaintiff's Statement of Material Facts (the "Pl.'s Facts"); (4) the Administrative Record (the "A.R."); and (5) the May 14, 2008 Administrative Hearing Transcript (the "Hr'g Tr.").
[3] On December 3, 2004, the IDEA was amended by the Individuals With Disabilities Education Improvement Act of 2004, now known as IDEIA. For ease of reference, and unless otherwise noted, the Court also refers to the IDEIA as the "IDEA" for the purposes of this memorandum opinion.
[4] Of course, if on remand the plaintiff is unable to provide the Hearing Officer with additional evidence that demonstrates that additional educational services are necessary to compensate T.P. for the denial of a free and appropriate public education between August of 2004 and March of 2006, then the Hearing Officer may conclude that no compensatory award should issue.
[5] An order will be issued contemporaneously with this memorandum opinion (1) denying the Plaintiff's Motion for Summary Judgment, (2) denying the Defendant's Cross-Motion for Summary Judgment without prejudice, (3) remanding the case to the Hearing Officer, without prejudice, for further fact finding and a relief determination, and (4) directing the parties to appear before the Court for a status conference at 2:00 p.m. on November 19, 2010, for the purpose of having the parties apprise the Court as to the status of the agency proceedings. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2469002/ | 320 F.Supp.2d 790 (2004)
UNITED STATES of America, Plaintiff,
v.
Styles TAYLOR and Keon Thomas, Defendants.
No. 2:01-CR-0073-AS.
United States District Court, N.D. Indiana, Hammond Division.
June 10, 2004.
*791 Phil Benson, Hammond, Pro se, Brunswick, GA, C. Anthony Ashford, Hammond, IN, for Plaintiff/Petitioner.
David Vandercoy, Valparaiso, IN, Ihor Alexander Woloshansky, Merrillville, IN, John E. Martin, Hammond, IN, for defendant Taylor.
Keith A. Spielfogel, Scott J. Frankel, Chicago, IL, Jane Ann Himsel, Indianapolis, IN, for defendant Thomas.
ORDER
ALLEN SHARP, District Judge.
This matter is before the Court on Defendant Keon Thomas's Objections to Personality Test of Thomas by Government Expert [DE 651]. The Court heard oral argument by all parties on the issues raised in Defendant's motion at the hearing held on May 27, 2004. For the following reasons, Defendant Thomas's Objections to Personality Test of Thomas by Government Expert is GRANTED IN PART and DENIED IN PART.
BACKGROUND
On March 31, 2003 Defendant Keon Thomas filed a Notice of Intent to Present Expert Evidence Under Rule 12.2(b) in which he advised the Government that he intends to introduce expert evidence relating to his mental condition and developmental history. Specifically, Defendant Thomas has notified the Government that he intends to introduce expert evidence regarding developmental history and mental condition relating to substance abuse during the sentencing phase, should one become necessary. Further, Thomas informed the Government that one of the defense experts had performed certain mental health tests regarding substance abuse on Thomas.[1]
In response to a motion filed by the Government pursuant to F.R.Crim.P. 12.2(c)(1)(B) the Court ordered Defendant Thomas to provide the identities and qualifications of the mental health experts who will testify or whose opinions will be relied up on the issue of Thomas's mental condition as it relates to Thomas's notice of his intention to introduce expert evidence relating to his mental condition on the issue of punishment. Moreover, the Court ordered Thomas to submit to a mental examination by the Government's mental health expert and outlined the procedures to be used regarding the testing and filing of the expert's reports. These procedures were put in place to impose the necessary safeguards to preserve Defendant's Constitutional rights while at the same time afford the Government a meaningful right of rebuttal on mental health issues.
Included in these procedures is the following provision:
12. The Defendant shall identify any such tests to which he objects .... [i]f a dispute exists which the Government and the defense cannot resolve, the parties shall notify the Court and a hearing will be held .... [n]o mental health testing may be performed by the Government's expert until there is a final decision as to which tests are to be conducted by the Government's expert. In the event of such an unresolved conflict, nothing in this paragraph shall create a preference in favor of the Government or a burden on the Defendant at a hearing conducted pursuant to this paragraph.
In the motion presently before the Court, Defendant Thomas objects to the tests which the Government has identified *792 that it wants its mental health expert(s) to perform on Thomas. Specifically, Thomas objects to the proposed Government testing on two grounds: (1) that Rule 12.2 is unconstitutional because it violates due process and a defendant's Fifth Amendment rights; and (2) the testing violates the limited access provided to the Government for mental health testing under Fed.R.Crim.P. 12.2.
Defendant's Constitutional Challenge
In support of his constitutional challenge, Thomas relies on the holding in Estelle v. Smith, 451 U.S. 454, 101 S.Ct. 1866, 68 L.Ed.2d 359, to argue that Rule 12.2 is unconstitutional since it allows for a defendant to be compelled to undergo testing in essence testifying against himself and thus violates a defendant's Fifth Amendment rights. In Estelle, the Supreme Court held that the government cannot introduce psychiatric testimony in the penalty phase if the defendant was subjected to the mental health examination without waiving his right to counsel and without being given his Miranda warning. Estelle, 451 U.S. at 462, 101 S.Ct. at 1872. The Estelle case involved a defendant that did not introduce psychiatric evidence at trial, nor had he expressed an intention to do so. Regardless, the trial court ordered him to submit to a mental health examination, and the prosecution presented information garnered from the examination to convince the jury to impose a sentence of death. Id. at 466, 101 S.Ct. at 1874.
The case before the Court is distinguishable from Estelle since, unlike the defendant in Estelle, Thomas has declared his intention to introduce expert evidence regarding his mental health as it relates to the issue of punishment in his Notice of Intent. [DE 608]. Moreover, unlike Estelle, this Court only ordered an examination of Thomas as a result of his indication that he plans to introduce mental health testimony, therefore preventing the Fifth and Sixth Amendment issues considered in Estelle.
Faced with similar issues, other courts have implemented safeguards to preserve a defendant's constitutional rights pursuant to Estelle, while at the same time allowing the Government a meaningful right of rebuttal on mental health issues. In one such case, United States v. Vest, 905 F.Supp. 651 (W.D.Mo.1995), the district court explained the need to address both the protection of a defendant's constitutional rights and the Government's right to rebut as follows:
"[d]efendants may, in any and all circumstances exercise their constitutionally-guaranteed rights". However, exercise of [those] rights does not provide an unrestrained free-for-all for death penalty defendants. If a defendant elects, with advice from counsel, to put his mental status into issue in the penalty phase, then he has waived his right to refrain from self-incrimination arising from mental health examination, and there is no Fifth Amendment implication. If a defendant elects to present mitigation testimony addressing his mental status, then the government is free to rebut such testimony. Unless the Government is allowed to conduct its own mental health examination, it may be deprived "of the only effective means it has of controverting ... proof on an issue that [defendant has chosen to] interject into the case."
Id. at 653 (quoting Estelle, 451 U.S. at 465, 101 S.Ct. at 1874); see also United States v. Beckford, 962 F.Supp. 748 (E.D.Va.1997)(protection provided by the Fifth and Sixth Amendments ceases when a defendant indicates that he intends to introduce mental health evidence in the penalty phase of a capital case and defendant made that decision upon advice of counsel).
*793 In sum, the holding of Estelle instructs that a defendant who neither initiates mental health testing not attempts to introduce any mental health expert evidence may not be ordered to respond to a psychiatrist if "his statements can be used against him at a capital sentencing hearing." Estelle, 451 U.S. at 468, 101 S.Ct. at 1876. Thus "a court cannot simply require a defendant to undergo psychiatric examination if his statement can be used against him in a penalty phase at the Government's own initiative." Beckford, 962 F.Supp. at 761. However, Estelle"does not prohibit the issuance of an order requiring a defendant to respond to the Government's psychiatrist or psychologist if the defendant's statements cannot be used against him at sentencing unless and until the defendant actually introduces mental health evidence in mitigation of the death penalty at that phase of the proceedings." Id.
The Court finds that while requiring a defendant to undergo a psychiatric examination may in some circumstances infringe on a defendant's rights under the Fifth and Sixth Amendments, in this case Thomas' rights are not infringed by this Court's Order directing him to submit to a mental health exam conducted by the Government's mental health expert since he has indicated that he intends to introduce mental health evidence during the penalty phase. Moreover, the Court's Order of April 5, 2004, provides safeguards to ensure that Thomas' statements cannot be used against him at sentencing hearing unless and until he actually introduces mental health evidence in mitigation of the death penalty at that phase of the proceedings Thus, Thomas is required to comply with the procedures outlined in this Court's Order of April 5, 2004 regarding the testing and filing of the expert's reports.
Thomas' Challenge to Government's Proposed Tests
Defendant Thomas asserts a second objection to the Government's proposed testing. Thomas argues that the proposed testing violates the limited access provided to the Government for mental health testing under Fed.R.Crim.P. 12.2. In his Motion, Thomas contends that the Government should be precluded from testing him because no mental health testing has been performed on Thomas by Defendant's expert. This position seems to contradict the position Thomas took at the hearing on this issue[2] as well as the Notice he has filed previously in this case.[3] During oral arguments, Thomas acknowledged his intention to present mental health evidence, (Tr., at p. 13), but argued against the specific tests that the Government proposed to conduct. In other words, Thomas recognized that under the terms of this Court's Order of April 5, 2004 and Rule 12.2, the Government's mental health experts could test Thomas but argued that the Government's tests had to be a parallel exploration to the exams conducted by defense experts regarding substance abuse. (Tr., at p. 31).
Based on the Notice previously filed by Thomas, as well as his statements to the *794 Court in oral and written submissions, the Court finds that Thomas has given notice that he intends to present expert mental health evidence in the event this matter proceeds to a sentencing phase. Thus, pursuant to this Court's Order of April 5, 2004, Thomas shall be examined by the Government's mental health expert and both the Government and Defendant's experts are bound by the provisions contained in that Order regarding the testing, filing of all reports, and the affect of withdrawal of notice.
Government's Proposed Tests
The Court now turns to the four tests the Government has identified that its expert(s) wish to perform on Thomas. The Government has informed Defendant Thomas that it wishes to utilize the following tests on Thomas for its expert's mental health testing: (1) Minnesota Multiphasic Personality Inventory; (2) Personality Assessment Inventory; (3) Millon Clinical Multiaxial Inventory; and (4) Interview Schedule for the Psychopathy ChecklistRevised.
Thomas argues that these tests are not tests at all, but rather inventories or checklists designed to indicate personality disorders and not mental conditions especially not mental condition related to substance abuse. (Tr., at pp. 29-31). During oral argument, Thomas disputed the relevance of the Government's proposed tests in light of the limited mental health evidence Thomas's intends to introduce. Thomas argues that the Government must be limited to a parallel testing of substance abuse rather than allowing the Government to use Thomas' limited notice as an open door for any type of mental testing. The Court agrees.
The Court takes issue with one of the proposed tests in particular. In recent years, the reliability of the Interview Schedule for Psychopathy Checklist-Revised ("PCL-R") has been called into question as an indicator of a defendant's future dangerousness. Specifically, following an extensive review of literature addressing institutional violence and the PCL-R that concentrated on the use of the PCL-R in capital sentencing proceedings, John F. Edens, a psychologist with extensive experience in the area of risk assessment concluded, "the position that PCL-R scores for any one offender provide much useful information regarding his relative or absolute risk for future institutional violence while incarcerate clearly is untenable...." Edens, J. F., Petrila, J., & Buffington-Vollum, J.K. (2001) Psychopathy and the death penalty: Can the Psychopathy Checklist-Revised Identify Offenders Who Represent"A Continuing Threat to Society?" JOURNAL OF PSYCHIATRY AND LAW, 29:433-481; see also"Edens, J.F., (Oct.2001) Misuses of the Hare Psychopathy Checklist Revised in Court: Two Case Examples" JOURNAL OF INTERPERSONAL VIOLENCE, Vol. 16, No. 10, 1082-1093; "Declaration of Thomas V. Ryan, Ph.D, ABPP, United States v. Stitt, Cause No. 298 CR 47 (E.D.Va.) Document No. 175, filed March 18, 2004. Thus, due to the uncertainty of the validity and reliability of the PCL-R as it is used in capital sentencing hearings, the Government and any of its experts is prohibited from utilizing this test in evaluating Defendant Thomas.
Turning to the remainder of the proposed tests, the Court finds that the Government may utilize these tests, or any other tests, only to the extent that the tests contain testing scales for substance abuse. The Government will be barred from introducing any materials that are outside the scope of mental health testing as it relates to substance abuse. The Government's mental health expert(s) shall follow the procedures issued in this Court's Order of April 5, 2004, in filing their expert reports.
*795 CONCLUSION
For the foregoing reasons, Defendant Keon Thomas's Motion to Modify Court's Order Regarding Mental Condition Testing is GRANTED IN PART and DENIED IN PART.
SO ORDERED.
NOTES
[1] Defendant Thomas's Notice of Intent to Present Expert Testimony Under Rule 12.2(b) listed the following tests as having been performed by defense expert on Thomas: Michigan Alcoholism Screening Test; Drug Abuse Screening Test; and Substance Abuse Subtle Screening Test.
[2] The Court notes that it requested Defendant Thomas to file written objections after Defendant presented oral objections at the hearing. In response, Defendant filed the motion at bar.
[3] In addition to his "Notice of Intent to Present Expert Testimony Under Rule 12.2(b)," Thomas'"Motion to Modify Court's Order Regarding Mental Condition Testing" filed on February 23, 2004, advised "the Government and the Court that he has retained two mental health professionals to assist in the preparation of his defense, and expects that at least one of them may rely on psycho-social testing in developing his opinion regarding Defendant Thomas' background and mental condition." Id. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2469007/ | 320 F.Supp.2d 140 (2004)
Carolyn REERS, in her capacity as Personal Representative of the Estates of Susanne Amore, deceased, and Salvatore Michael Amore, deceased, Kathryn Meyers-Tonucci, Individually and in her capacity as Personal Representative *141 of the Estate of Jeanne Meyers Amore, deceased, and George Guertin, in his capacity as Personal Representative of the Estates of Emily Jeanne Amore, deceased, and Michael B. Amore, deceased, Plaintiffs,
v.
DEUTSCHE BAHN AG, a Republic of Germany Corporation, Deutsche Bahn Reise & Touristik AG, a Republic of Germany Corporation, Deutsche Bahn Autozug AG, a Republic of Germany Corporation, Deutsche Bahn Nachtzug AG, a Republic of Germany Corporation, Mr. Volker, an Individual, Accor SA, a Republic of France Corporation, Compagnie Internationale Des Wagons-Lits, a Republic of France Corporation, and ISD-DSG GmbH, a Republic of Germany Corporation, Defendants.
No. 03 Civ. 5360(MGC).
United States District Court, S.D. New York.
June 3, 2004.
*142 *143 *144 *145 Kreindler & Kreindler LLP, New York, NY, By: James Kreindler, Andrew J. Maloney, III, Vincent I. Parrett, Kristina Lingstaedt, for Plaintiffs.
Patton Boggs LLP, Washington, DC, By: Read McCaffrey, Christopher W. Hellmich, for Plaintiffs.
Wilson, Elser, Moskowitz, Edelman & Dicker LLP, New York, NY, By: Thomas A. Leghorn, Brett Scher, for Defendants Accor S.A. and Compagnie, Internationale des Wagons-Lits.
Wilson, Elser, Moskowitz, Edelman & Dicker LLP, New York, NY, By: Thomas R. Cherry, Richard Lerner, for Defendants Deutsche Bahn AG, Deutsche Bahn, AutoZug AG, Deutsche Bahn Reise & Touristik AG ("R & T"), and Janz Volker.
OPINION
CEDARBAUM, District Judge.
Defendants Deutsche Bahn AG ("Deutsche Bahn"), Deutsche Bahn AutoZug AG ("AutoZug"), Deutsche Bahn Reise & Touristik AG ("R & T"), Janz Volker, Accor S.A. ("Accor"), and Compagnie Internationale des Wagons-Lits *146 ("CIWLT"), move to dismiss the complaint on various grounds, including sovereign immunity, lack of personal jurisdiction, and forum non conveniens. For the following reasons, the motions are granted.
BACKGROUND
This case arises from the death of five members of the Amore family in a train accident in France. According to the allegations of the complaint, which are accepted as true for the purposes of this motion, the Amores embarked in Paris on an overnight train to Munich on November 6, 2002. The train was operated by the French national railway, Societe Nationale Chemins de Fer Francais ("SNCF"), but the railcar to which the Amores were assigned, Railcar 120, was owned and operated by AutoZug, a subsidiary of defendant Deutsche Bahn, the nationally owned rail operator of Germany.
Shortly before two in the morning, the kitchenette of Railcar 120 caught fire. According to plaintiffs, defendant Volker, an employee of defendant R & T and the attendant assigned to Railcar 120 that night, started the fire and, failing to extinguish it, abandoned his post without warning the sleeping passengers in Railcar 120. The complaint further alleges that employees of Accor and CIWLT, who were working in cars adjacent to Railcar 120, failed to timely warn and evacuate the Amores after defendant Volker fled.
The fire quickly raged out of control, blocking the railcar's interior exits and preventing twelve passengers, including the Amores, from escaping. Although the fire was soon detected and the train stopped, rescue workers were unable to enter Railcar 120 because Volker had locked the exterior doors of the railcar from the inside. The passengers trapped inside their individual compartments were unable to break the windows. By the time firefighters arrived and gained access to Railcar 120, the twelve passengers inside were dead.
Plaintiffs, one of whom is suing individually and all of whom are suing as representatives of the estates of the Amore family, filed this wrongful death and survival action against Volker and a number of corporate defendants connected either directly or through their subsidiaries to the operation of the train on which the Amores were traveling in France. Plaintiffs assert claims of negligence, product liability, and breach of implied warranty. Plaintiffs also seek punitive damages.
On December 11, 2003, plaintiffs consented to the dismissal of two corporate defendants, Accor North America and Stinnes Corporation. Plaintiffs have agreed to dismiss Deutsche Bahn Nachzug, a defendant named in the caption and discussed in the complaint, but whom plaintiffs concede does not exist. Plaintiffs have also agreed to dismiss ISD-DSG GmbH, which did not exist at the time of the accident and is in liquidation. The remaining defendants now move to dismiss the complaint.
DISCUSSION
The Deutsche Bahn defendants move to dismiss based on sovereign immunity, lack of personal jurisdiction, forum non conveniens, and the principle of abstention. The Accor defendants move to dismiss the complaint for lack of personal jurisdiction, forum non conveniens, and failure to state a claim.
I. Sovereign Immunity
Deutsche Bahn argues that this court has no subject matter jurisdiction over the claims against it, because it is an agency or instrumentality of a foreign sovereign and therefore immune from suit pursuant to *147 the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. §§ 1603-10. As previously noted, Deutsche Bahn is the national rail operator of Germany, wholly owned by the German government.
The FSIA provides foreign states with immunity from suits in American courts, subject to certain exceptions. See Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 489, 103 S.Ct. 1962, 76 L.Ed.2d 81 (1983). Section 1603 states that immunity extends not only to political subdivisions, but also to agencies and instrumentalities of a foreign state, defined as:
[A]ny entity ... (1) which is a separate legal person, corporate or otherwise, and (2) which is an organ of a foreign state or political subdivision thereof, or a majority of whose shares or other ownership interest is owned by a foreign state or political subdivision thereof, and (3) which is neither a citizen of a State of the United States ... nor created under the laws of any third country.
28 U.S.C. § 1603(b). Once a defendant makes a prima facie showing that it is an agency or instrumentality of a foreign state, the plaintiff must demonstrate that a statutory exception to immunity applies. See Cargill Int'l S.A. v. M/T Pavel Dybenko, 991 F.2d 1012, 1016 (2d Cir.1993).
Plaintiffs concede that Deutsche Bahn is an instrumentality of the Republic of Germany. They argue, however, that two of the FSIA's exceptions remove the cloak of immunity from Deutsche Bahn in this case.
The FSIA provides, in relevant part:
A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case
(1) in which the foreign state has waived its immunity either explicitly or by implication ...; [or]
(2) in which the action is based upon a commercial activity carried on in the United States by the foreign state; or upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States....
28 U.S.C. § 1605(a).
Plaintiffs argue that Deutsche Bahn waived its immunity pursuant to § 1605(a)(1) when Germany signed the Convention Concerning International Carriage by Rail ("COTIF"), a treaty that regulates litigation arising from railway transportation in signatory countries. Plaintiffs claim, and defendants concede, that each signatory of COTIF, including Germany, has waived its sovereign immunity with respect to damage claims arising from its railway transportation activities in other signatory countries. Each signatory nation has also agreed that personal injury actions arising from railway accidents can be filed only in the country in which the injury occurred. See Convention Concerning International Carriage by Rail (May 9, 1980), app. A, art. 52, § 1. Plaintiffs recognize that the United States is not a signatory of this treaty, but argue that this explicit waiver of immunity from suit in signatory countries is an implied waiver of immunity from suit in the United States within the meaning of the FSIA.
Plaintiffs' reading of § 1605(a)(1) is too broad. The Second Circuit has stated that the FSIA's implied waiver provision should be construed narrowly, see Transatlantic Shiffahrtskontor GmbH v. Shanghai Foreign Trade Corp., 204 F.3d 384, 391 (2d Cir.2000), and that such waivers should not be found absent a showing of the sovereign defendant's intention to *148 waive immunity, see, e.g., Cargill, 991 F.2d at 1017. Here, Germany's ratification of COTIF constitutes a very narrow waiver of sovereign immunity: signatory nations have not consented to suit in any signatory nation, but only in the courts of the country in which the injury giving rise to the suit occurred. Plaintiffs provide no justification for finding that through such a limited waiver, Germany and its instrumentalities have impliedly waived sovereign immunity for lawsuits arising in nonsignatory jurisdictions and in countries other than the country in which the injury giving rise to the suits occurred.
Plaintiffs also contend that this suit falls under § 1605(a)(2), the commercial activities exception to sovereign immunity. Because it is undisputed that the Amores purchased their train tickets in Europe, and that all of the wrongdoing alleged in the complaint occurred in Europe, the only subcategory of the commercial activities exception potentially applicable here is the third, which removes sovereign immunity when an action is based upon "an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States." 28 U.S.C. § 1605(a)(2).
The parties do not dispute that Deutsche Bahn's provision of rail transportation in Europe is a commercial activity. The significant question is whether the negligence, product defects, and breach of warranty that allegedly contributed to the fire in Railcar 120 the acts upon which the complaint is predicated had direct effects in the United States.
In Martin v. Republic of South Africa, 836 F.2d 91 (2d Cir.1987), the Second Circuit held that personal injuries suffered by an American abroad as a result of the tortious conduct of a foreign sovereign cannot provide a basis for finding an exception to immunity under § 1605(a)(2), see id. at 95. In that case, appellant alleged that he was injured in a car accident in South Africa and was denied timely medical care because he was black. See id. at 92. He returned home a quadriplegic, and argued that the pain, suffering, and financial loss that he consequently suffered in the United States were direct effects of South Africa's tortious conduct. But because appellant suffered his injuries and became a quadriplegic in South Africa, the court reasoned that "it cannot be said that the effects of South Africa's acts occurred `in the United States.'" Id. at 94. The court drew on the reasoning of the leading Second Circuit case to parse the meaning of "direct effect in the United States," Texas Trading & Milling Corp. v. Federal Republic of Nigeria, 647 F.2d 300 (2d Cir.1981). Texas Trading held that Nigeria's repudiation of contracts with American corporations had a direct effect in the United States because the plaintiffs' financial loss occurred here: the contracts provided for payment in the United States from a New York bank, and the plaintiffs were injured when Nigeria withheld that payment. See id. at 312; see also Martin, 836 F.2d at 94. The Texas Trading court also suggested that cases involving personal injuries sustained by Americans abroad are both analytically distinct from and easier to resolve than contract claims by corporations. The court noted that personal injuries are "undoubtedly ... `direct' effects," Texas Trading, 647 F.2d at 312, and that when an individual is injured overseas, "it is easy to locate the `effect' outside the United States" id. at 312 n. 35.
Texas Trading also approved the reasoning of Harris v. VAO Intourist, Moscow, 481 F.Supp. 1056 (E.D.N.Y.1979), a wrongful death action arising from the death of an American citizen in a fire in a Moscow hotel. In rejecting the plaintiff's *149 argument that the commercial activities exception of the FSIA barred the defendants' claim of sovereign immunity, Judge Weinstein wrote:
Obviously the negligent operation of a hotel in Moscow causing the death of a United States resident has effects in the United States; here it leaves aggrieved relatives in this country. But the precise issue is not whether the fire had any effect here, but whether it had a "direct effect" in the United States within the meaning of the statutory language. Indirect injurious consequences within this country of an out-of-state act are not sufficient contacts to satisfy the "direct effect" requirement of section 1605(a)(2).
Id. at 1062. See also Close v. Am. Airlines, 587 F.Supp. 1062, 1064-65 (S.D.N.Y.1984) (holding that an American citizen could not recover for injuries caused abroad by a foreign airline).
Plaintiffs allege that Deutsche Bahn's conduct outside the United States caused the losses suffered here by the Amores' surviving relatives, as well as economic losses to Deutsche Bahn itself resulting from a decline in its United States business following extensive publicity about the accident. But the direct effects of the conduct alleged were the deaths of the Amores in France, and the cases cited above demonstrate that those extraterritorial effects do not provide an exception to Deutsche Bahn's sovereign immunity. Therefore, the claims against Deutsche Bahn are dismissed for lack of subject matter jurisdiction.
II. Personal Jurisdiction
Plaintiffs bear the burden of establishing that the court may exercise personal jurisdiction over the remaining defendants. CutCo Indus., Inc. v. Naughton, 806 F.2d 361, 365 (2d Cir.1986). When, as here, a motion to dismiss for lack of personal jurisdiction is decided before discovery and without an evidentiary hearing, a plaintiff need only make a prima facie showing of personal jurisdiction. See Distefano v. Carozzi N. Am., Inc., 286 F.3d 81, 84 (2d Cir.2001). All pleadings and affidavits are construed in the light most favorable to the plaintiffs, and all doubts are resolved in their favor. See id.
A federal court sitting in diversity must apply the law of the forum state in determining whether it may exercise personal jurisdiction over an out-of-state defendant. Savin v. Ranier, 898 F.2d 304, 306 (2d Cir.1990). If the applicable statute of the forum state allows the court to exercise personal jurisdiction, the court must then determine whether the constitutional standards of due process are met. Id.
Because this lawsuit does not arise out of any activity by the nonresident defendants within the state of New York, plaintiffs rely on New York's "general jurisdiction" provision, N.Y. C.P.L.R. § 301. Personal jurisdiction over a corporation exists pursuant to § 301 if the corporation is "engaged in such a continuous and systematic course of `doing business' [in New York] as to warrant a finding of its `presence in this jurisdiction.'" Laufer v. Ostrow, 55 N.Y.2d 305, 309-10, 449 N.Y.S.2d 456, 434 N.E.2d 692 (1982) (quoting McGowan v. Smith, 52 N.Y.2d 268, 272, 437 N.Y.S.2d 643, 419 N.E.2d 321 (1981)). Section 301 jurisdiction, which subjects a nondomiciliary corporation to suits unrelated to its contacts with New York, is appropriate only if the corporation does business in New York "not occasionally or casually, but with a fair measure of permanence and continuity." Hoffritz for Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55, 58 (2d Cir.1985) (quoting Tauza v. Susquehanna *150 Coal Co., 220 N.Y. 259, 267, 115 N.E. 915 (1917)).
As discussed in greater detail below, plaintiffs fail to make a prima facie showing of personal jurisdiction over AutoZug and R & T. There are also serious questions whether this court can exercise jurisdiction over Accor and CIWLT.
A. The Remaining Deutsche Bahn Defendants
AutoZug and R & T are two German corporations whose principal business is long-distance passenger train travel in Europe. R & T is a wholly owned subsidiary of an entity called DB Personenverkehr, which is itself a wholly owned subsidiary of Deutsche Bahn. AutoZug is a wholly owned subsidiary of R & T. Thus, each subsidiary exists several rungs down the corporate ladder from Deutsche Bahn.
Plaintiffs have alleged no direct contacts between AutoZug and New York, and only one such contact between R & T and New York. Specifically, plaintiffs allege that R & T contracted directly with U.S. airlines which have operations in New York to develop "rail and fly" packages for U.S. customers. This allegation is insufficient because it does not show that R & T conducted a continuous course of business in New York, or even that R & T solicited or executed these contracts in New York. The existence of contractual relationships with entities that happen to have operations in New York does not establish § 301 jurisdiction, because it does not show extensive conduct directed toward or occurring in New York. See Mantello v. Hall, 947 F.Supp. 92, 98 (S.D.N.Y.1996).
Plaintiffs also rely on mere department and agency theories to argue that jurisdiction over these defendants is proper. Each of these is discussed in turn below.
1. AutoZug and R & T as "Mere Departments" of Deutsche Bahn
First, plaintiffs contend that these German subsidiaries are "mere departments" of Deutsche Bahn, and accordingly share the jurisdictional contacts of their parent. See Volkswagenwerk Aktiengesellschaft v. Beech Aircraft Corp., 751 F.2d 117, 120-22 (2d Cir.1984). A corporate entity that is present in New York will be considered a "mere department" of a foreign parent, so as to expose the parent to personal jurisdiction in New York, "only if the foreign parent's control is pervasive enough that the corporate separation is more formal than real." Palmieri v. Estefan, 793 F.Supp. 1182, 1187 (S.D.N.Y.1992) (quoting H. Heller & Co. v. Novacor Chemicals Ltd., 726 F.Supp. 49, 54 (S.D.N.Y.1988)). This theory, of course, requires an initial finding that Deutsche Bahn itself is doing business in New York, and plaintiffs offer a number of alternative theories to support such a finding: that Deutsche Bahn itself has numerous direct contacts with New York, that Deutsche Bahn is doing business through other mere departments located in New York, or that Deutsche Bahn is doing business through various New York-based agents.
There is a serious problem with plaintiffs' attempt to premise personal jurisdiction over the German subsidiaries on Deutsche Bahn's contacts with New York. Deutsche Bahn is immune from suit in the United States. By alleging that these subsidiaries are mere departments of Deutsche Bahn, plaintiffs are alleging that the subsidiaries are not separate corporate entities at all, but rather alter egos of an immune entity. If, as plaintiffs insist, the subsidiaries' independent corporate form is a mere facade, and Deutsche Bahn exerts pervasive control over them, then the entities must share Deutsche Bahn's immunity. Cf. U.S. Fid. & Guar. Co. v. Braspetro *151 Oil Servs. Co., No. 97 Civ. 6124(JGK), 1999 WL 307666, at *11 (S.D.N.Y. May 17, 1999), aff'd, 199 F.3d 94, 97 (2d Cir.1999) (finding that the defendant, a corporate subsidiary of a subsidiary of Petrobras, an instrumentality of Brazil, was also an alter ego of Petrobras, and would have been entitled to sovereign immunity under the FSIA except that a statutory exception to immunity applied). To permit plaintiffs to sue AutoZug and R & T in New York would, according to plaintiffs' own allegations, be tantamount to permitting plaintiffs to sue Deutsche Bahn, a foreign sovereign.
Plaintiffs respond that the rule of Dole Food Co. v. Patrickson, 538 U.S. 468, 123 S.Ct. 1655, 155 L.Ed.2d 643 (2003), mandates a finding that these subsidiaries are not immune under the FSIA. In Dole, the Supreme Court held that indirect subsidiaries of a foreign state do not qualify as agencies or instrumentalities under the FSIA, because they do not satisfy the statutory requirement of majority ownership by a foreign state or political subdivision. See id. at 474, 123 S.Ct. 1655; see also 28 U.S.C. § 1603(b)(2). But according to plaintiffs' own allegations, AutoZug and R & T are not subsidiaries indirectly owned by Germany, but "mere departments" of Germany's agency or instrumentality, Deutsche Bahn. Dole did not address such allegations. Essentially, plaintiffs ask this court to ignore the corporate form for purposes of the jurisdictional analysis and to defend it rigorously with respect to the FSIA analysis. Plaintiffs cannot have it both ways. The mere department test, as discussed in greater detail below, "requires an examination of economic realities, not formal relationships." Mayatextil, S.A. v. Liztex U.S.A., Inc., No. 92 Civ. 4528(SS), 1995 WL 131774, at *5 (S.D.N.Y. Mar.23, 1995). If AutoZug and R & T are mere departments of Deutsche Bahn, then this court lacks subject matter jurisdiction over the claims against them. If they are separate corporate entities, then plaintiffs cannot attribute Deutsche Bahn's contacts to the subsidiaries for purposes of personal jurisdiction.
2. DER/REG and Deutsche Bahn as the Agents of R & T and AutoZug
Alternatively, plaintiffs contend that AutoZug and R & T are doing business in New York through an agent. "[A] court of New York may assert jurisdiction over a foreign corporation when it affiliates itself with a New York representative entity and that New York representative renders services on behalf of the foreign corporation that go beyond mere solicitation and are sufficiently important to the foreign entity that the corporation itself would perform equivalent services if no agent were available." Wiwa v. Royal Dutch Petroleum Co., 226 F.3d 88, 95 (2d Cir.2000). So, for example, in the leading New York case on agency jurisdiction, Frummer v. Hilton Hotels International, Inc., 19 N.Y.2d 533, 281 N.Y.S.2d 41, 227 N.E.2d 851 (1967), the Court of Appeals held that New York courts could assert jurisdiction over a British Corporation, Hilton Hotels (U.K.) Ltd., based on the activities of the Hilton Reservation Service, an entity doing business in New York. The New York entity responded to requests for rate quotations from travel agents, confirmed reservations, performed publicity and public relations work, and otherwise generated business for the London corporation. See id. at 537, 281 N.Y.S.2d 41, 227 N.E.2d 851. In short, the court found that "the Service does all the business which Hilton (U.K.) could do were it here by its own officials." Id. See also Wiwa, 226 F.3d at 95-96 (asserting personal jurisdiction over defendant foreign holding companies based on the activities of their New York Investor Relations Office, *152 which was fully funded by the defendants, consulted them on major decisions, and whose sole function was to act on their behalf); Gelfand v. Tanner Motor Tours, Ltd., 385 F.2d 116, 120-21 (2d Cir.1967) (premising jurisdiction over an Arizona tour operator upon the activities of a New York travel agent that confirmed reservations and performed other services on behalf of operator); Miller v. Surf Props., Inc., 4 N.Y.2d 475, 481, 176 N.Y.S.2d 318, 151 N.E.2d 874 (1958) (holding that a travel agency that responded to telephone inquiries, mailed brochures, and accepted deposits for many Florida hotels was not the agent of one of those hotels for the purposes of personal jurisdiction).
Plaintiffs argue that these German subsidiaries of Deutsche Bahn are doing business in New York through what is actually two separate entities: Destination Europe Resources ("DER") and Rail Europe Group ("REG"). REG is based in White Plains, New York. Plaintiffs note that REG advertises itself as the official North American representative of sixty European railways. REG owns DER, a travel wholesaler. Plaintiffs argue that DER/REG functions as the New York agent of AutoZug and R & T through activities it performs on behalf of their corporate ancestor, Deutsche Bahn: Deutsche Bahn holds DER out as its general agent in the United States on its website for international customers; Deutsche Bahn encourages U.S. customers to purchase all their tickets through DER/REG; and Deutsche Bahn generates significant revenue from ticket sales by DER/REG. Although all of these allegations involve the parent corporation, not the subsidiaries, plaintiffs contend that DER/REG's activities are sufficiently significant to the business of the subsidiaries, and that the agency theory of jurisdiction is sufficiently broad, to support a finding of jurisdiction over the subsidiaries.
There are several problems with plaintiffs' argument. Plaintiffs make no allegations sufficient to justify the conflation of two distinct entities DER and REG. Why plaintiffs choose to combine DER and REG is clear from Deutsche Bahn's website, which was included as an exhibit attached to plaintiffs' opposition papers: DER, the entity that Deutsche Bahn holds out as its general agent in the United States, is located in Rosemont, Illinois. The activities of an Illinois-based organization cannot support a finding that AutoZug and R & T are doing business through an agent in New York. And the activities of REG alone do not support plaintiffs' argument. Plaintiffs concede that REG serves sixty European railways, not Deutsche Bahn and its subsidiaries exclusively. To find that a corporation is doing business in New York through an agent, a plaintiff must show that the agent is "primarily employed by the defendant and not engaged in similar services for other clients." Wiwa, 226 F.3d at 95; see also Jacobs v. Felix Bloch Erben Verlag fur Buhne Film und Funk KG, 160 F.Supp.2d 722, 737 (S.D.N.Y.2001); Miller, 4 N.Y.2d at 481, 176 N.Y.S.2d 318, 151 N.E.2d 874. Plaintiffs' allegations indicate only that REG is an independent contractor. Deutsche Bahn's use of REG to sell train tickets in the United States is insufficient to support a prima facie determination that Deutsche Bahn or its subsidiaries are doing business in New York. Furthermore, plaintiffs have not offered a single factual allegation that shows that DER/REG performs any activity in New York on behalf of AutoZug and R & T, as opposed to Deutsche Bahn.
Plaintiffs also argue that Deutsche Bahn itself acts as its subsidiaries' agent in New York. Again, the complaint contains no allegations that Deutsche Bahn performs any activity in New York on behalf of its *153 subsidiaries. Plaintiffs rely far too heavily on language in the case law that suggests that common ownership "gives rise to a valid inference as to the broad scope" of an agency relationship. Frummer, 19 N.Y.2d at 537, 281 N.Y.S.2d 41, 227 N.E.2d 851. Taken to its logical extreme, their position would make every parent the agent of each of its subsidiaries for jurisdictional purposes, and vice versa. But plaintiffs must also show that the agent rendered important services on behalf of its principal. This they have failed to do.
Plaintiffs have not made a prima facie showing that this court has personal jurisdiction over AutoZug and R & T.
Since there is no jurisdiction in New York over any of the Deutsche Bahn defendants, it is not necessary to reach their argument that this court should abstain from hearing this case in deference to the legal proceedings ongoing in France.
B. Janz Volker
Defendant Volker also moves to dismiss for lack of personal jurisdiction. Plaintiffs offer no allegations with respect to Volker's contacts with the United States. Therefore, they have failed to make a prima facie showing of personal jurisdiction over Volker.
C. The Accor Defendants
Accor is a corporation organized under the laws of France. It maintains a registered office in Evry, France. It possesses ownership interests in numerous hotel and tourism-related corporations around the world.
CIWLT is a corporation organized under the laws of Belgium. It maintains a registered office in Brussels. CIWLT provides travel-related services throughout continental Europe, focusing on sleeping and dining car services on European trains. Accor has a 99.48% ownership interest in CIWLT.
1. Accor
Plaintiffs offer two theories to support the exercise of jurisdiction over Accor: first, that Accor itself maintains sufficient contacts with New York to fulfill the "doing business" standard of § 301; and second, that the jurisdictional contacts of Accor Leisure, a "mere department" of Accor that is doing business in New York, are properly attributable to the parent. Each of these theories is considered in turn.
a) Accor's Activities in New York
In determining whether a corporation does business in New York with sufficient regularity to make it amenable to personal jurisdiction under § 301, a court should consider whether the corporation maintains offices, bank accounts, or other property in New York; whether employees of the corporation are present in New York; and whether the corporation solicits business in New York. See Hoffritz, 763 F.2d at 58. "Solicitation of business alone will not justify a finding of corporate presence in New York with respect to a foreign manufacturer or purveyor of services, but when there are activities of substance in addition to solicitation there is presence and, therefore, jurisdiction." Laufer, 55 N.Y.2d at 310, 449 N.Y.S.2d 456, 434 N.E.2d 692 (internal citation omitted); see also Landoil Res. Corp. v. Alexander & Alexander Servs., Inc., 918 F.2d 1039, 1043-44 (2d Cir.1990).
The plaintiffs cite the following contacts as sufficient to support general jurisdiction over Accor:
(1) Accor owns more than 15 businesses that are registered to conduct business in New York, and its North American subsidiaries accounted for 22% of its revenue in 2002.
*154 (2) Accor maintains a web of internet sites linking its various subsidiary hotels. Through these websites, Accor solicits U.S. businesses (including New York businesses) to join its affiliate program. By placing a link to Accor's website on its website, a member of the affiliate program can receive compensation for every booking that Accor obtains through customers directed to it by an affiliate.
(3) Accor encourages U.S. customers (including New York residents) to join one of its "loyalty programs," through which they can earn credit toward discounts at Accor hotels.
(4) In 1999, Accor announced that it was acquiring Red Roof Inns and Motel 6. As part of this acquisition, it received a commitment from Morgan Stanley Real Estate Fund LP to tender its 68.3% stake in those hotel chains. The Morgan Stanley Real Estate Fund is owned by Morgan Stanley Group, Inc., a Delaware company whose principal office is located in New York City.
(5) Accor hired a New York law firm, Proskauer Rose LLP, to perform the legal work necessary to complete these acquisitions, and hired New York-based J.P. Morgan & Company to provide financial advice.
(6) Accor formed a joint venture with a New York venture capital firm, the Blackstone Group, to acquire 52 hotels from Vivendi.
(7) Accor owns two bank accounts in New York.
(8) Accor stock can be purchased in New York on the over-the-counter exchange. The Bank of New York trades Accor's American Depository Receipts, and Merrill Lynch trades Accor's ordinary shares. Between 11% and 16.7% of Accor's equity shares have been held by U.S. institutional or individual investors at various times.
(9) Accor conducted thirty "roadshows" in Europe and the United States in 2002 to promote its equity offerings to potential investors, "presumably" with the assistance of one of its New York-based market makers.
(10) Accor authorized a subsidiary, Accor Economy Lodging Inc., which is registered to do business in New York, to file a Form D with the Securities and Exchange Commission ("SEC") regarding a stock issuance.
(11) Accor retained the services of three New York-based investment banks to manage a $680 million bond offering in 2001.
(12) Accor maintains strategic partnerships with U.S. companies, such as Delta Airlines. New York residents who are members of Delta's SkyMiles program can earn credit toward discounts on goods and services through stays in Accor hotels.
(13) Accor has two partnerships with New York-based American Express Company, which involve jointly branded charge cards and a "points" program.
(14) American Express has also owned as much as one percent of Accor stock, making it at one time Accor's fifth largest shareholder.
(15) Accor's worldwide internet reservation system generates revenue from New York residents who make reservations for stays at Accor hotels, as well as from non-New York residents who reserve rooms at New York hotels owned by subsidiaries of Accor.
(16) Accor owns 50% of Carlson WagonLit Travel, a travel agency with offices in New York.
These are isolated and scattershot contacts, not the substantial, continuous, and permanent contacts required to support § 301 jurisdiction. Most of them also suffer from other serious deficiencies.
*155 Plaintiffs attempt to blur the line between Accor's contacts with the United States and its contacts with the State of New York. Because this is a diversity suit, it is defendant's contacts with the forum state, not with the United States as a whole, that are relevant to the personal jurisdiction inquiry. Conduct directed toward the United States (or, in the case of some of these purported activities, toward the world generally), cannot subject a defendant to personal jurisdiction in a particular state. Accordingly, while New York residents can benefit from Accor's affiliate program, loyalty programs, internet reservation system, and partnership with Delta Airlines, those benefits do not result from Accor's having reached into New York to solicit business here, but from the fact that access to these programs is available to anyone in the United States who seeks them out. See, e.g., Drucker Cornell v. Assicurazioni Generali S.p.A., Nos. 97 Civ. 2262(MBM), 98 Civ. 9186(MBM), 2000 WL 284222, at *2 (S.D.N.Y. Mar. 16, 2000) (finding that the exercise of personal jurisdiction on the basis of a website available worldwide, without an allegation that the website was purposefully directed toward New York, would offend due process). Plaintiffs cannot cure this deficiency by tacking on a reference to New York residents, as they do in several of the allegations summarized above, because it is clear that the thrust of Accor's activity is not directed toward New York.
Other allegations similarly lack a New York focus. Plaintiffs do not allege that any of Accor's thirty roadshows were conducted in New York, or that any of the owners of Accor securities are New York residents or entities. Plaintiffs do not allege that Accor Lodging filed forms with the SEC on Accor's behalf in New York. And plaintiffs do not allege that Accor retained the services of New York investment banks or law firms for bond offerings or corporate acquisitions in New York. See PaineWebber Inc. v. Westgate Group, Inc., 748 F.Supp. 115, 120 (S.D.N.Y.1990) (finding a corporation's retention of New York law firm to provide services outside of New York to be insufficient to confer jurisdiction).
Plaintiffs' allegations that focus more directly on New York suffer from problems as well. The mere fact that Accor owns or partially owns businesses that are registered to do business in New York does not subject Accor to general jurisdiction in New York. See Ontel Prods., Inc. v. Project Strategies Corp., 899 F.Supp. 1144, 1148 (S.D.N.Y.1995) ("In New York, the individual who owns a corporation is generally not subject to personal jurisdiction as a result of the corporation's activities unless (1) the corporate veil can be `pierced' or (2) the corporation acted as an agent for the owner."). Neither is jurisdiction proper merely because Accor operates websites through which New York residents can make hotel reservations or purchase other services. See Rodriguez v. Circus Circus Casinos, Inc., No. 00 Civ. 6559(GEL), 2001 WL 21244, at *2 (S.D.N.Y. Jan.9, 2001) (finding no general jurisdiction over foreign corporation based on website accessible to New York residents); Drucker Cornell, 2000 WL 284222, at *2.
Several of plaintiffs' allegations depend on Accor's having done business with entities that are based in New York. None of these allegations, however, indicates whether Accor solicited its partners' participation in New York or whether any of the business was conducted in New York. "The mere existence of a business relationship with entities within the forum state is insufficient to establish `presence.'" Mantello, 947 F.Supp. at 98 (quoting Insurance Co. of Pennsylvania v. *156 Centaur Insurance Co., 590 F.Supp. 1187, 1189 (S.D.N.Y.1984)). Accordingly, Accor's acquisition of hotels from a subsidiary of the Morgan Stanley Group, its joint venture with the Blackstone Group, and its partnerships with Delta Airlines and American Express do not support an exercise of personal jurisdiction absent allegations of purposeful conduct in New York.
Although Accor's ownership of two bank accounts located in New York is one factor relevant to the jurisdictional inquiry, bank accounts standing alone cannot create jurisdiction unless they are used for "substantially all" of Accor's business. See United Rope Distribs. v. Kimberly Line, 785 F.Supp. 446, 450 (S.D.N.Y.1992). Plaintiffs do not make such a claim. Similarly, the fact that Accor's stock may be purchased in New York, and that Accor retains New York-based market makers to assist in its sales of stock, is another important factor but is insufficient to confer general jurisdiction. See In re Ski Train Fire in Kaprun, Austria on Nov. 11, 2000, 230 F.Supp.2d 376, 383 (S.D.N.Y.2002).
There is a serious question whether plaintiffs have demonstrated that Accor solicits substantial amounts of business in New York. It is also not clear whether the other contacts which actually involve conduct in New York, such as the maintenance of bank accounts and the sale of securities, constitute additional "activities of substance" sufficient to justify jurisdiction. Laufer, 55 N.Y.2d at 310, 449 N.Y.S.2d 456, 434 N.E.2d 692.
b) Accor Leisure as Accor's "Mere Department"
Alternatively, plaintiffs contend that personal jurisdiction over Accor is proper because Accor's "mere department," Accor Leisure, is present and doing business in New York. The Second Circuit has outlined four factors to aid in determining whether one entity is the mere department of another: (1) common ownership; (2) financial dependency of the subsidiary on the parent; (3) the degree to which the parent interferes in the selection of the subsidiary's executive personnel and fails to observe corporate formalities; and (4) the extent of the parent's control over the subsidiary's marketing and operational policies. Beech Aircraft, 751 F.2d at 120-22; Aboud v. Rapid Rentals, No. 97 Civ. 1742(MGC), 1998 WL 132790, at *1 (Mar. 24, 1998). The first factor, common ownership, is "essential to the assertion of jurisdiction over a foreign related corporation," while the other three factors are "important." Beech Aircraft, 751 F.2d at 120. "The overall weighing of the various factors thus necessitates a balancing process, and not every factor need weigh entirely in the plaintiffs' favor." Aboud, 1998 WL 132790, at *1 (quoting Mayatextil, 1995 WL 131774, at *5) (citations omitted). However, the analysis requires more than an identity of ownership. A parent cannot assume the jurisdictional status of its subsidiary unless factors beyond common ownership suggest that their separate corporate identities are a mere facade. See, e.g., Palmieri, 793 F.Supp. at 1188-89 (citing cases applying the four factors).
According to plaintiffs, all of Accor's subsidiaries are mere departments of Accor, and the following allegations demonstrate that Accor Leisure, in particular, is a mere department of Accor. Accor owns 90% or more of Accor Leisure. Accor sets the financial guidelines for all of its subsidiaries. Specifically, Accor implements cost reduction plans, controls bond offerings, manages financial risks, develops operating budgets, approves capital expenditures, and handles insurance coverage. Accor also interferes with personnel assignments by appointing the heads of its subsidiaries. Accor directs *157 that all of its subsidiaries use a uniform logo that incorporates the Accor name. Accor has also centralized employee recruitment for all of its subsidiaries and developed training programs. Accor has centralized its corporate sales departments, developed a groupwide employee incentive program, and formulated a worldwide environmental policy and hotel risk prevention committee. Accor also controls collective bargaining for all of its European hotels. Finally, Accor's technology links the reservation systems of all of its subsidiaries.
It is a close question whether these allegations constitute a prima facie showing of jurisdiction over Accor in New York. Aside from common ownership, plaintiffs make only one factual allegation specifically about Accor Leisure: that the parent selected the executive in charge of Accor Leisure. The rest of plaintiffs' allegations refer generally to all of Accor's subsidiaries, to the activities of other of Accor's North American subsidiaries, or to subsidiaries in other parts of the world.
Even if plaintiffs could show that their generalized allegations about Accor's dealings with its subsidiaries apply with equal weight to Accor Leisure, it is not clear that those allegations demonstrate the pervasive control required to justify jurisdictional veil piercing. Most courts have held that the financial dependency prong of the Beech Aircraft test requires not merely that the parent have some control over the finances of the subsidiary, but that the subsidiary would not be able to function without the financial support of the parent. See Meteoro Amusement Corp. v. Six Flags, 267 F.Supp.2d 263, 271 (N.D.N.Y.2003); Dorfman v. Marriott Int'l Hotels, Inc., No. 99. Civ. 10496(CSH), 2002 WL 14363, at *8 n. 12 (S.D.N.Y. Jan.03, 2002) (noting that when assessing financial dependency, courts typically consider "whether the two companies' accounts have been intermingled, the parent has paid the subsidiary's expenses, the parent has loaned money to the subsidiary without interest, or the parent has guaranteed the subsidiary's obligations"). While plaintiffs have alleged facts indicating that Accor has some measure of control over the broad financial policies of its subsidiaries, they have not clearly alleged dependency.
Similarly, control over personnel decisions requires more than the parent's appointment of a few of the subsidiary's officers or directors. See Jazini v. Nissan Motor Co., Ltd., 148 F.3d 181, 185 (2d Cir.1998) (affirming district court's determination that the fact that one of Nissan Japan's four managing directors was also the chairman of Nissan U.S.A. was insufficient to show that the latter was a mere department of the former). Management personnel of two related corporations usually must be "substantially the same" or demonstrate "mirror image symmetry" for this factor to contribute to a finding that a subsidiary is a mere department of a parent. See, e.g., Self Intern. (HK) Ltd. v. La Salle National Bank, No. 01 CV 4291(RCC), 2002 WL 500372, at *3 (S.D.N.Y. Mar.29, 2002) (citing cases). Plaintiffs only allege that Accor named the head of Accor Leisure, which is not an extraordinary act within the context of the parent-subsidiary relationship.
With respect to marketing policies, the fact that subsidiaries share a logo, or that the parent decides to present several corporations on a website in a unified fashion, is insufficient to show lack of formal separation between two entities. See J.L.B. Equities, Inc. v. Ocwen Fin. Corp., 131 F.Supp.2d 544, 550 (S.D.N.Y.2001) (finding a failure to distinguish between parent and subsidiary on website insufficient to indicate lack of formal separation: *158 "[a]n advertising strategy deciding not to present to its consumers the existence of a parent-subsidiary relationship is not equivalent to a showing that the parent corporation exercises any control over its subsidiary's operational or marketing activities"). Finally, it is not clear whether plaintiffs' allegations with respect to Accor's employment, environmental, risk prevention, and other policymaking show anything more than the ordinary control that parent corporations exert over their subsidiaries. It is true that a parent's imposition of operational policies upon its subsidiaries can, in some instances, provide evidence of pervasive control. See, e.g., Dorfman, 2002 WL 14363, at *9. However, plaintiffs have not alleged that Accor interferes in the day-to-day operations of Accor Leisure, or that it has exerted control over the standard operating procedures of its subsidiaries. The policies plaintiffs describe are not central or essential to the way in which Accor's subsidiaries conduct their business. "[U]nder New York law a parent of a multinational corporate enterprise may make broad policy decisions for its subsidiaries. Such control is inherent in the parent-subsidiary relationship and does not justify labeling a subsidiary a `mere department' of the parent." Saraceno v. S.C. Johnson & Son, Inc., 83 F.R.D. 65, 71 (S.D.N.Y.1979).
Plaintiffs have proffered evidence that Accor exercises the kind of control over its subsidiaries typical in any parent-subsidiary relationship. Whether they have alleged the kind of extraordinary control that would justify a finding that Accor Leisure is a mere department of Accor is questionable.
2. Compagnie Internationale des Wagons-Lits
Jurisdiction over CIWLT depends on a determination that this court has personal jurisdiction over its parent, Accor, and then on a determination that CIWLT is a mere department of Accor and should share the jurisdictional contacts of its parent.
As discussed above, a serious question exists as to whether plaintiffs have made a prima facie showing of personal jurisdiction over Accor. Accordingly, it is not clear that this court has personal jurisdiction over CIWLT. Although discovery limited to the jurisdictional question would ordinarily be in order in this situation, defendants' motion to dismiss can be granted on the alternative ground that New York is an inconvenient forum for this litigation, as discussed below.
III. Forum Non Conveniens
The Accor defendants contend that New York is a manifestly inconvenient forum for this litigation. "The `central purpose' of forum non conveniens analysis is to determine whether a trial will be most convenient and will serve the interest of justice." Virgin Atlantic Airways Ltd. v. British Airways PLC, 872 F.Supp. 52, 61 (S.D.N.Y.1994). The analysis proceeds according to the test set forth in the leading Supreme Court case on forum non conveniens, Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 67 S.Ct. 839, 91 L.Ed. 1055 (1947). Starting with the proposition that the "plaintiff's choice of forum should rarely be disturbed," id. at 508, 67 S.Ct. 839, the defendant must show that an adequate alternative forum exists, see Piper Aircraft Co. v. Reyno, 454 U.S. 235, 254, 102 S.Ct. 252, 70 L.Ed.2d 419 (1981). Only if defendant meets that threshold requirement should the court proceed to the private and public interest factors set forth in Gilbert. See id.; see also Carey v. Bayerische Hypound Vereinsbank AG, 370 F.3d 234, at 237, No. 03-7819, 2004 WL 1194391, at *2 (2d Cir. June 1, 2004).
*159 A. France as an Adequate Alternative Forum
Generally, the alternative forum a defendant proposes is adequate as long as the defendant is amenable to process there and the forum permits litigation of the subject matter of the suit. See id. at 254 n. 22, 102 S.Ct. 252. It is undisputed that all the corporate defendants are amenable to suit in France. Accor is a French corporation, and CIWLT concedes that it is subject to jurisdiction in France based on regularly conducted business activities. Deutsche Bahn has a treaty obligation to submit to jurisdiction in France.
Plaintiffs contend that France is not an adequate forum because the remedy French courts would provide to them is unsatisfactory. Plaintiffs offer the declaration of Alain Behr, a French attorney, who states that the maximum compensation that would be available to each estate in a French court would be approximately $100,000. Plaintiffs argue that such a remedy is clearly inadequate, given the terrible circumstances of the Amores' deaths and the seriousness of the misconduct alleged.
Plaintiffs are correct that "in rare circumstances ... where the remedy offered by the other forum is clearly unsatisfactory, the other forum may not be an adequate alternative." Id. But Piper is clear that an "unsatisfactory remedy," in this context, means no remedy at all. The Piper Court was concerned about situations in which the alternative forum does not recognize a plaintiff's cause of action, refuses to permit litigation of the subject matter of the suit, or is otherwise seriously flawed. See id. at 254 & n. 22, 102 S.Ct. 252. Accordingly, the Piper Court found that Scotland was an adequate forum in a case involving a plane crash in that country: "Although the relatives of the decedents may not be able to rely on a strict liability theory, and although their potential damages award may be smaller, there is no danger that they will be deprived of any remedy or treated unfairly." Id. at 255, 102 S.Ct. 252 (emphasis added). See also Alcoa S.S. Co. v. M/V Nordic Regent, 654 F.2d 147, 159 (2d Cir.1980) (en banc) ("It is abundantly clear ... that the prospect of a lesser recovery does not justify refusing to dismiss on the ground of forum non conveniens."); Varnelo v. Eastwind Transport Ltd., No. 02 Civ.2084(KMW), 2003 WL 230741, at *17 (S.D.N.Y. Feb.3, 2003).
Because defendants are subject to the jurisdiction of the French courts and those courts will hear plaintiffs' claims, defendants have shown that France is an adequate alternative forum.
B. Public Interest Factors
The Gilbert public interest factors include (1) the administrative difficulties arising from congested courts; (2) the imposition of jury duty on members of a community unconnected to the litigation; (3) a forum's interest in adjudicating local controversies; and (4) the potential difficulties arising from the application of foreign law. See Gilbert, 330 U.S. at 508-09, 67 S.Ct. 839.
The second and third factors weigh heavily in favor of France. It is important to remember that the Amores booked their tickets in France, on a train owned and operated by SNCF, the state-owned railway of France. The complaint alleges tortious conduct on the part of Accor and CIWLT that occurred wholly in France. The complaint alleges wrongdoing by corporations that provide rail services in France and other parts of Europe jointly with SNCF. France has an extremely strong interest in ensuring that its own trains operate safely and that its partners *160 and affiliates properly maintain and equip their trains and train their employees. France's active interest in these matters is evident both from the criminal investigation into the accident that is pending in Nancy, France, and from France's participation in COTIF, which provides for the uniform regulation of train litigation in signatory countries. Unlike Wiwa, this is not a case in which the interests of the American and alternative forum are in equipoise. See Wiwa, 226 F.3d 88, 97. Nor have plaintiffs alleged that the United States has a specific interest in the litigation of this suit in an American court, such as the enforcement of U.S. laws, see, e.g. DiRienzo v. Philip Services Corp., 294 F.3d 21, 32-33 (2d Cir.2002), or the adjudication of an accident involving a large number of American citizens, see, e.g., Ski Train Fire at Kaprun, 230 F.Supp.2d at 391 (noting that the accident in question occurred during a vacation marketed to members of the U.S. military and their families). The United States' general interest in protecting its citizens from harm while they travel abroad is tenuous in comparison to France's concrete, immediate interest in safe train travel within its borders.
Furthermore, to ask residents of the Southern District of New York to hear what would clearly be a lengthy and complex trial, involving Connecticut residents harmed by activities that occurred entirely in Europe, would be a significant burden.
The first and fourth factors add little weight to the analysis. As plaintiffs point out, the Second Circuit has concluded that the first factor has little or no applicability in this district because of the recent filling of judicial vacancies. See Guidi v. Inter-Continental Hotels Corp., 224 F.3d 142, 147 n. 5 (2d Cir.2000). Likewise, while it is likely that French law applies to this dispute, defendants have not indicated any particular conflicts or difficulties likely to arise from the application of foreign law. Cf. Manu Int'l. S.A. v. Avon Prods., Inc., 641 F.2d 62, 68 (2d Cir.1981) ("[W]e must guard against an excessive reluctance to undertake the task of deciding foreign law, a chore federal courts must often perform.").
Because France's interest in this lawsuit is so strong, and because the imposition of jury duty on residents of the Southern District would be a significant burden, the Gilbert public interest factors weigh heavily in favor of France as the appropriate site for this litigation.
C. Private Interest Factors
Gilbert's private interest factors include "the relative ease of access to sources of proof; availability of compulsory process for attendance of unwilling, and the cost of obtaining attendance of willing, witnesses; possibility of view of premises, if view would be appropriate to the action; and all other practical problems that make trial of a case easy, expeditious and inexpensive." Gilbert, 330 U.S. at 508, 67 S.Ct. 839. Within the last factor, courts frequently consider the financial hardship that each party would experience as a result of litigation in a distant forum. See, e.g., Wiwa, 226 F.3d at 107.
Weighing heavily in favor of litigation in France is the fact that plaintiffs are unable to proceed against the Deutsche Bahn defendants in this court, and Accor and CIWLT will be unable to implead these parties. "The inability to implead other parties directly involved in the controversy is a factor which weighs against the retention of jurisdiction in the Southern District of New York." Fitzgerald v. Texaco, Inc., 521 F.2d 448, 453 (2d Cir.1975); see also Piper, 454 U.S. at 259, 102 S.Ct. 252. To require the Accor defendants to litigate here seems an especially perverse result *161 given that, according to the allegations of the complaint, the unavailable parties are the ones more directly responsible for the accident. Accor and CIWLT are being sued because their employees, working in cars adjacent to Railcar 120, failed to timely warn and evacuate the Amores after defendant Volker fled. It would be unfair, and a significant burden, to require Accor and CIWLT to litigate here without the opportunity to implead equally or more culpable parties. Accor and CIWLT will also have difficulty impleading SNCF, which would have a strong defense of sovereign immunity in this forum. See Abrams v. Societe Nationale des Chemins de Fer Francais, 332 F.3d 173, 179-80 (2d Cir.2003). By contrast, all of these parties are subject to the jurisdiction of the French courts.
It is also worth noting that bifurcating the suit, permitting plaintiffs to litigate against some of the defendants in New York, and requiring them to seek relief against others in Europe, would be as inconvenient for plaintiffs as for defendants. Litigation in France would therefore be more convenient for all parties.
The location of the evidence in this case also weighs in favor of France as the appropriate forum. Plaintiffs' arguments with respect to the location of evidence and witnesses depend heavily on their contention that the French court conducting a criminal investigation into the accident will soon rule on the culpability of the defendants, and defendants will be collaterally estopped from contesting liability in this action. Accordingly, plaintiffs argue that this court should undertake the forum non conveniens analysis as though this were a damages-only case, excluding from consideration access to evidence and witnesses that are relevant only to liability. But plaintiffs have presented no records from the French proceedings or affidavits from parties involved that demonstrate that Accor and CIWLT are involved in the French investigation or that the investigation is as wide-ranging in its examination of wrongdoing as the complaint. For these reasons, the res judicata effect of any French ruling is not certain, and it would be inappropriate to foreclose consideration of issues of convenience related to liability.
Looking at the full range of proof likely to be introduced in this case, what is most striking is that not a single fact witness or piece of documentary evidence relevant to the complaint's allegations of tortious conduct is located in the United States. Instead, all of the documents, witnesses, and physical evidence that defendants will require to defend this action are located in France, Belgium, or Germany. The breadth of plaintiffs' complaint, which sounds in negligence, product liability, and breach of warranty, and seeks punitive as well as compensatory damages, ensures that the factual evidence presented in this case will be extensive. Plaintiffs respond by pointing out that their damages evidence is located in the United States, which should cancel out any weight to be accorded to the location of defendants' evidence. But plaintiffs allude to this evidence in conclusory terms, and do not explain what it consists of or how it approaches in magnitude the evidence that defendants promise to present.[1] To the extent that it consists of expert testimony, it is entitled to little weight in the forum non conveniens analysis. See Brown v. Dow Corning Corp., No. 93 Civ. 5510(AGS), 1996 WL 257614, at *2 (S.D.N.Y. May 15, 1996).
*162 Plaintiffs also argue that defendants are large corporations that can afford the expense of transferring all of their evidence to a foreign tribunal. While courts do appear to be less sympathetic to defendants' claims that litigation in a distant forum will be prohibitively expensive when those defendants are corporations with "vast resources," Wiwa, 226 F.3d 88 at 107, defendants' financial resources cannot be a determinative factor in the forum non conveniens analysis. "If central emphasis were placed on any one factor, the forum non conveniens doctrine would lose much of the very flexibility that makes it so valuable." Piper, 454 U.S. at 249-50, 102 S.Ct. 252. The fact that defendants are corporations does not automatically mean that they should bear the significant costs of transporting every document, every piece of physical evidence (which would likely include the train car in question), and every witness relevant to the factual issues in dispute in this case. See Capital Currency Exchange, N.V. v. Nat'l Westminster Bank PLC, 155 F.3d 603, 611 (2d Cir.1998) (affirming district court's dismissal on forum non conveniens grounds where most of the witnesses resided in England and most of the documentary evidence was created and stored in England).
A related factor weighing in favor of litigation in France is defendants' inability to compel critical third-party witnesses to testify in New York and to compel the production of documents from third parties. For example, the individual most directly responsible for plaintiffs' injuries, Volker, cannot be compelled to appear here. Plaintiffs argue that defendants have recourse under the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters, 28 U.S.C. § 1781 note, to compel depositions and document production in foreign countries. However, the evidence defendants would be required to seek through the assistance of foreign courts would be both extensive and critical, coming from the other alleged wrongdoers as well as from the French government's investigation into the accident. The process of obtaining this evidence would be costly and time-consuming. The massive inefficiency and inconvenience that this would create for defendants and plaintiffs is all the more striking given the existence of an alternative forum where many of these problems would not arise.
Against these factors must be weighed the inconvenience to plaintiffs of litigation in France. Plaintiffs argue that because France does not permit contingent fee arrangements, they cannot afford to litigate their case in France. However, the availability of contingent fee arrangements is only one factor to be considered when analyzing the hardships to a plaintiff of conducting litigation in a foreign forum. See Murray v. British Broadcasting Corp., 81 F.3d 287, 292 (2d Cir.1996). Plaintiffs have offered no affidavits or other support for the proposition that they are financially unable to conduct the lawsuit in France. See, e.g., Ski Train Fire at Kaprun, 230 F.Supp.2d at 389 (noting that the plaintiffs had filed affidavits demonstrating the financial hardship they would experience if forced to litigate abroad). The mere fact that they are individual, not corporate, litigants does not mean that litigation elsewhere is necessarily a hardship sufficiently arduous to outweigh the other factors in the Gilbert analysis.
The Gilbert analysis reveals that this litigation has only a tenuous connection to the United States, let alone to New York. Plaintiffs are American citizens, as were the individuals whose deaths gave rise to this suit. France has a significant interest in ensuring the safety of its railways. Defendants would be burdened by their inability to implead other culpable parties as well as by the cost and difficulty of obtaining *163 necessary evidence and transporting it to this district. These problems, as well as the fact that litigation here would be inefficient because of this court's lack of jurisdiction over the Deutsche Bahn defendants, indicates that this action should be dismissed on forum non conveniens grounds in favor of litigation in France.
Accordingly, it is unnecessary to reach the Accor defendants' argument that the complaint fails to state a claim against them.
CONCLUSION
For the foregoing reasons, defendants' motions to dismiss are granted.
SO ORDERED.
NOTES
[1] Furthermore, plaintiffs appear to be focusing on damages relevant to their wrongful death claims. By contrast, evidence of decedents' conscious pain and suffering is located in France, particularly in materials generated in the French criminal investigation. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2472267/ | 29 F.Supp.2d 435 (1998)
UNITED STATES of America
v.
Timothy Lynn HOLLOWAY.
No. 3:96-00004.
United States District Court, M.D. Tennessee, Nashville Division.
December 3, 1998.
*436 James A. Simmons, Edwards & Simmons, Nashville, TN, Richard Kammen, Indianapolis, IN, for Timothy Lynn Holloway.
Hillard H. Hester, III, Asst U.S. Atty., Wendy Hildreth Goggin, Office of the United States Attorney, Nashville, TN, for United States.
MEMORANDUM
WISEMAN, Senior District Judge.
Before the Court are (1) the defendant's motion for discovery of information disclosing racial discrimination in the decision by the Department of Justice selecting the defendant to face the death penalty and (2) the defendant's supplemental submission of evidence and motion to dismiss the government's request for the death penalty because it is arbitrary, capricious and motivated, in part, by the defendant's race. For the reasons set forth below, the defendant's motions are denied.
I. Relevant Background
On July 1, 1998, defendant Holloway filed a motion for discovery disclosing racial discrimination in the decision of the Department of Justice (DOJ) selecting him to face the death penalty. (Doc. 194.) The Court heard oral argument on Holloway's motion and ordered the government to produce the number and race of defendants charged with witness killings and the number and race of defendants authorized by the Attorney General to face the death penalty for the crime of killing a witness. While this information was originally filed under seal with the Court (Doc. 285), the Court has since unsealed this data. (Doc. 369.) Holloway then submitted additional evidence and filed a motion to dismiss the government's request for the death penalty because the request is motivated, in part, by Holloway's race. (Doc. 321.) Although Holloway has filed both a motion for discovery and a motion to dismiss, he has submitted essentially the same evidence in support of both motions. Consequently, the Court will treat the motions as a motion to dismiss the government's request for the death penalty or, in the alternative, for discovery.
Holloway contends, in essence, that DOJ authorized him to face the death penalty because he is white. In support of his motion, Holloway notes that of the 121 death penalty prosecutions approved by DOJ as of July 1, 1998, 94 of the defendants (77.7%) are members of minority groups. (Def.'s Mot. Disc. (Doc. 194) at 2.) As a result, Holloway claims that DOJ has been criticized for selecting *437 a high percentage of minorities to face the death penalty. Id. Supposedly, in order to avoid the issue of race and insure consistency in the death authorization process, DOJ has adopted a protocol whereby the Attorney General must approve all death penalty prosecutions. Id.
Holloway maintains, however, that DOJ has actually addressed the race issue by simply selecting more white defendants, including himself, to face the death penalty. See id. at 3. Specifically, Holloway claims that there are two black defendants in the federal system, Tederick Jones and Mark Anthony White, who are accused of committing crimes "substantially identical" to Holloway's crime; however, neither Jones nor White has been selected to face the death penalty. Id. "The only apparent difference between [Jones and White] and Mr. Holloway is race." Id. Therefore, Holloway argues, DOJ is engaging in constitutionally impermissible selective prosecution in an attempt to "balance the books." See id.
In support of his claim, Holloway has submitted the superseding indictments in the Jones case, U.S. v. Thornton et al., No. 97-CR-50021 (E.D.Mich.), and the White case, United States v. Spradley et al., No. IP 98-38-CR-M/F (S.D.Ind.). (See Def.'s Rep. Gov.'s Resp. Def.'s Mot. Disc. (Doc. 266) Attachs.) The superseding indictments reveal the following.
Jones has been accused of, inter alia, conspiracy to commit firearm murder during and in relation to drug trafficking in violation of 18 U.S.C. § 924(j) and § 924(o) and two counts of firearms murder during or in relation to drug trafficking in violation of 18 U.S.C. § 924(j)(1) and aiding and abetting in violation of 18 U.S.C. § 2. Id. Cts. 2-4 of Jones Indict. Specifically, Jones is accused of conspiring to plan and helping to carry out the murder of Lee Davis Strickland. Id. Ct. 2 of Jones Indict. Strickland was under indictment at the time of his murder, and the accused co-conspirators, including Jones and Ervin Thornton, were allegedly concerned that Strickland would provide information to law enforcement authorities about their involvement in drug trafficking. During the course of Strickland's murder, Jones and Thornton also killed Strickland's sister and wounded another man. Id. Cts. 2, 4 of Jones Indict.
At Jones's detention hearing, police lieutenant Jerome Koger testified that Ervin Thornton had implicated himself, Jones, Jewell Allen, and others in the murders. Id. Det. Hrg. Trscpt. at 7-8. According to Koger, Thornton stated that Allen was concerned that Strickland would "snitch him out" because Strickland was under indictment. Id. Det. Hrg. Trscpt. at 8. At some point, Allen threw $10,000 in Thornton's face and told Thornton that Thornton could have the money if he killed Strickland. Id. Apparently, Allen also purchased the clothing that was worn during the homicide. See id. Det. Hrg. Trscpt. at 8-9. After the murders, Allen paid Thornton and Jones $5000 each. Id. Det. Hrg. Trscpt. at 16-17.
The superseding indictment in White's case was filed on June 30, 1998. The indictment charges that White was a member of a conspiracy to distribute narcotics. Id. Ct. 1 of White Indict. Anthony Spradley is accused of being the organizer and leader of the conspiracy. Id. Ct. 1 of White Indict. ¶ 1. White's cousin, Marcus Willis, worked as a bouncer in a bar owned by Spradley. Id. Ct. 1 of White Indict. ¶ 27. On at least two occasions, Spradley confronted Willis about being an informant. Id. Ct. 1 of White Indict. ¶ 41, On at least one of those occasions, White was present. Id. Spradley, White and others met to discuss how they should address their concerns that Willis was an informant. Id. Ct. 1 of White Indict. ¶ 43. On June 27, 1997, Spradley and White again confronted Willis. Id. Ct. 1 of White Indict. ¶ 45. White is accused of shooting and killing Willis later that day in White's truck. Id. Ct. 1 of White Indict. ¶ 48. Specifically, the superseding indictment charges that White and others killed Willis to prevent him from communicating with law enforcement officers, in violation of 18 U.S.C. § 1512(a)(1)(C). Id. Ct. 2 of White Indict. The superseding indictment also charges that White and others killed Willis in order to retaliate against him for providing information to law enforcement officers in violation *438 of 18 U.S.C. § 1513(a)(1)(B). Id. Ct. 3 of White Indict.
Holloway has also submitted an affidavit by Kevin McNally, who serves as Federal Death Penalty Resource Counsel with the Resource Counsel Project ("the Project"). (Supp. Subm. Ev. and Mot. Dis. Gov.'s Req. Death Pen. (Doc. 321) Ex. A. at 1.) The Project assists court-appointed and defender attorneys charged with the defense of capital cases in federal court. Id. McNally's affidavit lists the 133 cases in which the death penalty has been sought by DOJ since 1988. Id. Ex. A at 2. The list includes the race, gender, and name of the defendant and the docket number and court where the case was filed. Id. Ex. A at 2-9. The affidavit does not identify the criminal charges filed against each defendant. See id. McNally states that fifty-nine percent of federal death penalty defendants have been African-American, twenty-four percent have been Caucasian, thirteen percent have been Hispanic, and four percent have been Asian/Indian. Id. Ex. A at 2. According to Holloway, McNally's affidavit suggests that after the Attorney General began approving death penalty prosecutions, the racial composition of the defendants selected to face the death penalty changed considerably as many more whites were authorized to face capital prosecution. (Supp. Subm. Ev. and Mot. Dis. Gov.'s Req. Death Pen. (Doc. 321) at 3, Ex. A.)
Finally, Holloway has submitted records produced by DOJ in response to a court order by Judge Sonia Sotomayor of the U.S. District Court for the Southern District of New York. These records consist of statistical information based on the cases of the 296 defendants that the Attorney General reviewed between January 27, 1995 and August 10, 1998.[1]Id. at 3-4, Ex. B. The statistics are broken down by race and include the number of cases reviewed, the number of defendants authorized to face the death penalty, the number of defendants not authorized to face the death penalty, and percentages. Id. Ex. B. Holloway insists that these statistics "when objectively analyzed, demonstrate[] that, public assurances to the contrary, race is a factor in the decision of the Department of Justice concerning who will face the Death Penalty." Id. at 4.
The government has responded that under United States v. Armstrong, 517 U.S. 456, 116 S.Ct. 1480, 134 L.Ed.2d 687 (1996), Holloway's statistical evidence and his assertion that two black defendants charged with the same crime were not selected to face the death penalty are legally insufficient to establish the threshold showing that is necessary before a court can order discovery or dismiss a request for the death penalty on the basis of selective prosecution. (Gov.'s Resp. Def.'s Mot. Disc. (Doc. 232) at 2-3; Gov.'s Resp. Def.'s Supp. Subm. Ev. and Mot. Dis. Gov.'s Req. Death Pen. (Doc. 360) at 2.) Moreover, the indictment and death penalty notice filed in this case "evidence a legitimate and objective justification for seeking the death penalty against [Holloway], based upon the aggravated nature of his crimes." (Gov.'s Resp. Def.'s Supp. Subm. Ev. and Mot. Dis. Gov.'s Req. Death Pen. (Doc. 360) at 6.) The government argues that the defendant has failed to rebut the strong presumption that capital prosecution in this case has been undertaken in good faith. Id. at 6-7.
II. Analysis
A. The Defendant's Motion for Discovery from the Department of Justice
The Attorney General and United States Attorneys have broad discretion to enforce the criminal laws and determine when and whom to prosecute. United States v. Armstrong, 517 U.S. 456, 464, 116 S.Ct. 1480, 134 L.Ed.2d 687 (1996); United States v. Bradley, 880 F.Supp. 271, 278 (M.D.Pa. 1994). "There is a presumption that prosecutions are commenced in good faith and without a discriminatory motive." Bradley, 880 F.Supp. at 278. Consequently, courts are "reluctant to question the motives of prosecutors." Id. 880 F.Supp. at 279. Nevertheless, prosecutors' discretion is "`subject to constitutional constraints.'" Armstrong, 517 U.S. at 464, 116 S.Ct. 1480 (quoting United States v. Batchelder, 442 U.S. 114, 125, 99 S.Ct. 2198, 60 L.Ed.2d 755 (1979)). *439 For example, a prosecutor may not select a defendant for prosecution solely on the basis of race. Id. (citing Oyler v. Boles, 368 U.S. 448, 456, 82 S.Ct. 501, 7 L.Ed.2d 446 (1962)); Bradley, 880 F.Supp. at 279 (citing Oyler).
In the instant case, Holloway contends that the Attorney General has selected him to face the death penalty due, at least in part, to his race. He requests that the Court dismiss the government's request for the death penalty or, in the alternative, order discovery from DOJ. In order for a defendant to obtain discovery in a selective prosecution case, there must be "`some evidence tending to show the existence of the essential elements of the defense,' discriminatory effect and discriminatory intent." Armstrong, 517 U.S. at 468, 116 S.Ct. 1480 (quoting United States v. Berrios, 501 F.2d 1207, 1211 (2d Cir.1974)).
1. Discriminatory Effect
To establish the discriminatory effect element, a defendant must "produce some evidence that similarly situated defendants of other races could have been prosecuted, but were not." See id. 517 U.S. at 469, 116 S.Ct. 1480. The Armstrong court found that the discriminatory effect element was not satisfied where the respondents "failed to identify individuals who were not black, could have been prosecuted for the offense for which respondents were charged, but were not so prosecuted." See id. 517 U.S. at 470, 116 S.Ct. 1480. In the case at bar, Holloway has submitted superseding indictments in the cases of Tederick Jones and Anthony White as evidence that similarly situated black defendants were not selected to face the death penalty. In addition, as required by the Court, the government has submitted statistical evidence concerning all federal defendants who have been charged with witness killings and who have had their cases reviewed by the Attorney General for death penalty authorization.
a. The Cases of Tederick Jones and Anthony White
Holloway asserts that his crimes are "substantially identical" to those of Jones and White, but Jones and White have not been selected for the death penalty because they are black. While the crimes that Holloway, Jones and White are accused of may appear to be very similar on the face of the indictments in their respective cases, a careful inspection of the indictments reveals that these three cases are distinguishable. Holloway is charged with the following crimes: (1) conspiring to travel in and cause another to travel in interstate commerce with the intent to commit a murder for hire in violation of 18 U.S.C. § 1958(a); (2) causing others to travel in interstate commerce with the intent to commit a murder for hire in violation of 18 U.S.C. § 1958(a) and 18 U.S.C. § 2; and (3) killing a witness, Denise Rogers, who was scheduled to testify before the Federal Grand Jury in order to prevent her attendance at and testimony before the Grand Jury in violation of 18 U.S.C. § 1512(a)(1)(A), 18 U.S.C. § 1512(a)(1)(C) and 18 U.S.C. § 2. (Second Superseding Indictment (Doc. 52).)
Unlike Holloway, neither Jones nor White is charged with violating § 1958(a). While Holloway and White are both charged with killing individuals in order to prevent those individuals from communicating with law enforcement officers, neither Jones nor White is charged with the murder of a Federal Grand Jury Witness. Jones is accused of killing Lee Davis Strickland while Strickland was under indictment because Jewell Allen thought Strickland might snitch Allen out. White is accused of killing an informant, Marcus Willis. Holloway alone is charged with killing a witness in order to prevent her from testifying against him before the Grand Jury.
Moreover, of the three defendants, Holloway appears to be the only ringleader. According to the documents submitted to the Court by Holloway, Jewell Allen not Jones apparently orchestrated Strickland's murder. Similarly, in the White case, the indictment specifically accuses Anthony Spradley of being the organizer and leader of the underlying drug conspiracy. The indictment also indicates that Spradley confronted Willis about his status as an informant outside of White's presence, and White only confronted Willis with Spradley. In addition, White apparently met with others to discuss *440 Willis's murder. There is no indication from the indictment that White himself arranged Willis's murder. In contrast, Holloway is accused of planning and paying for the murder of Denise Rogers. There is, perhaps, no crime that strikes a greater blow against the criminal justice system than the murder for hire of a Federal Grand Jury Witness.
Although the Court recognizes that only so much information can be gleaned from indictments, Holloway has not provided the Court with any other evidence that minority defendants accused of similar crimes have been treated differently than him by DOJ. Therefore, based on the evidence before it, the Court finds that the Holloway, Jones and White cases are factually distinguishable and the indictments in the Jones and White cases do not provide evidence that similarly situated defendants of other races could have been selected to face the death penalty, but were not.
If anything, a comparison of the indictments in the Holloway, Jones and White cases demonstrates exactly why courts should defer, in most cases, to prosecutorial discretion. Courts simply cannot and should not be privy to all of the factors that comprise a decision whether to prosecute or, in this case, a decision whether to authorize a defendant to face the death penalty. As the Armstrong court recognized, courts are generally not competent to analyze the strength of a case, "`the prosecution's general deterrence value, the Government's enforcement priorities, and the case's relationship to the Government's overall enforcement plan.'" Armstrong, 517 U.S. at 465, 116 S.Ct. 1480 (quoting Wayte v. United States, 470 U.S. 598, 607, 105 S.Ct. 1524, 84 L.Ed.2d 547 (1985)). In this case, the Court is not competent to make a determination, based solely on a comparison of indictments, that some evidence exists to show that Holloway was treated differently than Jones and White because he is white and they are black. Without more, the Court is unwilling to overstep its bounds and "impair the performance of a core executive constitutional function." Id.
b. Statistics on Witness Killings
The Court also has before it statistics on the number and race of defendants who have been charged with witness killings and whose cases have been reviewed by the Attorney General, as well as statistics on the number and race of defendants authorized by the Attorney General to face the death penalty for the crime of killing a witness. (Gov.'s In Cam.Res.Stat.Inf.Fed.Cas. (Doc. 285) at 4.) These statistics are:
White Black Hispanic Other Total
No. Reviewed 5 22 1 0 28
Authorized 3 4 0 0 7
Not Authorized 2 18% 1 0 21
% Authorized 60% 18% N/A N/A
% of Total Authorized 42.8% 57% N/A N/A
The above statistics are based on cases reviewed between January 27, 1995 and August 10, 1998 where defendants were charged with violations of 18 U.S.C. § 1121, § 1512, or § 1513. Id. at 2. The data is not completely accurate because there may be cases charged under different statutes where the underlying crime was the killing of a witness. Id. The number of white defendants reviewed (5) includes Holloway and two of his co-defendants, Donnie Cable and Paul Dugger. See id. at 4. The number of white defendants authorized (3) includes Holloway and Cable. See id. The Attorney General did not authorize Dugger to face the death penalty.
At first blush, these statistics appear to be very alarming, indicating that 60% of whites reviewed have been authorized for capital prosecution while only 18% of blacks reviewed have been selected to face the death penalty. Presumably, Holloway's defense team would attempt to use this information to argue that Holloway has been treated differently than similarly situated black defendants. The statistics, however, are misleading.
*441 First, because of the small number of cases, these data are subject to chance variation. Indeed, the differences between whites and blacks are not statistically reliable, i.e., fall short of statistical significance. Second, before Holloway can use these numbers to establish a pattern of racial discrimination, he must remove himself and his co-defendants from the data. Once Holloway, Cable and Dugger are removed from the numbers, the statistics show that only two white defendants accused of witness killings have been reviewed by the Attorney General. Of the two, only one (50%) has been selected to face the death penalty. Again, while 50% appears to be a large number, the pool of white defendants is still too small for any conclusions to be drawn from the data. In particular, the numbers of white and minority defendants reviewed/authorized to face the death penalty do not show statistically reliable differences. Certainly, Holloway cannot claim that because one white defendant out of two and four black defendants out of twenty-two were selected to face the death penalty that white defendants charged with witness killings are more often selected for capital prosecution due to their race.
Even if the Court were to grant Holloway's request for discovery based on DOJ's data, it is very unlikely that Holloway could prove that race is a factor in the selection of defendants charged with witness killings to face capital prosecution. Holloway would first need to identify all of the variables considered by the Attorney General in deciding whether to authorize a defendant to face the death penalty. He would then need to conduct a sophisticated multivariate analysis to determine whether race differentiates the groups above and beyond the influence of these other variables. The sample size 25 is too small to support such analysis, however, and the results would therefore be inconclusive. Consequently, the Court finds that the statistics produced by DOJ on defendants charged with witness killings do not provide evidence that Holloway was treated differently than similarly situated minority defendants because of his race.
2. Discriminatory Intent
To establish the discriminatory intent element in support of a request for discovery on a selective prosecution claim, a defendant must produce some evidence "that the decisionmakers in his case acted with discriminatory purpose." See McCleskey v. Kemp, 481 U.S. 279, 292, 107 S.Ct. 1756, 95 L.Ed.2d 262 (1987); see also Armstrong, 517 U.S. at 468, 116 S.Ct. 1480. In other words, the defendant must offer some "evidence specific to his own case that would support an inference that racial considerations played a part." See McCleskey, 481 U.S. at 292-93, 107 S.Ct. 1756; see also Armstrong, 517 U.S. at 468, 116 S.Ct. 1480.
In McCleskey, the defendant claimed that he was sentenced to death on the basis of his race in violation of the Equal Protection Clause of the Fourteenth Amendment to the U.S. Constitution. Id. 481 U.S. at 286, 107 S.Ct. 1756. As proof of his claim, the defendant submitted a sophisticated statistical report the Baldus study which showed a disparity in the imposition of the death penalty in Georgia based on the murder victim's race and the defendant's race. Id. The Supreme Court held that the defendant could not establish a violation of the Equal Protection Clause because he offered no evidence specific to his own case that would prove that racial considerations played a part in his sentence. Id. 481 U.S. at 292-93, 107 S.Ct. 1756. The Baldus study, by itself, was not sufficient to support an inference that the defendant's sentence rested on purposeful discrimination. Id. 481 U.S. at 293, 107 S.Ct. 1756.
Thus, to establish discriminatory intent under Armstrong and McCleskey, Holloway must produce some evidence tending to show that the Attorney General of the United States acted with discriminatory purpose when she selected him to face the death penalty. The evidence must be specific to his own case and must support an inference that racial considerations played a part in his selection for capital prosecution. Holloway has failed to make this showing. He has not submitted any evidence of discriminatory intent that is specific to his own case. Instead, he has submitted superseding indictments *442 from two other cases, an affidavit by Kevin McNally of the Resource Counsel Project, and general statistics from DOJ. None of this evidence pertains specifically to Holloway's case. See United States v. Roman, 931 F.Supp. 960, 964, 967 (D.R.I.1996) (denying a motion to compel the government to disclose racial information in all potential federal death penalty prosecutions and finding, in part, that the defendant did not establish the discriminatory intent prong because he relied solely on an affidavit by Kevin McNally of the Resource Counsel Project and offered "no evidence specific to his own case that would support the inference that race played a part in his prosecution" (citing McCleskey, 481 U.S. at 292-93, 107 S.Ct. 1756)).
Moreover, most of the information submitted by Holloway is statistical in nature. Under McCleskey, general statistics, without more, are insufficient to satisfy the discriminatory intent element. See McCleskey, 481 U.S. at 292-93, 107 S.Ct. 1756; United States v. Walker, 910 F.Supp. 837, 859-60 (N.D.N.Y.1995) (denying defendants' request for discovery from DOJ disclosing that they were selected for capital prosecution on the basis of their race and stating that "the Court looks to McCleskey when holding that mere statistics, as presented here, are insufficient to satisfy the threshold requirements of the [discriminatory intent] element of defendants' equal protection claim"); see also United States v. Feliciano, 998 F.Supp. 166, 173-74 (D.Conn.1998) (denying defendants' request for discovery of information from the government tending to show that minorities are unfairly singled out for the death penalty where the information was allegedly to be used as mitigation evidence but the defendants were really seeking evidence of selective prosecution and did not meet "their initial burden of establishing entitlement to this information under Armstrong"). But see Bradley, 880 F.Supp. at 280-81 (finding that a showing of statistical disparity satisfied the discriminatory intent element of a request for discovery on a selective prosecution claim because "McCleskey did not address the significance of disparate impact [in] the context of a discovery request" and discovery requests are examined under a more lax standard). Because Holloway has not produced any evidence tending to show the existence of discriminatory intent, his motion for discovery of information disclosing racial discrimination in the decision by DOJ selecting him to face the death penalty is denied.
B. The Defendant's Motion to Dismiss the Government's Request for the Death Penalty
As noted above, prosecutors enjoy broad discretion to enforce the criminal laws; however, their discretion is constrained by the U.S. Constitution. Armstrong, 517 U.S. at 464, 116 S.Ct. 1480. To overcome the presumption that a prosecutor has not engaged in selective prosecution on the basis of race, a defendant must present "clear evidence" of both discriminatory effect and discriminatory intent. Id. 517 U.S. at 465, 116 S.Ct. 1480. Thus, to establish a prima facie case of selective prosecution, a defendant must make a stronger showing ("clear evidence") than is necessary to obtain discovery in support of a selective prosecution claim ("some evidence"). In the case at bar, as demonstrated above, Holloway has failed to present even "some evidence" tending to show the existence of discriminatory effect and discriminatory intent in DOJ's selection of him to face the death penalty. Therefore, he has necessarily failed to produce the clear evidence of discriminatory effect and discriminatory intent that is required to prove a claim of selective prosecution. Accordingly, Holloway's motion to dismiss the government's request for the death penalty because it is arbitrary, capricious and motivated, in part, by the defendant's race is denied.
III. Conclusion
For the reasons stated above, the defendant's motion for discovery from DOJ and the defendant's motion to dismiss the government's request for the death penalty are denied. An appropriate order will enter.
ORDER
Before the Court are (1) the defendant's motion for discovery of information disclosing racial discrimination in the decision by the *443 Department of Justice selecting the defendant to face the death penalty and (2) the defendant's supplemental submission of evidence and motion to dismiss the government's request for the death penalty because it is arbitrary, capricious and motivated, in part, by the defendant's race. For the reasons stated in the accompanying memorandum, the defendant's motions are hereby DENIED.
It is so ORDERED.
NOTES
[1] These statistics were also produced to this Court by the government under seal. (Doc. 285). The Court has since unsealed these records. (Doc. 369.) | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2539611/ | 718 F.Supp.2d 795 (2010)
PIC GROUP, INC., Plaintiff
v.
LANDCOAST INSULATION, INC. and Zurich American Insurance Co., Defendants.
Civil Action No. 1:09-cv-662-KS-MTP.
United States District Court, S.D. Mississippi, Southern Division.
September 1, 2010.
*796 Allen J. Krouse-PHV, III, Andrew M. Maestri-PHV, Carolyn B. Hennesy-PHV, David P. Curtis, Frilot, LLC, New Orleans, LA, for Plaintiff.
David Charles Goff, Deutsch, Kerrigan & Stiles, LLP, Walter W. Dukes, Matthew M. Williams, Dukes, Dukes, Keating & Faneca, PA, Gulfport, MS, Edward J. Currie, Jr. Joseph W. Gill, Michael F. Myers, William H. Creel, Jr., Currie, Johnson, Griffin, Gaines & Myers, Jackson, MS, for Defendants.
MEMORANDUM OPINION AND ORDER
KEITH STARRETT, District Judge.
This matter is before the Court on a Motion for Partial Summary Judgment [Doc. #156] (May 18, 2010), filed on behalf of Defendant LandCoast Insulation, Inc. The court, having reviewed the motion, the responses, the pleadings and exhibits on file and being otherwise fully advised in the premises, finds as follows:
I. FACTS
PIC Group, Inc. ("PIC") contracted LandCoast Insulation, Inc. ("LCI") to install scaffolding at the Mississippi Power Plant Daniel in Escatawpa, Mississippi. The scaffolding collapsed on November 4, 2008, injuring six LCI employees and killing one. PIC seeks a declaratory judgment under 28 U.S.C. § 2201 that LCI is required to defend and indemnify PIC under the terms of their contract. PIC also raises negligence, breach of contract, and bad faith claims against LCI and seeks compensatory and punitive damages. The only issue presently before the Court is a narrow one: whether LCI's contractual obligation to indemnify PIC is unenforceable *797 because the indemnification clause is void under the applicable state law.
PIC was hired as general contractor by Mississippi Power Company ("MPC") to perform maintenance and repair on its boiler at Plant Daniel. In turn, PIC contracted with LCI on September 23, 2008, as a sub-contractor to "furnish all labor, supervision, tools, equipment, materials, supplies, and facilities and to perform such services, tasks or activities (collectively referred to as the `Work') as requested from time to time by the issuance of a ... `Purchase Order.'" Am. Compl., Ex. 2 [Doc. #93-3]. The only Purchase Order issued was executed by PIC's purchasing manager on September 23, 2008 and defined the scope of work requested for Plant Daniel. Id., Ex. 3 [Doc. #93-4]. It is this Subcontractor Agreement entered September 23, 2008, between PIC and LCI that is at issue in this motion, specifically the provisions related to choice of governing law, indemnification, insurance, and severability, which are:
16. Indemnification. Subcontractor agrees to indemnify, save harmless and, at PIC's sole option, defend PIC, Customer [MPC], their respective parents, subsidiaries, affiliates, subcontractors (other than [LCI]) and each of their respective directors, officers, employees, agents, representative, successors and assigns from and against all claims, demands, damages, costs, losses, liabilities, causes of action, suits, fines, penalties and expenses (including reasonable attorneys' fees through final appeal), whether at law, in equity, or administrative in nature, in any manner arising out of, resulting from, caused by or in connection with: (i) this Agreement or any Purchase Order, (ii) Subcontractor's [LCI's] breach of this Agreement or any Purchase Order, (iii) personal injury or death, (iv) property damage, or (v) violation of federal, state or local law, regulation, rule or ordinance pertaining to the Work.
17. Insurance. During the term of this Agreement:
(a) Workers Compensation. Subcontractor shall provide and maintain in full force and effect workers compensation insurance in each jurisdiction in which the Work is to be provided with limits required of an employer by law, and employer's liability insurance with minimum limits of $1,000,000 except as specified in the Prime Contract.
(b) Comprehensive General Liability. Subcontractor shall provide and maintain in full force and effect comprehensive general liability insurance protecting Subcontractor, PIC and Customer against liability from damages because of injuries, including death, suffered by persons other than employees of Subcontractor, damages to property and the contractual liability assumed by Subcontractor under this Agreement and any Purchase Order arising from and growing out of any products and operations of Subcontractor in connection with the performance of this Agreement or any Purchase Order. Such insurance shall have limits of liability of not less than $1,000,000 per occurrence and $2,000,000 aggregate on an occurrence form basis.
...
(d) Insurance Requirements. All insurance required under this Section 17 shall include waivers of subrogation in favor of PIC, Customer, and their respective parents, subsidiaries, affiliates, subcontractors (other than [LCI]) and each of their respective directors, officers, employees, agents, representative, successors and assigns and shall be primary with respect to any other similar insurance maintained by PIC and Customer. Such insurance, except workers *798 compensation, shall name PIC and Customer [MPC] as additional insured.
. . .
22. Governing Law. This agreement is made under and shall be construed in accordance with the laws of the State of Georgia, U.S.A., without regard to its conflicts of law provisions.
. . .
24. Severability. If any part(s) of this Agreement is deemed void or invalid by a court of competent jurisdiction, such part shall not affect the validity of the balance of the terms of this Agreement which shall remain in full force and effect.
Am. Compl., Ex. 2 [Doc. #93-3]. As a part of their amended Complaint, PIC seeks a declaration that under the terms of the Subcontractor Agreement, LCI must indemnify and defend PIC. Specifically, PIC asks the Court to declare that:
LandCoast has the duty and obligation, arising out of, resulting from, caused by or in connection with the November 4, 2008, Scaffolding Collapse accident at Plant Daniel, to indemnify, save harmless and defend PIC and its customer, MPC, from and against any and all claims, demands, damages, costs, losses, liabilities, causes of action, suits, fines, penalties, expenses, reasonable attorneys' fees through final appeal, including without limitation any and all pre-and-post litigation defense efforts including, but not limited to, engagement of experts and other third parties to catalog and perform non-destructive testing on the scaffolding material, and engagement of counsel to represent PIC and MPC in the investigation of the cause of the accident, to interviewing witnesses, and in preparation for the defense of lawsuits by the estate of the deceased employee, the allegedly injured employees and other parties.
In its motion for partial summary judgment, LCI argues that whether or not the indemnity provision is enforceable is a pure legal question, and that under state law, the indemnity provision is void and wholly unenforceable. LCI asks the Court to grant its motion and dismiss PCI's claim for a declaratory judgment on this issue.
II. STANDARD OF REVIEW
Summary judgment is warranted if "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." FED.R.CIV.P. 56(c)(2); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). To support a motion for summary judgment, "the moving party ... [has] the burden of showing the absence of a genuine issue as to any material fact." Burleson v. Tex. Dept. of Criminal Justice, 393 F.3d 577, 589 (5th Cir.2004). Material facts are those that "could affect the outcome of the action." Weeks Marine, Inc. v. Fireman's Fund Ins. Co., 340 F.3d 233, 235 (5th Cir.2003) (internal citations omitted). Disputes about material facts are genuine "if the evidence is such that a reasonable jury could return a verdict for the non-moving party" on that issue. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
In evaluating a motion for summary judgment, the court views all evidence "in the light most favorable to the non-moving party" and "draw[s] all reasonable inferences in its favor." Breen v. Texas A&M Univ., 485 F.3d 325, 331 (5th Cir.2007). If the movant satisfies its initial burden, then the burden shifts back to the nonmoving party to produce evidence indicating that a genuine issue of material fact exists for each essential element of its case. Rivera v. Houston Indep. Sch. Dist., 349 F.3d 244, 246-47 (5th Cir.2003). The nonmovant is *799 not entitled to merely rest on his pleadings, but must set forth "specific facts showing there is a genuine issue for trial." DIRECTV, Inc. v. Robson, 420 F.3d 532, 536 (5th Cir.2005). If the nonmovant responds and still "no reasonable juror could find for the nonmovant, summary judgment will be granted." Caboni v. General Motors Corp., 278 F.3d 448, 451 (5th Cir. 2002).
III. APPLICATION
A. Choice of Law
PIC argues that LCI admitted in its answer that Georgia law applies to the contract, and that they should be judicially estopped from taking the contrary position that public policy demands the application of Mississippi law. Paragraph 11 of PIC's amended complaint stated:
11
The PIC-LandCoast Subcontract is governed by Georgia law and provides:
22. Governing Law. This agreement is made under and shall be construed in accordance with the laws of the State of Georgia, U.S.A., without regard to its conflict of law provisions.
See Ex. 2 at pg. 7, ¶ 22.
Am. Compl. ¶ 11 [Doc. #93]. In answer, LCI stated, "Admitted." In Paragraph 96 of its amended complaint PIC stated, "The PIC-LandCoast Subcontract is governed by Georgia law" to which LCI answered, "Admitted. LandCoast reserves the right to supplement and/or amend its Answer to Paragraph 97 of the Amended Complaint." Am. Answer ¶ 96 [Doc. #100]. In Paragraph 97 PIC stated, "The PIC-Land-Coast Subcontract is not governed by Mississippi law" to which LCI answered, "Upon information and belief, the allegations of Paragraph 97 of the Amended Complaint admitted. LandCoast reserves the right to supplement and/or amend its Answer to Paragraph 97 of the Amended Complaint." Id. ¶ 97.
Admissions serve to narrow the issues in the trial, and under the common law doctrine of judicial estoppel, "a party who has assumed one position in his pleadings may be estopped from assuming an inconsistent position." Brandon v. Interfirst Corp., 858 F.2d 266, 268 (5th Cir. 1988). While the answer to Paragraph 11 was an unequivocal admission, the other two answers addressing the paragraphs that are more singularly focused on which states' laws apply are less so. While the admission that Georgia law applies may weigh in favor of PIC's position, the Court need not decide whether the admissions are conclusive and bar the Court's consideration of the relevant choice of law rules; the end result is the same when Mississippi's choice of law rules are applied.
"A federal court sitting in diversity follows the choice of law rules of the state in which it sits." Sorrels Steel Co., Inc. v. Great Southwest Corp., 906 F.2d 158, 167 (5th Cir.1990) (citing FMC Finance Corp. v. Murphree, 632 F.2d 413, 418 (5th Cir. 1980)). In the absence of law directly on point, Mississippi courts have approvingly cited the Restatement (Second) of Conflicts of Laws (1971). Id. (citing Boardman v. United Servs. Auto. Ass'n, 470 So.2d 1024, 1032-34 (Miss. 1985)). Section 187(2) of the Restatement states:
The law of the state chosen by the parties to govern their contractual rights and duties will be applied, even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue, unless either
(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or
(b) application of the law of the chosen state would be contrary to a fundamental *800 policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.
RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 187(2) (1971). The first exception to the application of the state's law selected by contract is a lax one. "[A] foreign law which has been chosen by the parties in the spirit of adventure or to provide mental exercise for the judge" will not provide a sufficient basis for choosing the law, but the selection will be deemed reasonable if, for example, the state chosen is "where one of the parties is domiciled or has his principal place of business." Id. § 187 cmt. f. Here, the basis for choosing Georgia law is reasonable: PIC is a Georgia corporation with its principal place of business in Marietta, Georgia.
Nor does the Court find that application of Georgia law would be contrary to the fundamental Mississippi policy that a contractor may not require a subcontractor to indemnify and defend the contractor's sole negligence. Both Mississippi and Georgia prohibit indemnification in this situation. The states obviously have different laws, and, even if the relevant statutes were identical, each state would have its own case law interpreting the bounds of the laws.[1] The Restatement makes clear, however, that "[t]he forum will not refrain from applying the chosen law merely because this would lead to a different result than would be obtained under the local law of the state of the otherwise applicable law." Id. § 187 cmt. g. Tellingly, the Mississippi and Georgia statutes and the public policies behind them are actually very similar. In its own memorandum brief, LCI admits: "This [Georgia] public policy is codified in a very similar anti-indemnification *801 statute as the one in Mississippi, O.C.G.A. § 13-8-2(b)." Def.'s Mem. Br. at 13 [Doc. #157]. In sum, the Georgia anti-indemnity law is in line with, and not contrary to, Mississippi's policy prohibiting a contractor from being indemnified for his own negligence in a construction contract. Finding that there is no real conflict between the laws of the two states, the Court will uphold the application of Georgia law as chosen by the Subcontractor Agreement, at least for the claim at issue in the present motion.
B. The Enforceability of the PIC-LandCoast Subcontract Indemnity Provision
The Court agrees that the issue whether the indemnification is void is a question of law and is therefore ripe despite the fact that discovery is not complete. PIC argues that the Court should make a factual determination regarding whether PIC could have been solely negligent in this situation before deciding if PIC is seeking indemnity for its own negligence. It cites OSHA violations against LCI to show that LCI was at least in part negligent and therefore, PIC is not seeking indemnification for solely its own negligence. Generally, contracts against public policy are deemed "illegal" and are void ab initio. See 1 SAMUEL WILLISTON & RICHARD A. LORD, A TREATISE ON THE LAW OF CONTRACTS § 1:20 (4th ed.1990 & Supp.2004). Specifically, many courts have determined that an indemnity provision is void based on its plain language and the scope of the indemnification attempted by the parties with absolutely no regard for the factual determination of who was liable for the injury or damage at issue and to what extent. See, e.g., National Candy Wholesalers, Inc. v. Chipurnoi, 180 Ga.App. 664, 666, 350 S.E.2d 303, 306 (1986) (finding exculpatory clause covering "any claim" void and unenforceable without regard to actual fault); McAbee Constr. Co. v. Ga. Kraft Co., 178 Ga.App. 496, 496, 343 S.E.2d 513 (1986) (construing indemnity and insurance clauses in construction contract without determining fault). PIC cites no cases to the contrary. The issue is whether the indemnity provision violates public policy by its plain language, not whether the application of the provision under these circumstances violates public policy.
1. The Scope and Validity of the Indemnity Clause
Contracts of indemnification are to be strictly construed against the indemnitee. Foster v. Nix, 173 Ga.App. 720, 723, 327 S.E.2d 833 (1985). However, "[t]he courts must exercise extreme caution in declaring a contract void as against public policy and should do so only in cases free from doubt." RSN Props., Inc. v. Engineering Consulting Servs., Ltd., 301 Ga. App. 52, 686 S.E.2d 853, 854 (2009) (quoting Emory Univ. v. Porubiansky, 248 Ga. 391, 282 S.E.2d 903 (1981)). With that said, the Georgia courts have recently held indemnity clauses unenforceable when they use broad language such as "any claims" that could necessarily include cases involving the sole negligence of the indemnitee and have refused to read them only to require indemnification for losses due to combined negligence or that or solely the indemnitor. See, e.g. Frazer v. City of Albany, 245 Ga. 399, 401-02, 265 S.E.2d 581 (1980) (entire provision void and unenforceable because "all claims" language could include indemnity for indemnitee's sole negligence); Nat. Candy Wholesalers v. Chipurnoi, Inc., 180 Ga.App. 664, 350 S.E.2d 303 (1986) (same). This more recent approach was contrary to earlier cases from the Georgia Court of Appeals, but has been followed by that court in more recent cases.[2]See World Championship *802 Wrestling Inc. v. City of Macon, 229 Ga.App. 248, 493 S.E.2d 629 (1997). Although the Georgia courts have voided clauses that were broadly written in their entirety, some cases indicate that separate sections in an indemnity provision can be severed. In one case, for instance the Georgia Court of Appeals held that a provision is not "nullified by any public policy failures of the second" when "they deal with separate, distinct and cumulative obligations." Hartline-Thomas Inc. v. Arthur Pew Constr. Co., 151 Ga.App. 598, 600-601, 260 S.E.2d 744, 745 (Ga.App.1979); see also Camp Concrete Prods. v. Cent. of Ga. Ry. Co., 134 Ga.App. 537, 215 S.E.2d 299 (1975) (voiding one provision of three that dealt with indemnity for construction aspects but finding the other two not dealing with construction severable and otherwise enforceable).
LCI would have the court read the indemnity clause as one purporting to cover "all claims" which would necessarily include claims arising from the alleged sole negligence of PIC, rendering the indemnity clause entirely void and unenforceable under the law. On the other hand, PIC urges that the broad "all claims" language is limited by the five numbered circumstances that follow: "... arising out of, resulting from, caused by or in connection with: (i) this Agreement or any Purchase Order, (ii) Subcontractor's [LCI's] breach of this Agreement or any Purchase Order, (iii) personal injury or death, (iv) property damage, or (v) violation of federal, state or local law, regulation, rule or ordinance pertaining to the Work." The Court agrees with PIC. First, the Subcontractor Agreement specifically contains a severability clause. Second, the clause creates "separate, distinct and cumulative obligations which apply in five (5) particular circumstances." Third, considering each circumstance separately is consistent with Georgia's policy to uphold arms-length negotiations of two sophisticated parties and to avoid declaring a provision void as against public policy without the use of extreme caution. The Court, then, will consider each indemnity circumstance separately.
Subsection (ii) of the indemnification clause is not contrary to public policy as codified in O.C.G.A. § 13-8-2(b) and is therefore enforceable. Looking at this separate obligation independently, LCI is required to "indemnify, save harmless and, at PIC's sole option, defend PIC" against all claims arising out of "(ii) Sub-contractor's breach of this Agreement or any Purchase Order." As PIC argued in its brief, it is impossible for PIC to be solely responsible for LCI's breach, so this clause by its plain language cannot be interpreted *803 as one party requiring another to indemnify it for its own negligence, and it does not offend public policy. PIC argues that subsection (v) could also only cover LCI's negligence, and not the sole negligence of PIC. In its briefing, PIC took the liberty to quote the provision to require indemnification for all claims arising from LCI's violation of laws and regulations, which is not a limitation that appears in the express terms of the contract. It is theoretically possible for PIC to be in "violation of federal, state or local law, regulation, rule or ordinance pertaining to the Work." Unlike the separate obligation in subsection (ii), the contract does not modify the action as being that of the subcontractor only. Therefore, this subsection, along with subsections (i), (iii), and (iv), for the same reason, can be interpreted as requiring LCI to indemnify PIC for its sole negligence, and would be void under O.C.G.A. § 13-8-2(b). At this point, the Court must turn to the question of whether the insurance provision, when read in conjunction with the indemnification provision, takes the indemnification clause outside the public policy concerns codified in O.C.G.A. § 13-8-2(b), by shifting the risk of loss, whether caused solely or in part by either party, to an insurance policy.
2. The Effect of the Insurance Clause
While § 13-8-2(b) holds that indemnity clauses shifting liability for one party's sole negligence to another party are void and unenforceable, the "subsection shall not ... apply to any requirement that one party to the contract purchase a project specific insurance policy, including an owner's or contractor's protective insurance, builder's risk insurance, installation coverage, project management protective liability insurance, an owner controlled insurance policy, or a contractor controlled insurance policy." O.C.G.A. § 13-8-2(b). Under O.C.G.A. § 13-8-2(b), an indemnity clause does not violate public policy, if, when construed together with the insurance clause, the intent of the parties to the contract was exculpation and not indemnification. McAbee, 178 Ga.App. 496, 498, 343 S.E.2d 513 (1986) (citing Tuxedo Plumbing & Heating Co., Inc. v. Lie-Nielsen, 245 Ga. 27, 28-29, 262 S.E.2d 794 (1980)). In other words, an indemnity provision that would otherwise violate § 13-8-2 will be held enforceable when "the insurance clause shifts the risk of loss to the insurance company regardless of which party is at fault." Id.
LCI first argues that the statutory amendments in 2007 changed the law so that the shifting of liability to an insurance company only saved the indemnity clause when the contract required "project specific insurance policy." LCI argues that the insurance policy required by the contract in this case was not project specific, because the policy it was required to purchase and maintain needed to cover "the performance of this Agreement or any Purchase order ...."
The Court finds little merit to this argument. The contract specifically covered one particular project: namely, procuring a design and installing the scaffolding at the Plant Daniel. At the time of the accident only one purchase order had been made. This purchase order was made on the same day as the Subcontractor Agreement and defined the scope of the work at Plant Daniel. There is no evidence that either party intended this Subcontractor Agreement to cover any work other than the design and installation for the scaffolding at Plant Daniel.
The more important question, then, becomes whether the insurance policy that LCI was obligated to purchase and maintain covered the liability that LCI assumed under the indemnification clause. Here, the insurance provision specifically shifts the risk to the insurance policy protecting Subcontractor, PIC and Customer against *804 liability with one major exception-that is, damages because of injuries, including death, suffered by employees of Subcontractor. This particular subsection of the indemnity clause states that LCI will indemnify PIC for all claims arising from personal injury or death without regard to who is liable, even if PIC is 100% liable. The insurance clause requires LCI to get a policy that protects both LCI, PIC, and MPC against "liability from damages because of injuries, including death, suffered by persons other than employees of Subcontractor." In other words, the indemnity clause shifts more liability to LCI than LCI is required to insure against.
On the other hand, the insurance provision requires LCI to obtain insurance covering "contractual liability assumed by Subcontractor under this Agreement and any Purchase Order" which arguably could cover the liability LCI assumes under the indemnification clause. See Federal Paper Board Co., Inc. v. Harbert-Yeargin, Inc., 53 F.Supp.2d 1361, 1373-76 (N.D.Ga.1999) (discussing various interpretations of "contractual liability"). Neither party addressed this limitation in the insurance clause in their briefs, but at first glance, the law in Georgia seems to require all the liability to shift to the insurer in order to escape the harsh consequences of O.C.G.A. § 13-8-2(b). The Court will allow the parties to provide additional briefing on this matter. Each party is allowed twenty (20) days to file additional briefing up to fifteen (15) pages on this limited issue. Following the submission of the parties' supplemental briefing, the Court will set a date for oral arguments as requested by PIC.
IV. CONCLUSION
In conclusion, the Court finds that Georgia law applies to the interpretation of the contract consistent with the choice of law provision in the PIC-LCI Sub-Contractor's Agreement. Subsection (ii) of the indemnity clause does not violate Georgia public policy as codified in O.C.G.A. § 13-8-2(b) and is enforceable. Sub-sections (i), (iii), (iv), and (v) are broadly drafted and include circumstances when PIC could be solely at fault which violates Georgia public policy as codified in O.C.G.A. § 13-8-2(b). However, the insurance clause, read in conjunction with the indemnity clause seems to shift the risk to a project specific policy no matter which party is partially or solely at fault. However the insurance policy is limited in that it covers "liability from damages because of injuries, including death, suffered by persons other than employees of Subcontractor." The parties did not brief the issue whether this limitation on insurance affects the application of O.C.G.A. § 13-8-2(b) or whether the provision is enforceable because the insurance policy covers all contractual liability assumed by the parties. Since the injured LCI employees have filed suit, Galvan, et. al., v. Mississippi Power Company, et. al., USDC, S.D. Miss. No, 1:10cv00159-LG-RHW, the Court will allow the parties twenty (20) days and fifteen (15) additional pages to brief this very limited issue. Following the submission of the additional briefing, oral arguments will be set.
The Court need not address indemnity under the common law as LCI's partial motion narrowly sought relief as to the enforceability of the indemnification clause in the Subcontractor's Agreement.
IT IS THEREFORE ORDERED AND ADJUDGED that LCI's request for a declaratory judgment finding the indemnity provisions void and unenforceable is denied at this time. The Motion for Partial Summary Judgment [Doc. #156] filed on behalf of LandCoast Insulation, Inc., is hereby denied.
NOTES
[1] Mississippi statute provides:
With respect to all public or private contracts or agreements, for the construction, alteration, repair or maintenance of buildings, structures, highway bridges, viaducts, water, sewer or gas distribution systems, or other work dealing with construction, or for any moving, demolition or excavation connected therewith, every covenant, promise and/or agreement contained therein to indemnify or hold harmless another person from that person's own negligence is void as against public policy and wholly unenforceable.
This section does not apply to construction bonds or insurance contracts or agreements.
MISS.CODE ANN. § 31-5-41 (2008). Georgia's comparable statute is O.C.G.A. § 13-8-2. It provides:
A covenant, promise, agreement, or understanding in or in connection with or collateral to a contract or agreement relative to the construction, alteration, repair, or maintenance of a building structure, appurtenances, and appliances, including moving, demolition, and excavating connected therewith, purporting to require that one party to such contract or agreement shall indemnify, hold harmless, insure, or defend the other party to the contract or other named indemnitee, including its, his, or her officers, agents, or employees, against liability or claims for damages, losses, or expenses, including attorney fees, arising out of bodily injury to persons, death, or damage to property caused by or resulting from the sole negligence of the indemnitee, or its, his, or her officers, agents, or employees, is against public policy and void and unenforceable. This subsection shall not affect any obligation under workers' compensation or coverage or insurance specifically relating to workers' compensation, nor shall this subsection apply to any requirement that one party to the contract purchase a project specific insurance policy, including an owner's or contractor's protective insurance, builder's risk insurance, installation coverage, project management protective liability insurance, an owner controlled insurance policy, or a contractor controlled insurance policy.
O.C.G.A. § 13-8-2(b)(2007).
[2] The United States District Court in the Northern District of Georgia has criticized this approach to construction of indemnity clauses. See Federal Paper Board Co., Inc. v. Harbert-Yeargin, Inc., 53 F.Supp.2d 1361, 1372 n. 17 (N.D.Ga.1999). The Court in this case noted:
The likely winning line invalidates parties' efforts to agree to an arms-length indemnification provision, merely because the provision could be interpreted broadly to create indemnification beyond what public policy recognizes, even though the provision also triggers an indemnity obligation consistent with public policy. Clearly, it is simple enough for a court to strike or refuse to enforce the former provision. Refusal to do so results in a refusal to enforce that part of the parties' agreement which clearly inhabits a safe public policy zone. Moreover, such a determination, particularly when applied to relatively unsophisticated parties operating without the advice of sound counsel, carries a "gotcha," gamesman-like quality that is at odds with a common-sense approach to legal interpretation that shall be the goal of a national legal system.
Id. This view is in line with the position of PIC which would have the Court refuse to invalidate it based on the facts from which the Court could infer that LCI was at least in part, negligent. However, the court is bound by Georgia case law on the subject. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2540308/ | 371 U.S. 185 (1962)
BUCKLES ET AL.
v.
PEOPLES GAS LIGHT & COKE CO.
No. 442.
Supreme Court of United States.
Decided December 3, 1962.
APPEAL FROM THE SUPREME COURT OF ILLINOIS.
Stanley B. Balbach for appellants.
Clarence H. Ross for appellee.
PER CURIAM.
The motion to dismiss is granted and the appeal is dismissed. Treating the papers whereon the appeal was taken as a petition for writ of certiorari, certiorari is denied. | 01-03-2023 | 10-30-2013 |
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